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Chicago PMI shows contraction in March

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The major equity indexes fell to their lows of the session, but have edged up from those lows after the Chicago purchasing managers index of manufacturing activity in that region fell from 62.4% in February to 49.1% in March, which was weaker than the 50.8% forecasted by economist.

The decline in the Chicago PMI below the 50% level reflected contraction in purchasing activity in the recent month, and the first dip back below the 50 level since October.

In March, new orders fell to 52.5 as the production index fell 13.3 points to 49.1.

Today's release of the March Chicago PMI data now portends a below 50% reading (contraction) for the national March ISM report, where economists have already forecasted a reading of 49%.

Current action has the Dow Industrials (INDU) 7,977 -2.06% falling 167 points, but off its lows of 7,920. The Dow fell sharply through my 8,000-8,050 level where I had been looking for bullish pullback entry points. In this morning's market monitor, I had a close eye on Treasury YIELDS and thought it best to sit the sidelines for a bullish entry and monitor things near-term. Since the lows were hit in the Dow, we did see a rally right back up to the 8,001 level, but a turn lower from that point. Currently, I would trade bullish a Dow move back above 8,015 and will take a bullish trade in the Dow Industrials if it trades 7,910 or lower, and would look for firm support at 7,844, which is this WEEK's S2 from the pivot matrix.

Sector action is broadly negative, with the Gold/Silver Index (XAU.X) 67.69 +1.42% the only sector showing gains and finds bids against a weaker U.S. Dollar Index (dx00y) 99.09 -0.87%, which has the dollar weaker against a basket of 7 major foreign currencies. A quick look at the Gold April Futures (gc03j) 335.20 +1.2% has this contract trying to break free from a recent test of its 200-day SMA at 330, with near-term upside to a declining 21-day SMA of 340.

Treasuries are finding some defensive buying. A key level we've got our eye on here is in the 10-year YIELD ($TNX.X) at 3.8%. Current YIELD on the 10-year ($TNX.X) is 3.806%, and morning low for YIELD has been 3.799%.

As it relates to a bullish trade in the Dow Industrials (INDU) above 8,015, equity traders would want to see a rebound taking place in the 10-year YIELD, brought on by selling in this bond, with YIELD rising somewhere above the 3.831% YIELD level.

Earlier this morning, all 30 Dow components were trading red, with shares of Altria (NYSE:MO) $29.03 -9.64% getting hammered on "bankruptcy fears." Standard and Poors cautioned that Philip Morris USA might have to consider bankruptcy if unable to raise the bond amount for its Illinois court case. According to the Wall Street Journal, Philip Morris USA has stated that it is presently uncertain if it will be able to make its next payments to state governments under the 1998 tobacco settlement because of the large bond being required in the Illinois case. The company says "it is not financially able to post the enormous bond that the Madison County court has demanded.

Two Dow components, Johnson & Johnson (NYSE:JNJ) $57.80 +0.73% and Procter & Gamble (NYSE:PG) $89.35 +0.8% have been able to claw their way back into positive territory, and appear to be the first two stocks that have helped lift the Dow from its lows.

Jeff Bailey

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