I was watching CNBC and heard several times that if/when it was announced Bin Laden was captured the market could probably expect a +/-500 point run on the news. Well, last night I heard several Military analyst's say they expect Bin Laden to be captured more than likely within a week. My question is, do you subscribe to the "victory rally" theory the financial analysts' are speaking of? If so what would be a good play for this? OEX ,SOX, QQQ? Furthermore, if indeed we did see this type of reaction from the market, how do you feel it would play out? 500 points over a span of one trading session, two or three days? (December 10, 2001)
Around the Thanksgiving holiday I opined that Bin Laden's capture was days away. At that time I believed that a big move would occur on the news. The market was giving signs of that as the QQQ traded up sharply on a story that his capture appeared imminent.
Now for the last week there has been ferocious fighting directed precisely at the Al Qaeda and supposedly Bin Laden is there. There have been those continued reports that you cited stating the end game is on and that capture or death is near. The market has had time to absorb that now. Thus, the impact is not going to be a surprise to the market in general other than a surprise at the exact timing of the news. That will bounce the indexes higher, but will it be 500 points (assuming that was on the Dow of course)? If it occurs after a bit of a pullback the bounce could be strong. Will it hold? Not all of it by a long shot; the news is being priced in with each bombing run. Right now I feel there is more risk to the downside if he is not caught or killed before Christmas. The market needs some good news from time to time to keep it moving forward. It has been pricing in the capture or death of Bin Laden, victory, and a stimulus package. Those need to come to bear or it could be a problem for the market as they are then priced out of the market.
The longer term aspects of his capture or death are the best story for the market longer term. While it does not mean the end of Al Qaeda and instant security, it will be a big confidence boost and that is good for the economy. That gets money spent, investments made, etc. that have been put off. Thus, we see a pop up on the news, but a 500 point rally in a day is a stretch. Maybe over two or three days, and not all of it will hold. Options would be a great way to play the news if you are nimble at getting in, riding the news, and then taking the profit. At the same time, we will have breakout points ready for stocks and indexes; clearing resistance is a good point to buy whether or not on news of capture or not.
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