Monday, July 02, 2012

Stocks Finish Higher Shaking off Poor Manufacturing Data

Stocks closed higher on the NASDAQ for the second straight day despite June’s ISM Manufacturing showing the industry contracted. While there are troubling signs within the data the market was able to push higher. Small cap stocks lead for the day doubling the gains seen on the NASDAQ. Volume was light on the day, but no big surprise with Independence Day on Wednesday. Never fight the trend as today’s market certainly highlights this important lesson. Our Market Direction model shows a buy signal and it is based upon the market action not market opinion. The ISM report shows some very troubling numbers. Numbers would point to the United States economy in or on the verge of recession. One would easily think the market should react poorly and sell off on the news. Initially, the market DID sell off and looked as if we were going to head lower. Buyers showed up and supported the market. It doesn’t matter who they were (“PPT”) all that matters is they should up supporting the market. In the end, it boils down to price action and not what your opinion about the market’s direction. An important step for the market happened today and that was taking out the most recent high. One may think a double top pattern is forming, but the mere fact of making a new high has taken out the downtrend started at the March high. The new high has put in a new higher high. For trend followers this is an important step for the market to continue higher. It is not a guarantee that we will continue to make new highs, but then again no one knows the future. We have rule number one to help us save ourselves if the new higher high for some reason fails. That rule: cut your losses. “Know when to fold ‘em.” If you want to see the numbers behind the ISM figure, I’d suggest heading to here: The trend is our friend. A friendly reminder: there is an early market close on tomorrow prior to the Fourth of July holiday! Enjoy.

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