Option Investor
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Stocks mixed, despite economic data

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It's a spattering of red and green across the various market averages and indexes we follow on a daily basis after this morning's economic data showed the ISM non-manufacturing index rising to 60.1% in May, which was above April's 55.3% reading and well above economists' estimates for a 56.0% gain. May's ISM non-manufacturing reading of 60.1% is the highest level since August 2000.

New order in the non-manufacturing area of the economy inched higher to 56.8% from 56.4%. Employment rose to 49.5% from 48.9%, but the sub-index is still below the 50% level that would otherwise signal net job growth.

The prices paid sub-index fell to 55.5% from 59.5%, hinting that wage inflation remains tame. Order backlogs rose to 53.5%, the first time this sub-index has been above the 50% level since December 2000 and a sign that production may ramp up soon to meet the rising demand.

Inventories fell to 48.5%, showing that firms cut their inventories after three-months of adding to stocks. Here too the 48.5% rate is below the 50% level of expansion.

Of the 16 non-manufacturing industries followed, 13 showed expansion in May.

The ISM services index does not have the track record or respect that the ISM manufacturing index enjoys.

The AMEX Retail HOLDRS (AMEX:RTH) $94.21 +2.23% and the Dow Jones Home Construction Index (DJUSHB) 353.67 +2.34% are leading the sector gainers list, and both would have been expected to be impacted by the ISM non-manufacturing data.

Today's sector losses are rather limited, but the Gold/Silver Index (XAU.X) 82.09 -4.1% leads decliners with little news of inflation and some substantial gains in recent weeks most likely finding profit taking.

Jeff Bailey
Senior Market Technician
Option Investor

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