April 8, 2003
Technical Defeats

It didn’t take long for the Dow and S&P 500 break above their 200 day-moving-averages in yesterday’s session. However, by days end buyers of stock had all but vanished, and the 200 DMAs provided no support on the decline.

Given that allied forces appear extremely close to finishing off Saddam’s regime, yesterdays reversal is disturbing.




Not only were the markets unable to beat their 200 DMAs, but each markets pre-attack highs (circled in orange) were also not beaten.  This action could mean that the markets are beginning to act rationally; that since the economic/earnings situation has deteriorated considerably in recent weeks while stocks have rallied, that this disconnect has run its course.  It could also just mean that until Iraq uncertainty is totally resolved stocks are stuck.

Best Case Scenario

Saddam’s regime is destroyed tomorrow, the Iraqi people are dancing the streets of Baghdad on Thursday, and the first US tanker slithers into Umm Qasr on Friday.

Worse Case Scenario

The markets are unable to break above technical trading levels and entice more suckers into the game.  As trading floors begin to switch back from CNN to CNBC, Wall Street suddenly notices that the US economy is in shambles.

Current Situation

At yesterday’s close only two components in the price weighted Dow were up by more than a buck: Alcoa, which beat EPS estimates, and McDonald’s, which promised shareholders more dividends and less capex.  It remains to be seen whether or not consumers will celebrate Iraq’s liberation by scoffing down a few burgers and installing some new aluminum siding.

Not even Alcoa (+8%) could close above its pre-attack high.
 

All data and information within these pages is thought to be taken from reliable sources but there is no guarantee as such. All opinions expressed on this site are opinions and should not be regarded as investment advice.
Copyright © 2000-2003. FallStreet.com