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Philadelphia Fed falls to -4.8 in May

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The major indexes are pegged in the middle of this morning's trading range with the Dow Industrials hold a 35-point gain at 8,682 after further economic data released during today's session has yet to show any type of renewed economic growth prospects, but trade action continues to depict that of a market still discounting much of the data as being "war impacted" and not necessarily indicative of a rebounding economy with war-related fears wearing off.

The S&P 500 Index (SPX.X) 942 +0.32% holds a 3-point gain after trading back near unchanged levels from a session high of 948.23 on news that April industrial production fell 0.5%, which was slightly below the 0.4% decline forecasted by economists. As mentioned in this morning's 11:00 AM EST update at OptionInvestor.com, March business inventories showed a worse than expected 0.4% rise and most likely has this morning's industrial production showing a decline as adjustments were made by manufacturers on "lack of pull through" or demand.

There is still plenty of capacity utilization available at the nations factory level as April industrial production showed just 74.4% of the nations production capacity in use (lowest level since 1983). Economists had forecasted April capacity utilization at 74.5%. The lower levels of capacity utilization depicts plenty of capacity as roughly 24.5% of the nations production lines at the industrial level still await some type of demand dynamic to unfold before any type of ramp up in production would be initiated.

The major indexes did drip fractionally red just after today's release of the Philadelphia Fed Factory Index was release, which showed this regional index falling to a -4.8 reading in May, but up from its dismal -8.8 reading in April. Negative readings indicate that the manufacturing survey has business conditions deteriorating. The "bright spot" if any is the rate of deterioration abated in the recent month and perhaps gives bullish traders continued optimism that the market's pricing of stocks over the past month would have some type of improvement in upcoming economic data.

The string of monthly contraction in the Philadelphia area extended itself for a third-straight month and the longest run of contraction since the 13 months that ended in December 2001.

S&P 500 Index Chart - Weekly Intervals

Bears are scratching their heads as the major indexes continue to hold up well despite some very anemic economic data. Many traders "question" the market's action considering the economic data, but until we see some type of "internal" weakening, bearish traders still need to exercise some caution. From time to time, I'll show bar charts and at "inflection" or turning points in the major indexes, will go back and benchmark what the Bullish % charts were "saying" about market risk. Could it be that the market doesn't really listen to the economic data, but just oscillates from "overbought" and "oversold" levels of bullishness as depicted by the bullish % charts? Back in December 2001 we see that despite a 13-month negative reading in the Philadelphia Fed Factor Index, the SPX managed to stage an impressive rally despite a string of weak readings.

Last night's S&P 500 Bullish % ($BPSPX) reading from www.stockcharts.com showed the bullish % rising to 66.4%, so 332 of the 500 components now have a "buy signal" associated with their charts. Considering the higher level of bullishness, which nears the more "overbought" reading, it is my thinking/advice that new bullish positions can still be taken, but combining the weaker economic data and higher levels of risk for new bullish trades, caution is advised.

The ability for the SPX to have broken out of its longer-term downward channel is LONGER-TERM bullish and hints the bottom is in, but most likely, now is NOT the most opportune time to be "loading the boat" on bullish trades.

Jeff Bailey

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