After Sunday night’s announcement that Al Qaeda leader Osama Bin Laden was killed, US futures jumped, in anticipation of a market rally. True to form, the market did get a bump early on, but it wasn’t long before the warm and fuzzy feelings evaporated, with the market struggling to keep its early gains.
So, what happened? Why not the big rally everyone has always expected to hear that the leader of such a deadly terrorist group had been dispensed with?
Perhaps we can get some insight by looking at an ongoing poll that CNBC is conducting. In this poll that showed just over 7500 people responding as of 2:00 PM eastern the day after Bin Laden was killed, almost 75% answered no to the question, “Do you feel safer now that U.S. forces have killed Osama Bin Laden.
So, while there was always speculation that the world would be better off with Bin Laden out of the picture, you can see that there’s also plenty of skeptics who believe that his demise won’t do much to make things safer.
In some ways, this reminds me of how the market operates; buy the rumor, sell the news. In other words, the market had already figured out that Bin Laden’s time on this earth was short term at best. Thus, we got the early market bump on the rumor, and then by the time the news had been absorbed, the market was already in the “give me something new” mode.
In fact, we’re in a market that has run a lot lately and is showing signs of being very overbought. So, the events that transpired overnight weren’t enough to outweigh the reality that the market needs to settle down here. Virtually all of the fear indicators are flashing huge overbought signals, from stochasitics, to RSI’s, to the VIX to the Rydex Bull Bear Ratio. Thus, it’s very tough for the market to gain much traction, Bin Laden news notwithstanding.
So, the fact is, the world is now rid of one very bad man, someone who many like minded people around the world looked up to. And, based upon that poll referred to above, there’s likely fear that there will be some type of retaliation for Bin Laden’s death. In the meantime, we’ll have to let our indicators and charts tell us whether or not the market is ready to go higher or lower, regardless of what is going on around us.
