Unusually Calm Day...

Investors were unusually calm in the face of totally dismal ISM index today. The ISM index measures manufacturing activities in the US and has the highest level of correlation with quarterly GDP numbers. The fact that it turned in 26 years low for October suggests that GDP is going to look pretty nasty ahead. A year ago, a number like this would have caused an immediate sell-off but today, investors remained totally calm as if waiting for something else to happen. Indeed, with an extremely uncertain Jobs Report and the election results looming in the horizon, nobody knows what to expect, not even me. As an options trader, I would rather go multi-directional with my Ride The Flow System instead of speculating on a single outcome.

Somehow, I wasn't surprised at all with the way investors behaved today. Investors have been unusually optimistic on every lousy economic numbers lately and that seems to suggest that investors are beginning to price in a recovery and a favorable election outcome. Indeed, the next President does have the honor of being known as the President who took the US economy out of the 2008 slump. Like I mentioned yesterday, the stock market, being a discounting mechanism, prices in expected economic conditions 4 to 6 months in advance. If this is true this time round as it was the last crisis, could we see a recovery in unemployment rate and GDP 6 months later? Is 6 months sufficient time to totally turn around production, start hiring and selling to the world again? Seriously, its going to be a very difficult call at this point of time. With this in mind, I cannot bring myself to conclude that this 8500 region is the absolute bottom for the stock market even though I do think that we are just merely one step away from it.

That being said, I am sure enough to say that we should see a testing of the Oct low again before anything is conclusive. In fact, the Dow is once again coming up against its 30MA line which defined the intermediate bear trend and would act as resistance. This could be the catalyst which will result in the Oct low testing. For ultra long term investors buying stocks, this could be the best time to start a progressive portfolio building program but not forgetting to hedge your portfolio using stock options.