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Strong ISM Gives Stocks a Boost

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Strong ISM Gives Stocks a Boost

Stocks in the US started the third quarter on a positive note as investors sentiment turned positive at the end of the second quarter.  It seems that investors overreacted to comments about tapering from Chairman Ben Bernanke, which has been clarified by other members of the FOMC post the last Federal Reserve interest rate meeting.

Stock investors turned their focus to economic data on Monday, beginning with June’s ISM manufacturing report.  Later in the week investors will need to focus on the ADP private payroll report and the Department of Labor’s non-farm payroll report.

According to the Institute of Supply Management, the ISM nation manufacturing index rose to 50.9 in June from 49.0 in May, beating economists’ estimates for a rise to 50.5.  The sub-components of the report saw gains with new orders and production moving into expansion mode.  One worrying component was employment which should allow interest rates to remain subdued.  According to the ISM, the employment sub-index fell to 48.7 in June from 50.1 in May, marking the lowest reading since September 2009.

The US stock market still was not getting any help from the European economy.  According to the official statistics agency unemployment in the Eurozone increased to 12.1% in May from 12.0% in April to reach its highest level since records began in 1995. Despite this weak number, most European markets edged higher.

The S&P 500 large cap index tested resistance near the 50-day moving average before settling off its highs near 2927.  A close above resistance would lead to a test of 3000, and then the May highs near 3050. Momentum is gaining traction with the MACD poised to generate a buy signal.  This occurs when the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread.

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