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Reports that terror threat level will be lowered, lifts stocks

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The major indexes jumped from relatively unchanged levels and now trade at their best levels of the session after news wires reported that the U.S. terrorism threat level might be lowered to "code yellow" from the current "code orange" before the end of today's trading session.

The news has seen the Dow Industrials (INDU) 7,911 +1.33% jump 100-points since the news was released, while the broader S&P 500 Index (SPX.X) 841.77 +1.71% shows a gain of 14.2 points after a quick reversal from the 830 level. The tech-heavy NASDAQ-100 Index (NDX.X) 1,000 +2.62% has seen a 25-point surge.

The news also brought a quick bout of selling in Treasuries, which reversed some early morning buying that had started to develop. The benchmark 10-year YIELD ($TNX.X) 3.793% rose sharply on an intra-day basis after a morning test of yesterday's low YIELD levels of 3.75%.

Sector action which had been mixed after more economic data released this morning has turned broadly bullish with sector winners having the Combined Telecom Index (IXTCX) 115.89 +3.78% and Networking Index (NWX.X) 143.24 +3.02% showing strength.

New home sales for January were released at 10:00 AM EST. January sales fell 15.1% in January to a 914,000 annual rate, which was well below economist's forecast for 1,050,000 annual rate. Economists are saying it would be a "mistake" to make too much out of one-month's decline as new home sales can be extremely volatile and colder winter weather in January may have kept buyers huddled inside. The "weather" excuse may be not be entirely accurate as recently released existing home sales for January were strong. The Dow Jones Home Construction Index (DJUSHB) 318.93 -0.84% is one of only three sectors currently trading in the red, with the Gold/Silver Index (XAU.X) 70.34 -1.2% this morning's worst performing sector.

The current market response to the potential lower of the terrorism threat level certainly shows how much "fear" of war has been placed in the markets in recent weeks, as stocks bid despite some weaker than expected economic data from jobless claims and new home sales.

A quick look of the DAILY pivot matrix shows all indexes covered having traded their DAILY R1 levels of resistance. Only the 10- year YIELD ($TNX.X), which so far has seen a session high YIELD of 3.802% fell just shy of its 3.804% DAILY R1 level.

In last night's Index Trader Wrap, there was correlative resistance points found in the Dow at 7,890 and with both of these levels having been violated, I'm now looking for intra-day resistance to roll to the S&P 500 Index (SPX.X) at 855. Intra- day support now should be firm at the DAILY pivots.

Jeff Bailey

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