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Monday, August 02, 2004
Good evening friends,
Market Recap
All of the major indices were green today despite the news of possible terrorist threats over the weekend. The futures were down this morning, but the selling at the open was just a head fake and the markets did the unthinkable and rebounded once again.
I know by now to expect the unexpected, but considering the news of what was rumored to be targeted by the terrorists, I must say, even I was surprised the markets did not go down today. The NYSE was one of the targets along with the Citigroup and Prudential head quarters buildings. With these major institutions on the hit list, I would have thought panic would have set in and selling to ensue. That did not happen and the market proved to be unaffected by the threats. This, in my opinion, is a good thing. It tells the terrorists “in your face, we are not afraid of you cowards.” The Dow was up +39 points today while the NASDAQ gained +4 points. These are not great gains but considering what could have happened if there was a mass panic, I think today worked out very well for the market.
Market Outlook
We continue to short stocks in this market because the charts of the major indices are still negative. As they come up closer to their 200 SMAs they will likely begin to sell off again. This moving average line will be strong resistance, but if and when they close above these levels, it will be time to start closing some of our short positions. I do not think this will occur anytime soon.
Markets Under Attack
The markets have been under attack for some time now as the bears have returned from hibernation. What was not expected was the impact of the threat of a terrorist attack on the market. This threat was a non-event (at least for today). Panic selling over the threats did not happen. Again, the markets did not act as the majority would expect it to act.
The market did not sell off, because the market knows the financial system has safeguards built in. If the markets are halted due to an attack, it would not change or prevent trading from happening. It would certainly hamper trading, but it will not stop trading unless something extraordinary happens. If trading were to stop, chalk up a victory for the terrorist and we can not let them win like that.
Banking is the same way, there are so many safeguards built into the banking system that an attack will not have much of an effect. In short, this type of attack will have little “real” impact on our economy. It will likely have a very profound psychological effect though. An attack on the U.S. financial system would likely get the crowd in a panic and people may just start pulling money out of their accounts. We saw some of this during the Y2K panic in 1999.
The psychological impact is already being seen in the rising price of oil. Oil hit $44 a barrel today. It is another driving factor in the markets and in the fear that is gripping most of the crowd. If there is an attack carried out, the price of oil will likely climb to over $50 a barrel for a brief period, security sector stocks will go through the roof, and the financial sector stocks will probably sell off. An attack could also have some ramifications on the Fed and how they view interest rates. If the banking and financial sectors were to crash due to a terrorist event, I can not see the Fed rushing out to raise interest rates. They would probably view the event as having a major impact on financing and would keep rates low, or even drop them to prevent a complete meltdown in the financial sector.
No one will benefit from any attack. Even the security sector would probably rather not see an attack; it could almost be viewed as a negative and the stocks could sell off if the security technology of these companies were unable to prevent an attack. They are fine without attacks, because they will keep getting orders on the fear factor alone.
We need to be cognoscente of the threat. Not so much that we become fearful, but rather that we prepare ourselves to react to the reaction. Hopefully we will not see anything come of this, and we will get back to the simple fears of the market such as bad news, missing estimates, and the never ending unsubstantiated analyst downgrades.
OTC BB Watch List
- EGSR
- AANI: had this here last night and still looking good.
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