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NAPM number spooks market, but bears still wait

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Stocks dipped into negative territory after today's National Association of Purchasing Management (NAPM) report that showed its monthly index falling to 39.8 in October, from 47.0 in September. This is the lowest reading in the index since February of 1991. The declines in production and new orders are among the largest in the history of these reports, which began in 1931.

NAPM readings under 50 show most firms see declining activity and has been showing levels below 50 for 15 months. Economists were expecting today's NAPM number to be at the 44.3 level.

The broader market averages fell back just after the release of the NAPM number, almost as if a late Halloween spooking, but stocks have since moved back into positive territory leaving bearish traders waiting for their treats.

S&P 500 Index Chart -

The S&P 500 fell to an early session low of 1,054 just after today's NAPM number, but have battled back into positive territory. Recent pullback near the 1,050 level have found buyers and this may be frustrating bearish traders that are looking for a break at that level to see potential decline to psychological support of 1,000. Recent breaks above the 50-day moving average have been hard to hold for bulls as poor economic data and threats of terrorism have weighed on investor's minds.

S&P 500 Bullish % - 2% box

The bullish percent chart ($BPSPX) tells us that the bulls took possession of the football back in early October when the bullish percent chart reversed 3 boxes to 22% bullish and this portion of the market entered an early bull phase called "bull alert." It would take a reversal lower of 3 boxes to 40% for us to begin thinking that the bears had the football once again. Using the bullish percent data along with the bar chart gives hint that a reversal lower in the bullish percent chart might coincide with a breaking of the 1,050 level in the S&P 500.

Jeff Bailey
Senior Market Technician
Option Investor

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