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July 26, 2004

Stocks: Are Terror Concerns Assuming a More Important Role in Market Behavior?
by Douglas R. Gillespie

The following commentary was posted at Gillespie Research.

Summary

Some new crosscurrents are now coalescing to buffet the stock market, despite the market's increasingly short-term oversold condition. Ironically, growing concern about terrorism, something the market has ignored for a long time, now assumes a more important role in the overall psychological equation.

In the next few days, I'll work on a piece inventorying some of the stock market's technical considerations. The market's strong and growing short-term oversold condition has many looking for a rally. Certainly, some variety of reflex rally is possible, but under current circumstances, I simply cannot envision it running very far. Moreover, enough damage has now occurred to suggest that even a decent, albeit somewhat ephemeral technical bounce, is unlikely to occur in the absence of a short-term "washout," something yet to materialize.

Although Wall Street surely has paid a good deal of lip service to terrorism, it's my view that until recently, this has been the approximate extent of the concern. Now, however, I think this force has increasingly exerted a negative impact on market psychology and behavior. If so, it is not likely to dissipate quickly. After all, we have now commenced a string of events that will not conclude until just before Labor Day, to wit: the Democrat convention in Boston, then the Olympics in Athens, followed by the Republican convention in New York. And, of course, this makes no allowance for the possibility of something more specifically aimed at disrupting the national election in November.

It is possible that if the get-together in Boston goes smoothly over the next couple days, immediate fears will be alleviated, helping stocks to bounce. However, it's my own feeling that terror concerns are settling in as more serious and somewhat protracted negative influence on the US financial markets.

Douglas R. Gillespie, Sr.
Gillespie Research Associates
165 Sheridan Avenue
HO-HO-KUS, NJ 07423
201-447-5743

Doug Gillespie oversees his own financial-market and economic consulting firm, Gillespie Research Associates. For a complimentary sample of Dougs material, e-mail him at drgillespiesr@aol.com.

Copyright © 2004-2005 Gillespie Research Associates. All rights reserved.

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