Stock Market Analysis

Monday, November 02, 2009

Great Start To The Month

The Dow started the month optimistically, closing up by 76 points on better than expected ISM index.

The US economy continues to present optimistic report cards as the ISM index turned in far better than expected. ISM index released this morning turned in 55.7 versus last month's 52.6 and beating consensus of 53. In fact, this reading is now way higher than any of the ISM index readings back in the bullish 2007! Hold on, what is this ISM index anyway?

The ISM Index is the Institute of Supply Management Manufacturing Index. It is also known as the ISM manufacturing index with its sister ISM services index sometime later this week. The index is compiled from a survey of 300 manufacturing firms and is the first economic indicator released every month. Its correlation with real GDP is what made it a heavyweight economic indicator watched even by the Fed. In fact, an ISM index reading of 50 has been consistent with a real GDP growth of about 2.5% with every full point adding another 0.3%. Generally, a reading above 50 indicates economic expansion while a reading below 50 indicates economic contraction. That made today's 55.7 an indication of economic expansion without a shadow of a doubt.

Traders and investors obviously welcomed the great news, pushing the market up in the morning before once again succumbing to profit taking pressure in the afternoon. Even though there was obviously still much profit taking in the market, the Dow did once again bounce off its 50MA, strengthening it as its intermediate term support level. But lets not rejoice too early. We do need to see a strong follow up tomorrow before we can lean the edge towards the bulls. For now, sentiments remains more bearish than bullish.

For now, the Dow remains in short term neutral trend within an intermediate and primary bull trend.

Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!


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