While this morning's early trade has been a little bit wild, I find it may be important for traders to take some notes in their logbooks as it relates to how "war fears" and how both bullish and bearish scenarios can be at play.
Early on, it looked as if the MARKET was reading my script from last night's Index Trader Wrap where I thought the markets would take their lead from trading in the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $24.05 -0.41%. My thinking was that the QQQ might see a bid to its DAILY pivot of $24.23, find selling and break back to the downside and have the major indexes searching out new weekly lows.
While that certainly looked to be in play when the QQQ traded an early morning high of $24.24 and slipped back to $24.07 in a 10- minute time span, a "crazy" and "unexpected" bid came into talks on rumors that France was perhaps changing its views on the situation with Iraq, and perhaps shifting more to the U.S.'s point of view that some type of military intervention may be needed in order to make sure Iraq's potential threat that it would use weapons of mass destruction to reek havoc in the Middle East is the only viable solution to the potential threats at hand.
That "rumor," which many geopolitical strategists felt would eventually have France siding with the U.S. may have had some bears playing a scenario for rising tensions among other countries that disagree with a war resolution and creating further geopolitical turmoil that might see some type of "world war" covering bearish positions and giving stocks further lift.
Then, with few levels from our pivot analysis in play, or at least no technical levels in play that I see, the major indexes swooned back to the downside.
The decline back to new session lows for the major indexes, that now has the Dow Industrials (INDU) 7,795 -0.61% lower by 48 points and the more volatile NASDAQ-100 Index (NDX.X) 967.96 - 0.37% lower by 3 points came when the International Atomic Energy Agency said it reported to the U.N. that North Korea was in violation of nuclear policies. The potential impact of this news has the market now assessing if further U.N. sanctions might be brought against North Korea. In recent days, North Korea said any type of sanctions brought against the country would be considered an "act of war."
While stocks have seen somewhat of a volatile trade early on, the geopolitical news has also had an impact on currency markets. A quick look at the U.S. Dollar Index (dx00y) 100.36 -0.02% now dips marginally in the red, after jumping to a session high of 100.63, which is a rather large move for this basket 7 major foreign currencies that are weighted against the U.S. Dollar.
Treasuries have seen some modest volatility, but not as much as equities and currencies. The 10-year March futures contract (ty03h) $114'210 +0.22% is at its best levels of the session. At the 09:30 AM EST opening for equities, a "gap higher" in the price of this futures contract was created from $114'135 to $114'200, which was filled back to the downside in the first 30- minutes of trade, but has since found buying back to its session highs. The move toward Treasuries has the benchmark bond's YIELD ($TNX.X) falling to 3.941%, and below the 4.0% level that most equity bears would like to see (in my opinion).
Still, while I view the major indexes as lower, today's action does give some credence to past commentary that traders are dealing with an "uncertain" market environment, where both bullish and bearish scenarios are at play. The best way to handle this type of uncertainty is to NOT be OVERLEVERAGED in trades on either side of the market in order to help the traders not feel "panic" when things don't go EXACTLY to plan as traders can respond rather quickly and without notice to many events that you nor I can predict.