Stock Market Analysis

Monday, January 04, 2010

Great Start For The Year!

The Dow rallied by a grand 155 points on the first trading day of 2010 as the ISM index turned in better than expected with 55.9 vs 54.8.

The US Market gapped open strongly today and maintained its profits throughout the session as the ISM index, which was announced before market opening, turned in better than expected. What in the world is the ISM index?

The ISM Index or Institute for Supply Management Manufacturing Index is a survey conducted monthly amongst purchasing managers in the manufacturing sector. The answers to these surveys are compiled into an index which is not only the very first economic number released every month but also one of the most important leading indicators for GDP. Reading above 50 indicates a growing economy and a reading below 50 indicates a contracting economy. So far, the ISM index has been above 50 for 5 consecutive months and have even gotten to levels higher than before the recession. This is extremely encouraging and definitely supports the economic recovery scenario. However, please expect volatility at these levels and do not be surprised if it drops sporadically like it did last month.

Even though today's 155 points rally looks healthy and on good rising volume, what it merely did was to regain ground lost in the last session. Yes, it is not a breakout, yet. There are still no sure signs that the market can move on any significantly higher without a pullback, so tomorrow would be critical. Short term momentum indicators are still overbought, so if we see a negative day tomorrow, the pullback scenario would very much be intact. If the Dow breaks out on strong volume tomorrow, there will STILL be a pullback but perhaps a milder one.

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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