On the war front, the U.S. force took over Baghdad without a fierce fight. A symbolic statues of Saddam came down. Iraqi people are smiling, using shoes to hit Saddam's posters , and welcoming coalition troops. The market initially indeed tried to celebrate the victory that came so fast and easy than many expected. However, sparks on Monday, Wednesday, and Friday were quickly put out by selling pressures. The decline 200 day moving averages serve as a resistance as they did several times to reject the breakout attempts of several key indices. The indices finished at about the lowest level in the week, sitting at 40 day moving averages. The volumes remained on the light side. Obviously the market began to shift its attention away from the war where much of the positive expectations might have been priced in. The earning seasons just kicked off and made some investors worried. Next week will attribute the earning reports from many big name companies. Although there are fears that negative results will erase the recent war rally, the question is how negative it can be. My opinion is that it is maybe not much enough to crash the market at the current level. Corporations know the environment was not improving so they keep maintaining they bottom line well. As the war ends, the pick up of consumer confidence and possible boost of business spending should not make things worse at all. Of course there are always other negative potentials to worry about, including the post-war Iraq/middle east, terrorist attacks, and the SARS (Severe Acute Respiratory Syndrome). However, the reactions are speculative and will still depend on the development. Hopefully over-panic situation can be avoided. The next week will also see the options expiration, which usually suggests that the market movement expected by the crowd may be delayed a week ore more later.
A week of earning parade passed by. Generally better than expected results in big names helped the market to stay in the "over-bought" area after the war effect started to fade out. Although people may argue that the expectations were low, some big companies still struggled to show year-to-year growth. This is really the surprising strength to defeat a sell-off of the recent war related gains. What lack is some early optimism for the future. Some companies indeed affirmed guidance. But many just said they were not sure. Few influential companies upbeat estimates. What supported the result of this quarter fundamentally is unknown to me. Was it because the executives did not want to disappoint and scare away the patriotic American investors who just show some enthusiasm for a cakewalk war? Was it because the corporate were already in excessively doomed states which could hardly go down further in a short period of time. Will the negative economic data including employment have more or less delayed impact on the second half of year? However, it is not necessarily a bad sign as the concerns remain. Technically, the markets stay in the overbought area without breaking out the resistance. There is still some room for the fear gauge VIX to approaches the historical bottom of 20. Before VIX changes direction the market is likely to go side way with modest bullish bias. It is my opinion that the risk of a crash or strong sell-off perhaps does not go much higher. Do not try to capitalize on terrible panic events by any means (economically or politically) since there will be no good at the end to anybody when these things get out of control. We should have courage to face the challenge including terrorist attack and the mysterious decease SARS, which are imposed to our human society as a whole. It is important to understand that these phenomena essentially (unavoidably?) develop as the human being and the society develop. It is natural for us to have to accept any probable outcomes after preparing and attempting to dealing with them successfully or not. Good luck.
The drop on Friday erased a week's gain of major stock indices. The market was set to a re-test of the the previous resistance level which was just broken shortly. Slower than expected growth was made evident by the first quart GDP number. Business and consumer spending continued to show weakness in the past quarter. However, this had happened in the circumstance of many uncertainties related to the war with Iraq. As the coalition's victory removed the uncertainty, consumer sentiment starts to rebound significantly. And many business stopped showing pessimism for future in earning announcements. Hopefully the politicians will focus solely on the economic issues. Although good wishes for better market condition are strong once again, how far the market can go after a ten plus percent gain in a short period of time? How many real investors are willing to buy at a higher price level? What kind of bullish catalyst is necessary? On the other hands, bearish catalyst is developing. Threat from North Korea is once again on the table. If the country tests a nuclear weapon, the pressure on the world financial markets will probably be as high as that of a terrorist attack. Meanwhile the risk of SAR spread remains a serious concern that is hard to quantify for the financial markets. The world has changed somewhat but not totally different. New development introduce both risks and benefits. Globalization world with high-tech such as faster transportation, communication, and media has made severe communicable decease more scary. But the technology can also en-power us to deal with the problems. We will see what the mother nature arranges for us human being this time, another conquer or punishment. To fill some space in this week's journal, I searched the web and assembled a small chronology of the world nuclear test events (http://www.css.gov/rdss/nucex/report/list_highlight.pdf, based on the CMR Nuclear Explosion Database). 07/16/45 11:29:21.0 US first test 08/29/49 00:00:00.0 USSR first test 10/03/52 00:00:00.0 UK first test 02/13/60 07:04:00.0 French first test 10/16/64 07:00:00.0 Chinese first test 05/11/98 10:13:44.2 India 05/13/98 00:00:00.0 India 05/28/98 10:16:17.6 Pakistan 05/30/98 06:54:54.9 Pakistan (There is no Isreal on the record.)
After bouncing between 200 day moving average and the March high a couple of times, DOW finally followed other major market indexes to close at a new year-to-date high on the past Friday, just inches away from the high of last December. Mixed economic news did not make the buyers step back. The volume picked up while the market were advancing. It seems that the optimism was not fully unleashed on the victory of Iraq war and the removal of uncertainty in the future. Mr. Bush became the first U.S. president who made a tail-hook land on USS Abraham Lincoln before announcing the major combat in Iraq was over on Tuesday. Many patriotic financial analysts have been extremely encouraged by the administration and the war so far. Six percent unemployment rate did not scare away the buyers who instead focused on better-than-expected non-farm payroll and factory order number. In fact, some believed that the rise of unemployment rate and non-farm payroll numbers in the past two month were contributed by the call-up of the army reserves to the war but not the weakness in the corporations. The mixed economic data helps to keep a little of hope for another rate-cut in the Federal Open Market Committee (FOMC) meeting next week. SARS seems subsiding in a number of countries while the report of strong threatening words about nuclear weapons from North Korea were denied. All these helped the bull to maintain its strength. A notable event in this week's trading is the outage of the GLOBEX future market at Chicago Mercantile Exchange. Due to network failure, CME halted all trading on GLOBEX on 10:40am Thursday, May 1 and did not fully resume it for more than 24 hours until late Friday. It is interesting that the market just dropped a significant amount to a day low at the time of the halt after the disappointing ISM index. After the halt, cash markets and other future markets never looked back to the low. My speculation is that stock index future traders rushed to hedge their short positions and contributed more or less to the rally. Next week, we shall see how real the strength of the bull is.