Averages Were Primed for Good News

A confluence of events geopolitical, fundamental and technical combined Tuesday to help both stocks and Treasury bonds recover from recent losses.

Major averages were meandering early in the session with blue-chip proxies slightly lower and tech gauges modestly higher in the wake of some not-as-bad-as-feared earnings by Texas Instruments (TXN Quote - Cramer on TXN - Stock Picks) and cautiously optimistic guidance from Novellus Systems (NVLS Quote - Cramer on NVLS - Stock Picks).

At around 11 a.m. EDT, stock proxies jumped in unison on reports Saddam Hussein's sons had been killed by allied forces, something not confirmed by the U.S. military until about 3:30 p.m. EDT.

Late morning, news services were quoting White House officials as being "reasonably confident" that Uday and Qusay Hussein were killed in a gun battle in Mosul. Having been burned before by various rumors of the death or capture of Saddam Hussein and/or Osama bin Laden, traders were initially wary. But after hitting session lows at about 10:45 a.m. EDT, all major averages rallied sharply for about 90 minutes while crude futures declined. (Crude finished down 5% to $30.19 per barrel.)

"We got down to the low end of the trading range, with the Dow flirting with 9000 and the news [about Hussein's sons] came out," said Brad Sullivan, founder of Group 6 Trading, a Chicago-based futures trading firm. "Anyone short had to cover and there's no question that's been the driver."

Notably, the Nasdaq Composite was higher prior to the geopolitical developments, led by semiconductor and related stocks despite concerns about the quality of TI's earnings, skepticism about Novellus' optimism, and disappointment over Sanmina's(SANM Quote - Cramer on SANM - Stock Picks) results and outlook. The Philadelphia Stock Exchange Semiconductor Index rose 3.3%.

The Comp's early strength was a sign the market was unlikely to break down Tuesday, even if the welcome news from Iraq hadn't emerged, Sullivan suggested. Nasdaq 100 futures "had fallen from 1320 to 1232 -- what more do you want?" he mused. "This was not the time to get bearish from a trading perspective."

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