THOUGHTS ON THE ISM DATA
Great numbers out of the ISM this morning. The 48.9% reading was a 4.2% jump from June and was 2.4% better than analysts expectations. There is little to dislike about the report. There was fairly broad strength. New orders came in at 55.3, production jumped to 57.9, and employment made a 4.9% increase to 45.6%. Inventories continued to jump and will likely continue to add to ISM figures going forward as we bounce off severely depressed levels. Prices firmed indicating that firms are beginning to see some price increases and demand. All in all, this is a very good report and likely solidifies the thinking that an economic recovery is well in place. Stocks like this news, but buying the recovery trade is becoming increasingly risky as any set-backs will be taken very poorly by owners of stocks.
Comments by ISM respondents:
- “[There is concern about] overall health of strategic suppliers — continue to see new suppliers filing Chapter 7 or 11, posing significant risk to supply chain.” (Machinery)
- “We believe our inventories are now at the bottom of this cycle, driving stronger demand for raw materials.” (Paper Products)
- “While our aftermarket business has improved slightly, we are still awaiting an increase in OEM demand.” (Transportation Equipment)
- “No stimulus for manufacturing.” (Fabricated Metal Products)
- “Looking at another round of shutdowns to align supply with projected demands.” (Nonmetallic Mineral Products)
TPC,
When we get a market correction, how much pull back do you think we’ll likely see?
Thanks!
Silly, good question. I am not expecting the market to fall apart here. My move out of stocks last week was mainly because the risk/reward of the market has changed substantially. That doesn’t mean we can’t go higher, but I am seeing blow-off tops in some pretty areas. Any dent in the economy or the good news parade could result in a pretty swift 10% sell-off.
I am missing out on today’s gains, but I feel comfortable with my cash position and derivative shorts. Anyone buying stocks up here is taking on some pretty substantial near-term risk.
TPC,
Are you going to open some short position soon ? Any recommendation?
I feel more comfortable in cash than I do being short here. The bulls are still in control of this market. Personally, I am not shorting the equity markets here.
What S&P numbers you are thinking of a blow-off top? The tape is so strong. Thank you in advance.
Paul,
I like Minyanville Kevin Depew’s numbers for the S&P:
1014-1025
Partly, it just intuitively feels about right to me. My logic being who could possibly chase it higher than that after such a climb, but I know, logic isn’t the rule to follow. Depew calculates trend turns using DeMark indicators, which still are a bit opaque to me, but he seemed to use them effectively over the fall and spring. For the intermediate term, his reading says that the momentum isn’t exhausted yet, probably still a couple of months out.
anyways, I like having something to look for,
m
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