Today's Comments (Short Term Outlook)                             Printer friendly

Introducing, the ISM The market fell sharply on yesterday's ISM report.  This is not an indicator we talk about with any interest, but it sure got Wall Street's attention Tuesday as the Dow declined 370-points after the report was released. According to briefing.com: The non-manufacturing ISM report is a national survey of purchasing managers which covers new orders, employment, inventories, supplier delivery times, prices, backlog orders, export orders, and import orders. Diffusion indexes are produced for each of these categories, with a reading over 50% indicating expansion relative to the prior month, and a sub-50% reading indicating contraction. The report came in at 44.6.  This is all but sealing the deal on the question of whether we are already in a recession, or about to enter one.  Click here for more information on the ISM. Our rally targets in the S&P 500 were 1380 (neckline 1), 1410 (neckline 2), 1430 (rising long term old support line), and even 1475 (declining resistance), and this last leg up made it to 1396.  I don't know if this means we will continue to head down to retest the January low, or if this sets up another short-term bear market rally buying opportunity.  If we do see the test begin, don't forget that the major sell-off / reversals made in both August and just last month, were each saved when the Fed stepped in and made major changes to the monetary policy with rate cuts and liquidity.  I have to doubt we will see that again this time.  I also want to keep in mind that the sell-off in January was triggered by an exposed trading fraud overseas which turned out to be more of an embarrassment to the banking system, than a problem.  The Fed jumped the gun and overreacted by providing a 0.75% emergency rate cut that morning.  Maybe that's a fair trade - two overreactions.  That one day sell-off was likely "too much", but the Fed did not let it play out so now we might find out how low we may need to go.  Perhaps this reaction to the ISM report was also an over done?  We should find out in the next few days.                              Chart provided courtesy of www.decisionpoint.com  The sell-off brought the NYSE barely back to neutral from the recent overbought reading.  If the market is still weak, we should see an oversold reading before a new rally begins.                               Chart provided courtesy of www.decisionpoint.com  The very short-term overbought/oversold indicators (intraday) are oversold, so we could see an intraday rally, but chances are it will fail.  That is, of course, unless the market already put in a bottom.  It's possible, but the odds still favor a retest. Bottom line:  The safe thing to do is to let things play out and wait for the charts to improve.  But thinking about nibbling a little here is not a bad play, particularly if you do make small purchases.  But if we do see a retest and it does fail, expect another leg down.  There is the risk / reward and we all have to make a personal decision about how much risk we are willing to take:  Better safe than sorry, or try to catch a bottom?  The choice is yours. That's all for today.  See you tomorrow. Have questions?  Visit our message board for answers.  Would you like to be on our email alert list?  We will send you an email when there is a change to our asset allocation or market outlook.  Your email address will never be given out.  Read our privacy policy.  By signing up you agree to the TSP Talk Terms of Service.  More details below **. Are you bullish or bearish?  Join the Weekly Sentiment Survey. Like what you're reading?  Tell a Friend about us.