Wednesday, September 5, 2012

Market Update - ISM and FDX

I wanted to quickly update my readers on two very important developments in the market today.

At 10 am eastern, we got a confirmation of global manufacturing contraction. Back-to-back monthly sub-50 reading on ISM Mfg PMI is the first since U.S. recession ended in 2009. There is still some room for disappointment, as you can see from the chart below, index has oscillated mainly between 45 and 60 for the last 30 or so years.
click on chart to enlarge
More importantly, I would like to point out the employment component. Printer-in-chief (Bernanke) is worried about stubbornly high unemployment, and is getting ready to fire up the printing press. He cut rates 10 times in 2007 - 08, and it still took years to reinvigorate the growth in employment back then. As the Fed Funds Rate is at 0% at the moment, I am finding it very hard to believe that his new efforts are going to pay off. ISM Mfg Employment Index is trending lower again, and it may influence NFP lower over time.
click on chart to enlarge
After the bell, FDX warned, as it pre-announced first earnings drop in three years. I quickly decided to plot it over IYT (Dow Jones Transportation Average ETF), and DIA (Dow Jones Industrial Average ETF). As you can see, the Transports are not confirming the new highs in the Industrials. This is called a Dow Theory Non-confirmation signal, and usually leads to a broad market sell-off.
Read FDX commentary on the reasons for the miss, and you will understand why the stock market is currently in the hands of a few puppet masters.
click on chart to enlarge

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