Market recover from ISM’s and incorrect reports

Mixed reports on the ISM manufacturing numbers had investors guessing which report was right. In the end the number we near expectations, but the guessing game kept investors in check relative to an impact from any positive news. The data was close to expectations, but we are still not getting the growth expected for the second quarter and raise enough questions for the market to close flat on the day. This is a week full of data and the challenge will be how investors interpret it all the way through the jobs report on Friday. We have to be cautious and take what the market gives looking forward.

Transports, semiconductors, industrials, materials and consumer discretionary were the upside leaders on a slow day for stocks. Still a mix of defensive versus growth in the move and the volume remains on the low side. One day at a time as we make progress towards the answer on near term direction.

I am traveling the next couple of days and will not post a recording per usual. The text and trading reports will be posted as usual. Thank you for your understanding.

Notes to Note:

  • The headlines today were focused on the ISM manufacturing data. What was the real number anyway? The final report was close to expectations and that kept the markets from selling off. The conspiracy theorist were alive and well of how the number was fixed to meet expectations. Whatever, the bottom line is the economic reports are still not showing any real push higher on the growth side.
  • The Volatility or VIX index remain without a pulse, but did make a run at the 12 level on the misreport for manufacturing. I remain in the camp of let it play out… attempting to pick a bottom or top of anything is a dangerous proposition. If it starts to move back above 12 I will get interested, until then just watching.
  • Interest rates got a move to the upside as the ISM manufacturing data found some confidence from investors. The yield remains near the low at 3.37% on the thirty-year bond and 2.53% on the ten-year bond. The divergence between yields and stocks is obvious and suggests something more is up or potentially wrong. Watch the bounce in yield… a follow through could push the price of bonds lower near term.
  • Apple is getting all the press to pump up the stock… The response today was a decline to $628.40. Still on the upside, but watching to see how it unfolds.
  • IWM – small caps chart posted last week made move to the 50 DMA and broke downtrend line, but has stalled as well. stronger selling early, but managed to fight back to close down 0.5%. Still looking for follow through higher or a test of the move and bounce.
  • Four key central banks report this week and worth watching to see the impact to interest rates and economic picture.
  • Google spending money on satellites that didn’t work out so well last time. Maybe this is the catalyst the stock needs to continue higher after testing support today.
  • Banks made solid move to the upside on the day. Watching to see if the regional and money center banks can advance the sectors higher.

Chart Notes:

The banks made solid move early, but following the ISM manufacturing data the advance slowed, but still made a solid move higher. The chart below of KBE shows the need to get through the next level of resistance at $32.25. If the moves can get a push higher we would be interested adding to our positions moving forward.

KBE

In the scans run for the ONE EGG model last week we stated that semiconductors remained one of the key leaders to track with SOXX or SMH. We followed up the discussion with BRCM as one of the best options on the upside with potential. That showed today with the stock jumping more than 12% on the news the company may be willing to sell off part of their business and was in talks with JP Morgan. As you can see on the chart below this trade has played out better than originally expected short term.

BRCM

Breakouts are slowing some consolidation is building. Watch you downside risk and stick to your discipline.