Market Loses Its Sense of Certainty - TheStreet

Market Loses Its Sense of Certainty

The feeling of clarity from Colin Powell's speech was quickly lost in the aftermath.
Author:
Publish date:

Wall Street got what it apparently wanted from Secretary of State Colin Powell Wednesday, but that wasn't enough to sustain the stock market's midday gains.

After trading as high as 8152.53 at about 1 p.m. EST, the

Dow Jones Industrial Average

closed down 0.4% to 7985.18. Following similar patterns, the

S&P 500

dipped 0.5% to 843.59 vs. its earlier best of 861.63, while the

Nasdaq Composite

closed down 0.4% to 1301.50 vs. its earlier peak of 1332.80.

Despite relatively modest final tallies, it was a pretty wild session as financial markets staged dramatic moves and traders sought to assess various geopolitical developments. Reflecting the uncertain tone of trading, not one Dow stock closed more than 70 cents higher or lower.

In the initial aftermath of Powell's speech before the United Nations Security Council, shares rose as some traders bet the speech would heighten prospects of a multilateral approach to dealing with Iraq. However, uncertainty over the timing of war -- or even a U.N. vote on military action -- resurfaced following comments from foreign ministers of Russia and France suggesting U.N. inspectors be given more time to verify Powell's clams and continue inspections.

Predictably, Iraq's foreign minister challenged the veracity of Powell's findings, declaring: "The pronouncements in Mr. Powell's statement on weapons of mass destruction are utterly unrelated to the truth."

Separately, there was also consternation about North Korea's announcement that its nuclear facility at Pyongyang is up and running on a "normal footing."

Michael Driscoll, director of listed trading at Bear Stearns, addressed two main themes in seeking to explain the session.

First, he observed that many people are "awfully cavalier" about the potential for war with Iraq and thecommonly held view that stocks will rally and oil prices will plunge as soon as the bombs start dropping. That scenario is "too pat" he said. "The only thing I know for certain is the market will do its best to screw up the most people" possible.

The trader also worried that war with Iraq may not go as smoothly as is commonly expected, fretting that many Americans and Iraqi civilians could be killed in the fighting, and that Saddam Hussein might launch missiles against civilian targets in Israel and/or Saudi Arabia.

"No matter what anyone says, discretion is the better part of valor," Driscoll said, suggesting that most institutional investors are taking a similar approach and aren't willing to step up and buy big slugs of stock in anticipation of a repeat of what occurred after the onset of Desert Storm in 1991.

Reflecting the reticence of many institutions and near total absence of retail investors, trading volumes remained relatively subdued Wednesday, with 1.4 billion shares traded on the

Big Board

and under 1.2 billion in over-the-counter trading.

Second, and perhaps more importantly, after rallying following Powell's speech, "the market resumed its primary trend, which at this point is lower," Driscoll said. "It feels like they'll make a run at the October lows, and my guess is they take 'em out."

This point of view gets back to the theme of a story here

last week: In a bear market, there doesn't necessarily have to be reasons why stocks go down on a given day.

In a similar vein, independent technician Rick Berry emailed at the market's intraday high to dub the move a "quintessential sucker's rally."

Berry has for some time talked about the prospect of the Comp's descending 200-day moving average dropping below its 50-day -- which would be a distinctly bearish signal -- and entered the session in near-lockstep.

Outside of stocks, the U.S. Dollar Index closed up 0.66 to 99.80 after breaching 100 earlier in the session. Gold, meanwhile, surrendered overnight gains that had taken the April futures above $390 per ounce, ending the New York session down 0.7% to $377.20.

The price of the benchmark 10-year Treasury note ended down 20/32 to 100, its yield rising to 4%.

Other Stuff

Minor developments moving stocks Wednesday included a stronger-than-expected report from the Institute for Supply Management's non-manufacturing survey, which came in at 54.5 in January vs. an upwardly revised 54.2 reading in December. Economists had forecast the survey would be at 54.0.

On the sentiment front, some observers were pleased to see the

Investors Intelligence

survey showing bullish sentiment slipping to 47.2% from 50% last week, while bearish sentiment rose to 29.2% from 26.1%.

Among other sentiment gauges, the CBOE Market Volatility Index rose 0.4% to 36.84, while the put/call ratio closed at 1.02, indicating greater demand for defensive puts vs. optimistic calls.

Among stocks in the news,

Cisco

(CSCO) - Get Report

traded as high as $13.60 but closed up fractionally at $13.20. The company posted record profits in its fiscal first quarter but warned of a difficult outlook in calendar 2003.

Computer Sciences

(CSC)

rose 5.3% after posting better-than-expected fiscal third-quarter results, despite cutting its outlook for the current quarter.

More clearly positive news came from

Hovnanian Enterprises

(HOV) - Get Report

, which forecast that its first-quarter results will exceed expectations. Shares of the homebuilder rose 3.2%.

On the flip side,

El Paso

(EP)

tumbled 22% and was the most heavily traded stock on the Big Board, after cutting its dividend and announcing further measures to improve its cash position.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.