ISM On Deck....
The ISM Manufacturing Report in on deck for tomorrow morning thirty minutes into the trading day. This is a number that will be picked apart, piece by piece, as there are signs the economy here at home is starting to feel the effects of the weakening that’s occurring in Europe as we speak. Some of the key economic reports of late have come in quite poorly. Today's Chicago Purchasing Manager's Report was the weakest seen in nearly two and a half years. It caught everyone by surprise, even though the market didn't react too badly. The numbers are going the wrong way. Unless they reverse soon in that region, they'll be looking at recessionary figures. There needs to be a serious turn around sooner than later.
With debt mounting, the only thing keeping this market up is how earnings have been coming in. Not bad at all, with many big companies guiding higher. That won't be the case, however, if the economy continues to show weakening reports. The ISM Manufacturing Report is, I believe, the most important report to focus on each and every month. It tells how the earnings will likely be coming in when we look into the future. If the ISM pulls in hard, there is no way for corporate America to reach its goals going forward. If that's the case, the market is likely to start pricing that in. Of course, there's always the Fed, who can ride in on his white horse to save the day by adding more debt, but that's the best way to go about things. At some point, the market is going to have to walk on its own. We'll gain more insight thirty minutes into the trading day tomorrow.
Speaking of Fed Bernanke, let's be honest about things, folks. He's the only reason the market continues to hold up. However, have you noticed how many commodity stocks continue to struggle? That's with him pumping money into the economy and high rates daily. This is normally something that would blast these stocks off, yet, that's not happening for the most part. Many of these stocks are acting as if deflation is with us, despite the money machine on at full tilt. Are these stocks telling us something dire is out there in the future? It could be, folks. Yes, things can hold up for quite a while longer overall, but many interesting stocks dependent upon inflation as their ticket to stardom, are not acting as if they're not winning any academy awards. They should be stronger, but they're not. That’s interesting, to be sure. The Fed may yet pump further with some form of QE3, if not a QE3 program outright. That's in the cards, if things start to falter rapidly with our economic reports. There's no way he'll sit idly by and let things fall apart.
So the market continues to meander about in a still evolving trading range. Boring and annoying are two words that come to mind immediately. There’s nothing fun about the market here. I get the feeling that over time we could still see a move towards 1340/1325, before bottoming out and forming the low end of the evolving base. That could be weeks, or months, away, but is definitely still part of the landscape. For now, we have strong support at the recent double bottom hold at 1357. Below that is massive horizontal support at 1340 down to 1325. 1340 is huge. 1422 a real pain in the neck for the bulls. There’s nothing easy about breaking out above 1422. For that to happen, as reported earlier in this letter, we are going to need to see a major reversal in how the economic reports come out.
They're just not good enough to allow for an important breakout above that key resistance level. So keep some exposure in the game. Buy good bases and hope they ultimately break out. You'll need patience, for sure, as they are not happening with great regularity, or with too much speed. Bases are extending out there over time quite a bit longer than anyone would hope. Sadly, when they finally do break out, many just simply fall right back into their base unexpectedly and on light volume to boot. A day at a time here folks. That’s the only way.