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Reversal of fortune

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Live coverage of Iraqis and U.S. troops toppling a statue of Saddam Hussein in a town square in central Baghdad is perhaps a picture many didn't envision and has helped the major indexes reverse early losses to now trade just off their highs.

The Dow Industrials (INDU) 8,346 +0.58 posts a 47-point gain as trader sentiment seemed to approve, but the major reversal from the lows came from al-Jazeer reporting that Saddam Hussein took refuge at the Russian embassy. However, those reports were quickly denied by Pentagon officials, and that had the Dow Industrials easing back from their session high of 8,388.

Sector action, which had been broadly negative earlier is now holding green with the Computer Technology Index (XCI.X) 516.58 -0.19% and CBOE Internet Index (INX.X) 102.56 -0.59% the only two sectors currently showing losses.

Sector strength has the Securities Broker/Dealer Index (XBD.X) 411 +1.3%, S&P Insurance (IUX.X) 248 +1.12%, Airline (XAL.X) 33.48 +1%, Networking (NWX.X) 148 +1% and Dow Jones Home Construction Index (DJUSHB) 344 +1.19% leading sector gainers.

Treasuries have also seen a reversal of fortune, with selling taking hold in the longer-dated 10-year and 30-year, while the 5- year bond still holds gains with the 5-year June futures contract (fv03m) $113'040 +0.02% gaining 1/32. The 10-year June futures contract (ty03m) $114'080 is currently unchanged, with the benchmark bond's YIELD ($TNX.X) edging up to 3.941% after a morning high YIELD of 3.961% and low YIELD of 3.890% shows greater volatility on an intra-day basis.

Current action in the bond market hints of some underlying bullishness for stocks, but the "equity bull" side of me would have wanted to see the 10-year YIELD ($TNX.X) hold above the 3.951%-3.954% to have me thinking that the major equity indexes could hold or extend their morning gains. We discussed this "zone" in last night's Index Trader Wrap and this morning's action has seen this YIELD swing below our WEEKLY pivot and back above the near-term zone of YIELD resistance, giving the impression that the bond market isn't sure what to think of things. If this is "true" then the stock market will also have a difficult time with any type of directional bias in today's trade and volatility can be expected.

Contract manufacturers for technology equipment are seeing a mixed trade this morning after Deutsche Banks expressed concerns for Celestica (NYSE:CLS) $10.35 -2.35%, Flextronics (NASDAQ:FLEX) $8.74 +0.45% and Sanmina (NASDAQ:SANM) $4.33 +1.4%. Deutsche said they are concerned that earnings could be at the low end of guidance due to deteriorating end demand throughout the quarter, which has also seen aggressive pricing. Looking forward, Deutshce sees risk to June quarterly guidance from the group to be present in light of the effect of "war with Iraq" and a lack of forward visibility.

Shares of network equipment bellwether Cisco Systems (NASDAQ:CSCO) $13.35 -0.59% are this morning's second-most actively traded stock and seeing fractional weakness after Deutsche Securities said it believes CSCO faces big challenges with its top line growth. Deutsche said it believes that with 3 weeks left in the April quarter, the firm thinks CSCO's top line will decline, with the possibility of being down greater than the company's -3% guidance. However, Deutsche said it thinks CSCO will be able to meet bottom line EPS of $0.14.

Jeff Bailey

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