After yesterday's fairly pessimistic report that the Chicago Purchasing Manager's
Index (pr PMI) had official fallen into 'economic contraction' levels, I wanted to
look deeper into what this actually meant to the economy. As a contrarian, and
hesitant to leap without looking, we started looking for data that was a little more
broad than just what the purchasing managers in Chicago were saying.
Before going further, let's explain PMI in its simplest terms. PMI measures
manufacturing activity. If the PMI number is above 50, then the economy is growing.
If PMI readings are below 50, than that's interpreted as a sign of economic
contraction, since manufacturing has slowed. To actually calculate the Chicago PMI,
purchasing managers in the Chicago area are polled.
It's not that the Chicago PMI is bad data. It's just that it's a little too narrow
for my comfort. As an alternative, today at 10:00 a.m. the ISM index will be
reported. ISM is an acronym for 'Inside Supply Management'. The concept is the same
as the Chicago PMI, but the ISM index incorporates data from New York as well as
Philadelphia. Obviously the results will be similar, but armed with more data, you
can make better decisions.
The one key similarity between the Chicago PMI and the ISM index is the
interpretation of the raw numbers. Readings over 50 indicate economic strength, while
readings under 50 indicate economic weakness. The graph below clearly indicates the
problems that stocks have when the economy is weak, as indicated by the ISM readings.
Each dip under 50 has marked a downturn. Some of these were worse than others, but
the consistency is alarming.
S&P 500 with ISM Index Data (Monthly)
I bring this up today because economists are forecasting that the ISM index will come
in at 49.0. While that level is not a crushing blow to the economy, it's the last
thing this market needs right now. Keep an eye open for that 10:00 a.m. data, as it
may give you a critical clue about where things are headed.
KEY SUPPORT AND RESISTANCE LEVELS
SUPPORT RESISTANCE
Nasdaq Composite 1310 1370
S&P 500 830 875
Dow Industrials 7900 8090
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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