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Geopolitical news has stocks modestly lower

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The major indexes remain modestly lower with the Dow Industrials (INDU) 7,810 -0.4% off just 33 points after a brief dip below the 7,800 earlier in the session, while the broader S&P 500 Index (SPX.X) 823.73 -0.65% finds a 5-point loss as geopolitical news royals today's trade.

Investors have been inundated with geopolitical news throughout the session and news has been interpreted as "good news" and "bad news" as it has been released.

Stocks traded their session highs earlier in the morning on "rumor" that the French government might be getting ready to announce that it will back the U.S. policy that some type of intervention, other than weapons inspections, should eventually take place in regards to Iraq. That news brought some buyers into equities for a brief period of time, sending the Dow Industrials to their best levels of the session at 7,854, but just shy of our DAILY pivot level of 7,878.40 from our pivot matrix. Technology stocks did get a boost back to their daily pivots as depicted by both the NASDAQ-100 Index (NDX.X) 964.63 -0.71% and NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $23.99 -0.66%.

However, the early gains were quickly reversed on news that the International Atomic Energy Agency reported to the U.N. that North Korea was in violations of nuclear weapons policies. This news was viewed rather bearish by traders as nuclear weapons violations could lead the U.N. to initiate further economic sanctions against North Korea. In recent days, North Korea has stated than any economic sanctions against the country would be viewed as an "act of war."

Later in the morning, stocks traded their session lows after media outlets reported that U.S. intelligence stated that North Korea has an untested nuclear missile capable of reaching the western United States. While this news may be "new" to some (like me), nuclear weapons experts said this isn't necessarily new news as North Korea has been thought to have had this capability for nearly two years. Emphasis was also given to the word "untested."

While equities trade near their lows of the session, Treasuries have moved to their highs of the day and the week. The 10-year Treasury futures (ty03h) $114'200 +0.20 are just off their session high of $114'230 with the benchmark bond's YIELD ($TNX.XY) falling now to 3.914%. Action here continues to show a rather "defensive" posture from market participants as they seek out the perceived safety of Treasuries.

Gold stocks as depicted by the Gold/Silver Index (XAU.X) 72.21 -3.15% are under some selling pressure. This group has also been viewed as a "defensive" sector. Traders note that weakness found in the group may be attributed to this morning's "rumor" out of France. France is highly dependent on Iraqi oil, and some strategists say that France's eventual concession to U.S. strategy with Iraq may have France weighing the risk of being "out of the loop" should U.S.-lead forces take control of Iraqi oil and France have little input as to strategy or new policy should Iraq's President Saddam Hussein be unseated and a new government, which controls oil production and export, be put in place.

This action in gold stocks may be viewed as longer-term bullish for the major equity markets under the thought of a quick resolution to geopolitical events with Iraq. My thoughts here are that some traders/investors of gold stocks might be viewing today's "France rumor" as somewhat threatening to a "world war" that might be, or have been in play, should various countries take strong opposition in regards to how Iraq's "weapons of mass destruction" should be dealt with.

Here's a quick look at the pivot analysis matrix. Similar to that shown yesterday, I've used the color coding of green, blue and red to signify those levels still viewed as support that have not been traded, blue for those levels that have seen a trade, and red for levels still viewed as resistance that have not been traded.

Pivot Analysis Matrix

The coloring concept shown on the above matrix is that of a rather range-bound session to this point. While my analysis is that the markets would/will trade lower, subscribers can follow the various levels they desire (daily would be very short-term) and assess risk/reward in the markets against these levels. We see some rather "larger" ranges from the S2-R2 point ranges and shorter-term technical levels could see a directional break with so much uncertainty currently in the markets. Most of the uncertainty is geopolitical related in my view.

Jeff Bailey

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