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Market Updates

Stocks Rebound on Word of Capture

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Stocks rebounded from their lows of the session with the Dow Industrials (INDU) 7,641 -0.44% now off just 35-points after a rebound from a session low of 7,562.65 to actually trade in positive territory at 7,706 amongst a rush of short-covering after reports circulated that U.S. and Pakistani forces had captured two sons of terrorist Osama Bin Laden and that forces were tracking a caravan near the Afghanistan border on suspicion that it could be concealing Osama Bin Laden.

Just after than news hit the wires, stocks rallied from their lows, but have begun drifting back lower as Chief Weapons Inspector Hans Blix begins giving his report to the U.N. Security Council.

Current trade levels along with session high lows are... INDU = 7,634 -0.51% (7,706 : 7,562), SPX = 818.84 -0.39 (826 : 811), OEX = 414.79 -0.4% (419 : 410), NDX = 976.72 -0.75% (987 : 964), QQQ = $24.29 -0.81% ($24.65 : $23.96), NYSE Comp. = 4,601 -0.52% (4,636 : 4,576), COMPX = 1,294 -0.67% (1,305 : 1,280).

From our pivot matrix (shown in each night's Index Trader Wrap) only the Dow Industrials (INDU) and Dow DIAMONDS (AMEX:DIA) $76.54 -0.42% ($77.50 : $75.08) have been able to trade their WEEKLY S2 level of support.

Treasuries have also seen a "wild" trade this morning with the 10-year YIELD ($TNX.X) 3.621% falling to a YIELD low level of 3.578% (just shy of WEEKLY S2 of 3.571%) and jerking back to as high as 3.670%. This is an extremely wide range of YIELD for this bond, and while the selling was most likely triggered by the "Bin Laden news" ties in pretty good with this morning's lows in the Dow.

For those bears that may have locked in some bearish gains at this morning's lows when our MAX weekly decline target was reached, I've suggested in this morning's market monitor at Dow Industrials (INDU) 7,662 (current levels) that they could look to establish a new partial position bearish, with a stop above this WEEK's S1 of 7,734. Then, next week, look to once again target WEEKLY S2 type of levels. For instance, a bearish trader that was holding a 1/2 bearish position at the open, that took partial gains (1/2 of the 1/2), could look to leg back in with a 1/4 positions, bringing total position back to 1/2, as profits locked in now give some cushion into next week. I would NOT look to establish a full position at this time, during the Blix testimony.

It should be noted that today's further bearish profile in the Dow Industrials in the market monitor was profiled before I was aware of the "Bin Laden news" and this type of news is why I strongly suggest that bullish and bearish traders ONLY be trading partial positions. The greater degree of volatility that I expect to continue in coming weeks, allows a trader to still make money during volatile trades like we see today, but the smaller amounts of capital exposure, allow a trader that "gets on the wrong side" during extreme volatility periods to remain calm and trade their targets.

Disclosure: I currently hold 1/4 bullish position in the Dow DIAMONDS (DIA) from Wednesday's profile in the September $80 calls.

Jeff Bailey

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