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Not So Uncertain Anymore

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After initially moving lower in reaction to the Coalition's "Shock and Awe" campaign, the three major indexes have rebounded and are now trading at intraday highs. The rally in the Dow Industrials has been nothing short of, well...awe-inspiring. Barring a sudden late-day selloff, this will mark the eighth day in a row that the index has posted a gain. That hasn't occurred in several years. Today's move has taken out the 200-dma at 8439. On the daily chart we see that the Dow is in the process of retracing its steep late-January decline. This rally also bears more than a passing resemblance to the explosive rebound from the October lows. The key difference is that the catalyst for the current uptrend is the removal of uncertainty related to the Iraq situation, whereas the October rebound was more of a short-covering rally.

One of the sectors currently outperforming the broader market is the Dow Transports. The TRAN has benefited from the recent action in crude oil futures (cl03j), which gave given back two months of gains in only seven days. The rapid decline from $38/barrel to $28/barrel ought to translate to some relief for American consumers paying upwards of $2.50 for a gallon of gas in some areas of the country. Trucking companies and other fuel- intensive businesses (UPS and FDX, for example) will also see profit margins increase as the price of oil comes down. Even the beleaguered airline index (XAL.X) is getting in on the action as it rallies off its relative lows near 26.00. In addition to cheaper jet fuel, the sector is also moving higher on speculation that the Iraqi invasion will be wrapped up in very short order. This would minimize the deleterious impact that war has on Americans' travel habits.

Equity news is certainly taking a backseat to the developments in the Middle East today, but there are nonetheless some interesting stories this afternoon. Shares of Biogen (BGEN $33.32 +0.16) have come off their intraday highs after a competing drug showed positive results in a Phase III trial. Weakness in BGEN has not prevented the BTK.X biotech index from moving to new relative highs. Showing disconcerting relative weakness is the GSO.X software index, which seems to be suffering from a rather painful hangover related to Oracle's recent earnings report. An earnings warning from Intiut (INTU $38.88 -12.01) is also pressuring the sector.

Late-breaking reports indicate that Iraq is in third-party talks to surrender. Has the remaining Iraqi leadership already been "shocked" into capitulation? That's certainly a tantalizing prospect, and the bears are clearly on the defensive. There are also reports that the Turkish government has agreed to allow U.S. overflights after an extensive debate. At this point Turkey's decision almost seems like a moot point.

My apologies for the lateness of this intraday update. I was finally able to make it into the office today after my Jeep was towed out of a four-foot snow bank, but not before doing some major shoveling. Let's hope it's another 100 years before Denver gets a blizzard of that magnitude!

Kent Barton

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