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The final death throes of Saddam Hussein's regime are playing out before our eyes. As U.S. forces march into Baghdad at will, talk has already turned to postwar considerations of reconstruction and the role of the U.N. in an interim government. The stunning lack of major resistance in the Iraqi capital sent the markets gapping higher this morning. But interestingly, those initial gains have faded as the day has progressed.

5-minute chart - Dow Jones:

The steady drift lower has come in spite of multiple reports that Coalition forces have discovered chemical weapons. In one instance, Reuters said that roughly 20 medium-range missiles tipped with mustard gas and sarin were discovered near Baghdad. U.S. Central Command has not commented on those reports. There is also news that troops in Southern Iraq have uncovered barrels of sarin at an agricultural facility. Tests will be carried out to confirm that the substance is actually the outlawed nerve agent. If WMB have in fact been found, the Bush administration's decision to attack Iraq will have been largely vindicated in the court of international opinion.

As far as the market is concerned, bulls should be very weary of the lack of a follow-though following this morning's upward gap. As the war draws into its final stages there are fewer and fewer possibilities for a geo-political rally such as the one we experienced this morning. One such possibility would be the capture or death of Saddam. But with his regime collapsing around him, whether or not the dictator is still alive and/or in charge is nearly irrelevant at this point.

Technically, the Dow faces overhead resistance at the March high of 8522. This morning the index topped out just two points below that level.

Daily chart - Dow Jones:

The NASDAQ managed to take out its relative high this morning, courtesy of solid gains in the semiconductor and software groups. The SOX.X (semiconductor index) has powered ahead by 3.1% and is showing little response to this morning's sector downgrade from First Albany.

Nearly all sector indices are currently showing gains. Laggards include the gold/silver XAU.X (which typically moves lower during market rallies) and the BTK.X biotech index. Nestled among the strong-performing tech groups are the Dow Transports (TRAN). That group is benefiting from a steady decline in crude oil futures (cl03m), which reached new multi-month lows today.

Kent Barton

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