ISM Services Far Below Consensus - Market Ignores It

It has been a very telling day as I said this morning it would be.  ISM Services just came in at 51.5 versus expectation of 53 and previous month's 54.3.  Again, ISM Manufacturing gets all the press as if we still live in the economy of 40 years ago, but ISM Services is the much more representative report.  The S&P 500 sold off an entire 1.5 points on the knee jerk reaction.  Two weeks ago ...heck earlier this week, this would of caused a 2% swoon.

So here is where we stand... there was a gap up over the 200 day moving average this morning and we will eventually need to come down and fill that gap.  We are over S&P 1100 which has been an incredibly important pivot point and in the snap of a finger we went from the precipice of breaking down on the S&P 500 (breaking 1040) to technical conditions doing a 180.  That said, the S&P has rallied well over 5% in just 3 days... extrapolated this would be a 250%+ annual pace of gain.  So we should be overbought very soon and prone to a pullback.  The news today when viewed in a vacuum is actually not good - the report that covers 80% of the economy degraded, whereas we celebrated a report Wednesday (ISM Manufacturing) that covers about 12% of the economy for improving.  The labor force expanded, but still nowhere near a level that even keeps up with population.   All that has happened is expectations have been so low, we were able to beat those figures.

As I typed this the market broke back below 1100 but as long as 1092 holds things are still to the side of the bulls for now.  I would be shocked to see a big intraday reversal with the holiday approaching.

Looking ahead to next week, we have Magical Monday Tuesday - we jump upward almost every first morning of the week almost without fail for the past year and a half.   And the economic calender is almost empty next week - no major reports.  So the bias should be completely technical - doesn't matter if the economy is "meh"; the major reports are out of the way for a few weeks and now people can look forward to the election in November as if that will fix everything.  Again, as long as S&P 1092 holds, selloffs should be contained and I'd be expecting an upside bias as there is no economic data to change people's views.  I'll be looking to add some long exposure today, assuming the 200 day holds.

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