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NAPM number shows some positives

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Stocks were mixed to lower just before today's National Association of Purchasing Management numbers were released. Today's released report shows that the NAPM index rose to 44.7% in June, which was higher than May's reading of 42.1%. While a reading under 50% indicates a decline in manufacturing activity, today's higher number does show that fewer companies were showing deteriorating conditions. While the NAPM number still is one of concern to signs of the economy recovering, today's number was higher than many economists had forecasted. Economists had expected the NAPM number to come in at 42.9%. The string of NAPM numbers coming in under the 50% level now stands at 11, but today's reading is the highest reading of the 11 months. This is what really looks to have turned stocks higher during the session and last weeks selling in bonds looks to have some cash from those sales finding its way into stocks today.

S&P 500 Index - last 10 months

The S&P 500 Index (SPX.X) has been hovering around the 1,237 level for the past two hours and our "fitted" retracement bracket on this index may give hint as to why. We'd like to see the SPX.X trade the 1,238 level on a closing basis and get itself above the 50% retracement level. A close above the 1,238 or trading above this level near sessions end may find market participants buying the close and looking for a follow through bullish session. According to the Stock Trader's Almanac, the first trading day of July (today) has been higher 11 of the last 12 times.

CBOE Internet Index Chart - last 7 months

I still think the CBOE Internet Index (INX.X) is a great index to be monitoring to get a pulse on the aggressiveness of the market. In late May we felt the weakening of this index from the 230 level was a sign that bulls were getting less aggressive from the buy side, but current action and a close above 187 might indicated that bulls are once again getting aggressive. If we correlated this index using the same retracement "fitting" technique we've been teaching, it can give the bullish and bearish trader more confidence with their trades. My thinking is this. Should we see the INX.X trade above the 187 level and the SPX trade above the 1,238 level there might just be an early fireworks show ahead of the 4th of July!

Jeff Bailey
Senior Market Technician
www.PremierMarkets.com

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