ISM Data

by Larry Levin

The real New Year begins Monday. Yes, last Friday was the first trading day of 2009; however, given the lack of volume it is easy to call into question Friday's gains. The market was up big for the week, and Friday alone saw the Dow close up nearly 3%. When all of the market's traders return from holiday vacations Monday, we'll see how solid those gains really were. Who knows, maybe it rallied enough to squelch the skepticism?

The rally certainly was due to good news; the ISM data was simply horrible. The Institute for Supply Management (ISM) reported Friday that U.S. manufacturing activity dropped to a 28-year low in December, as manufacturing contracted for the fifth straight month. The overall ISM index fell to 32.4% in December, the weakest reading since 1980, according to the institute. It's down from 36.2% in November.

Of course, most economists lived up to their record of being ass-backwards in their forecasts, which this time was a predicted rise in the ISM.

ISM readings above 50% indicate an expansion of the manufacturing economy, while readings below indicate a contraction. These recent excessively low readings signal ongoing recessionary conditions. The institute said that new orders now have contracted for 13 consecutive months, and are at the lowest level on record going back to January 1948! Manufacturing payrolls also shrank as the employment index fell to 29.9% from November's 34.2%. The institute's price index dropped to 18% from 25.5%.

Overall this report was a bad end to a bad quarter, and it gave no real sign of momentum going into early 2009, said Abiel Reinhart of J.P. Morgan.

This coming week will bring a lot more economic data. Will the market be able to ignore more bad news such as that above? Of all of the week's data, Friday's monthly employment report will be the most important.

Previous Day's Trading Room Results:

Trade Date: 1/2/09

E-Mini S&P Trades*
(before fees and commissions):

1) VA sell @ 8:35am at 903.50 = +1.50 (1 lot)

2) Algorithm positions (1)...combined daily total...+2.00

ZB (30 Year Bond) Trades*
(before fees and commissions):


1) No trades today.



Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!