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War News Affects Investor Sentiment

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U.S. futures react this morning to weekend developments in the Iraq war. Those developments include the news of at least 30 U.S. and U.K. troops killed, 14 captured or missing, and many more wounded. An Apache helicopter has gone down south of Baghdad, another may have gone down, a U.S. missile may have downed a U.K. plane, and a U.S. soldier apparently was responsible for a grenade attack on fellow soldiers. This morning, coalition troops prepare to overcome fierce resistance near the southern city of Nasiriyah.

Iraqi television aired footage of captured, wounded, and killed U.S. troops, and also aired an address by Saddam Hussein. The Iraqi leader mentioned specific sites of battles and the Iraqi military men leading those battles. Pentagon observers noted the abrupt switches in camera angles, indicated that the address was taped and had been edited. Those observers also commented that the likely sites of the first battles would have been known before the war opened, and they also comment on Hussein's praise of an Iraqi commander who surrendered in one of the first battles of the war. These observations leave open the possibility that the address was taped before the war began.

While President Bush warned that the war might be longer and more difficult than some were anticipating, these accumulated events weigh on investor psychology. The FTSE 100, CAC 40, and DAX suffer losses in the 3-4% range this morning. The U.S. dollar is down against the euro. Fears of a longer-than-anticipated war, news of oil pipelines on fire near Nasiriyah, and reports of civil unrest in Nigeria impacted crude oil prices this morning, driving them off the four-month lows reached last week. Gold is up.

The overnight plummet in U.S. futures predicts a lower open for the U.S. markets. As of this writing, the S&P 500 futures were down 15.40 points to 877.80, NDX futures had fallen 25 points to 1069, and the DOW futures had plunged 150 points to 8330. That's likely to change by the time this email is posted, but if the markets open at these levels, the opening will retrace more than 50% of Friday's gains. Many market participants have waited to see how markets will perform on a pullback, and today's activity may give them a needed opportunity to measure the strength of the rally. Investor sentiment may be fragile, as those unloading stock bought at last week's highs will be met by last week's stunned bears hoping to unwind bearish positions at smaller losses and would-be bulls resolved to get in on the rally before it's too late.

For these reasons, trading may prove treacherous again today, but market participants might pay particular attention to the simple 200-dma's breached to the upside last week. As futures currently stand, it looks as if both the Dow and the SPX will open below their respective 8507.16 and 893 simple 200-dma's, as well as below their daily pivots, and perhaps even below daily S1's in some cases. Expect an attempt to reclaim those levels. A failure to do so will impact investor psychology and might lead to a deeper retracement of the rally rather than consolidation.

The OEX simple 200-dma is 450, but it is unclear at this time whether the OEX will open above or below that level. The NDX is unlikely to open below its 992.96 simple 200-dma, so watch its exponential 200-dma at 1069.93 instead. For those who follow pivot analysis, daily pivots are 8444.70 on the Dow, 889.20 on the SPX, 452.80 on the OEX, and 1090.20 on the NDX. Daily oscillators look toppy, but haven't rolled. Bearish formations on hourly charts have been predicting a retracement, but these elements of technical analysis have not been the best predictors of market action during recent trading and may not be good predictors as long as war developments drive investor sentiment.

Company-specific news that might be of importance to traders planning the day's trades includes expected earnings releases from Unilever (UL) and Walgreens (WAG). Market participants might also note information released on Friday, some of it after the bell. On Friday, a judge ordered Altria Group (MO) to pay $10.1 billion on claims that the company had deceived smokers into believing that light cigarettes were safer than regular cigarettes. $3 billion of that settlement was for punitive damages. MO closed up $.75 on Friday on volume that was slightly lower than 30-day average volume, although Friday was a big-volume day for the markets.

Sears, Roebuck & Co. (S) announced that it would fire 300-400 employees. With sales falling, the move is intended to improve profit. Sears had gained $1.90 in Friday's trading, as the retail sector rebounded in hopes that a quick resolution in the Iraq war would send consumers back into the marketplace. That hope may be dashed today.

Fair value for the S&P 500 today is -$0.89. That price will not change during the session. HL Camp & Company set their computers for program buying at $0.66 and for program selling at -$2.18. Fair value for the NDX today is $3.28. The company has set their computers for program buying at $7.44 and program selling at -$0.04.

Linda Piazza

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