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Index Wrap

Manufacturing puts its best hoof forward

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The major equity indices finished today's session with gains, while the U.S. dollar jumped against major foreign currencies with the U.S. Dollar Index (dx00y) 93.68 +1.02% gaining 0.95 points after the Institute for Supply Management (ISM) said its manufacturing diffusion index rose 3.3 points in October to 57.0, the strongest monthly gain since December 1999.

The news out of the manufacturing sector had the S&P 500 Index (SPX.X) 1,059.02 +0.79% breaking to new highs, as October's gains in the ISM helped increase bullish optimism that the recently reported Q3 Gross Domestic Product annual growth of 7.2% may have the manufacturing sector carrying further momentum into the fourth quarter.

While October's 57.0 reading was well above economists' forecast of 55.9 and September's 53.7, the new orders component gained to 64.3, while production rose to a 62.6 reading; both signaling further expansion. With new orders still ramping, a low inventories reading of 44.5 showed demand pulling inventories off the shelf and had backlogs continuing to rise to 53.5.

Employment continues to struggle, but did show modest improvement in October with a 47.7 reading. The ISM says payroll is considered neutral at 47.5.

The prices paid component continued to bounce either side of 55.0 as pricing power for output remained weak. The weaker dollar, which hit multi-year lows in October versus the yen and euro helped boost new export orders to 59.6, as did stronger global growth.

It didn't take bulls long to get some early tests of WEEKLY R1s in the pivot matrix, helped in part by a bullish report this morning out of the Semiconductor Industry Association (SIA) showing year-over-year growth up from 14% to 17%.

ThinkEquity felt the data was surprisingly bullish as the robust September replaced the month of June, where the data suggests the strength appears to have held up in October. ThinkEquity also felt the lunar new year coming much earlier than normal (late January) may also have been responsible for the stronger results. The SIA data also hinted that high-performance analog demand was strong, which reinforced ThinkEquity's belief that during the second half of the chip recovery underway, company's like Texas Instruments (NYSE:TXN) $29.93 +3.49% and STMicroelectronics (NYSE:STM) $27.22 +2.17% were large cap names that might benefit most ahead of quarterly earnings out of Dell Computer (NASDAQ:DELL) $36.52 +1.44% and Cisco Systems (NASDAQ:CSCO) $21.71 +3.72%, where ThinkEquity looks for both companies to upwardly revise guidance.

The Semiconductor Index (SOX.X) 515.77 +3.87% was today's sector winner, while a rebound in the dollar found the AMEX Gold Bugs Index ($HUI.X) 208.86 -3.37% today's sector loser.

Pivot Analysis Matrix -

While nothing is certain, today's close above the 1,051.20 level for the December S&P futures contract (sp03z) marks the first close above this key level of resistance and looks to have a bullish bias now building to 1,073.30.

This would be pretty close to the cash SPX MONTHLY R1 of 1,071.01, where we also see some overlapping support forming at the MONTHLY Pivot of 1,033.49 and WEEKLY S1 of 1,035.57.

Lets keep WEEKLY S1 and MONTHLY Pivot in our minds as we enter a new week and new month, where new 52-week highs most likely has sellers few with the major indices showing strength above what had been deemed a cement ceiling the last couple of weeks.

Still, bulls should not be complacent, but once again will have confidence to buy a pullback, with the thought the bears will also be looking to limit exposure as a new 52-week high has been witnessed.

December S&P futures (sp03z) - Daily Interval

Ability of S&P futures (sp03z) to settle above 1,051.20 builds bullish bias to 1,073.30. It would appear that recent pullback in sp03z seemed to find settlement very close to 1,029.10 as if traders were trying to square up positions at that level, and today's ability to settle above 1,051.20 gives upside to 1,073.30. Note the 4-point disparity between future and cash, as this ties to important support for October at the MONTHLY Pivot in the SPX (cash) at 1,033.49.

S&P 500 Index (SPX.X) - Daily Interval

SPX traded WEEKLY R1 today, and while bullish, also shows similarity to original scenario that SPX might duplicate its mid- September trade and new 52-week high. MACD above signal gives confirmation to upward trend, but Stochastics now "overbought" should have swing-trade bull looking to guard profits, raise some cash, and look for new bull entries on pullback, where Stochastics at "oversold" have been good entries. I've found it difficult to precisely forecast "trough" pullback points as Stochastics oscillator can move quickly to oversold, where 1,044 becomes near-term support, while 1,033-1,035 a much nicer bullish entry point, both with targets back higher to 1,068-1,069.

In a past Index Trader Wrap, I did think an AGGRESSIVE BEAR could look for a partial bearish position if/when the SPX made a new high similar to that found in mid-September, like we saw today, but I'd prefer to let tomorrow's trade develop and try to get a good action point for weakness for a trade entry on Wednesday. An AGGRESSIVE BEAR might look for an entry tomorrow, but higher at 1,068-1,069, where from that point, I would think high likelihood of SPX pullback to at least 1,044-1,047.

Today's trade saw a net gain of 2 stocks to reversing point and figure buy signals in the broad S&P 500 Bullish % ($BPSPX). Still "bull confirmed" status at 80.4%.

S&P 100 Index (OEX.X) Chart - Daily Interval

MSFT getting nice bounce from its 200-day SMA, but GE finds resistance at trending lower 21-day SMA ($29.08) and looks like it wants to trade its 200-day SMA of $27.91. This gives mixed look to OEX's two largest-weighted stock and has me thinking OEX MAX WEEKLY gain of 527, so not excited about any new bullish positions here. Look for pullback entry once again near 513, where WKLY S1 now marks this summer's (June) relative highs.

Today's trade saw no net change in the narrower S&P 100 Bullish % ($BPOEX). Still "bull correction" status at 79%.

Dow Industrials Chart (INDU) - Daily Intervals

The price-weighted Dow Industrials traded overlapping resistance of 9,896.3, and didn't get some needed help today from its heavyweight PG, which traded a 52-week high yesterday, but fell back today. INDU as well as PG may need to reload, but I think destiny calls for PG to trade $100.00, when INDU trades 10,000.

On Friday, AT&T (NYSE:T) $18.87 +1.50 traded $18.50 and that was a double-bottom sell signal. That had the very narrower Dow Industrials Bullish % ($BPINDU) slipping 3.33% to 80.00%. There was no change on the bullish % chart (2% box scale), but still "bull correction" status at 80.00%.

NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Intervals

QQQ edged up to a 52-week high, but not euphoria I would have thought on semiconductors. Ideal pullback entry would be $34.49- $34.60 ahead of CSCO's earnings. CSCO did break to new 52-week high today, and on bullish guidance going forward, could get the more "euphoric" QQQ pop to $36.61-$36.85 level.

QQQ targetto $36.61-$36.85 also a potential should MSFT fill to the upside its recent gap lower. Hey! With Sun Microsystems (NASDAQ:SUNW) $4.38 +11.1% getting a bounce in recent session, MSFT looks "cheap" on fundamental comparison.

Today's trade saw a net loss of 1 stock to a point and figure sell signal as the NASDAQ-100 Bullish % ($BPNDX) slipped lower by 1% to 76.00%. Still "bear correction" status and would take a further bullish reading of 82% to achieve "bull confirmed," while a lower reading of 72% is needed to reverse back lower to "bear confirmed."

Jeff Bailey

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