Different War, Different Market

President Bush and military and government officials have indicated Sunday's air assault against the Taliban regime and Osama bin Laden is the first in a series of ongoing strikes that may last for some time. The question is: Shouldn't the financial markets rebound as they did when the U.S. began its war with Iraq in 1991?

The simple answer is no -- for variety of reasons.

This is a different type of war, where the objective is hidden and digs in deeper as the assault begins. We've been told it will be a drawn-out war, with no clear victory anytime soon. And even if bin Laden is killed or captured, he is just one of a number of terrorists the world has to weed out.

The world and our country was forever changed on Sept. 11. The attack on U.S. soil was unprecedented, and top government officials have said we should expect further terrorism against America -- at home again, or abroad. That alone prevents the euphoric rally that would normally be expected after a successful military action.

The markets have already experienced an oversold bounce going into the military action, and are now in short-term overbought territory and near some significant resistance levels. That indicates a limited pullback may be needed before continuing higher.

We are also entering the heart of third-quarter earnings report season, where corporate America is unlikely to report or indicate anything but poor results. While much of that is already reflected by the dramatic weakness in stock prices this year, investors will likely want to see some signs of strength before bidding stocks higher.

While all of this sounds discouraging, the good news is that the unprecedented fiscal and monetary stimulus put forth this year, and especially since the Sept. 11 tragedy, should significantly improve the fundamental outlook as we move into the beginning of 2002.

In addition, the market probably made a climactic low the week after the market opened and is unlikely to breach or even see those levels anytime soon. Both the intermediate and long-term picture shows a market that is rarely this oversold, which indicates that most of the negative influences are already discounted and that any pullback should be shallow.

Most importantly, all of our prayers are with the people involved in the conflict, and may God bless America

Short-term picture One-year chart shows market still in a downtrend

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Medium-term View Five-year chart hints at a more tradable rally

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Long-term picture 15-year chart shows bottoming process has just begun

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