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Industrials attempt recovery, as major indexes turn positive

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The Dow Industrials (INDU) 8,071 -0.21% have erased an earlier 143-point gain to trade down just 17 points as the NASDAQ-100 Index (NDX.X) 1,009 +0.76% now trades in positive territory as does the S&P 500 Index (SPX.X) 860 +0.19% and S&P 100 Index (OEX.X) 435 +0.21% see gains, on the heels of Iraq officials responding to last night's State of the Union address, saying that U.N. weapons inspectors along with comments dating back to the Persian Gulf War by former President Bill Clinton that Iraq was disarmed is proof enough that Iraq does not have any weapons of mass destruction.

Sector action which was broadly negative in a choppy morning trade as now turned mixed. Oil equities as depicted by the CBOE Oil Index (OIX.X) 251.86 +3.35% continue to post greater percentage gain, but early strength from the Semiconductor Index (SOX.X) 287.55 +1.91% from the 11:00 AM EST Update when the sector was just edging into positive territory has built to its best levels of the session, and helped bolster the more tech- weighted NASDAQ-100 Index (NDX.X) 1,009 +0.76% back above the 1,000 level and to its best levels of the session.

We've seen a complete "flip" in sector weakness as earlier weakness in Networking (NWX.X) 155 +0.12%, Wireless (YLS.X) 55.07 +0.16% has been reversed to marginal gains. Meanwhile, the U.S. Dollar trading a new 52-week low against a basket of major world currencies in the U.S. Dollar Index (dx00y) 99.16 -0.32% has done little to get the Gold/Silver Index (XAU.X) 77.57 -2.35% into positive territory as it now holds today's sector loser spot after trading in modestly positive territory at the opening of today's trade.

At approximately 02:15 PM EST, traders will get a decision on the Fed's interest rate policy when the FOMC concludes its 2-day meeting. Fed funds futures are relatively unchanged and currently have the market looking for no change in interest rates, with the Fed leaving the Fed funds rate at 1.25%. Many economists and Fed watchers expect the Fed comments to reaffirm its caution and willingness to bail out the economy by suggesting the balance of risks is tilted again to the downside. Others say the Fed could gives some words of encouragement to the financial markets by saying with unchanged interest rates and a neutral "balance of risks" statement, that enough positive factors such as housing and already low interest rates, will push the economy forward.

Several subscribers have asked if I have any historical data regarding how the markets traded in late 1990 and early 1991 during Operation Desert Shield. While history is not necessarily indicative of the future, I did get a historical chart of the S&P 500 Index (SPX.X), which shows the SPX picking up downside momentum after the U.S. announced Operation Desert Shield, reached its "bottom" when U.S.-lead troops amassed just prior to their offensive and began a recovery during the offensive as if to "predict" the liberation of Kuwait.

S&P 500 Index Chart - Historical look from 7/90-3/91

With President Bush seemingly focused on making sure that Iraq is indeed disarmed, a time line on the SPX may be helpful in the coming months for traders to perhaps assess risk in their account management. Accounts slated to heavily short or long will most likely experience some periods of volatility. Dynamics a somewhat different today that they were back in late 1990, which may add to volatility in the coming months.

At this time I do not have any bullish % historical data to better understand what shape the S&P 500 internals were in leading up to the above historical look. Current status today for the S&P 500 Bullish % ($BPSPX) is "bull correction" status at 49.2% bullish, or roughly 246 of the 500 stocks in the S&P 500 currently having a point and figure buy signal association with their chart.

Jeff Bailey

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