It started out bad but we ended up OK...

Stocks opened sharply lower and the major indices were down more than 1 % within the first 60 minutes of the day. The down move ran out of momentum though and we started a slow but gradual climb towards the highs of the session which were made during the last hour of the day.

Some aggressive buying pushed all of the major indices to new highs within the last minutes of the day. The Dow closed + 44.28 points (+0.53 %) and the S&P was up 2.27 points (+ 0.25 %)

Today's only economic number was the June reading of the Institute of Supply Management's service sector index. The index is used to gauge the economic health of the US economy within the service sector only.

The index came in at 47.0 for June, a slight improvement over the May number which was 44.0. Analyst had expected a reading of 46.0...as such the number was slightly better than expected.

The one problem of course is that for the index to signify an expansion in business activities a reading of greater than 50 is needed.

Since the 47.0 is still below 50 the news is pretty simple...it is still bad (i.e. shrinking activity) but we are shrinking less than feared.

Not really great news.

It was actually a rather interesting day. Stock added to the heavy losses from Thursday right away but due to a lack of follow though the market never really "collapsed" as was initially feared.

It looked initially as if the market was going to just trade sideways but the last hour of the day had the buyers come out and we did manage a pretty good close. The one issue which raise some warning lights is the relative underperformance of the Nasdaq versus the Dow and the S&P. (the Nasdaq was actually down 0.5 %)

This kind of divergence is ordinarily not a good sign. It usually signals the shift of big money from one asset class into another and it does on occasion preempt a bigger move.

Since the Nasdaq seems to be falling out of favor (at least for today) my best guess is that some big money funds are preparing for another leg down in stocks.

Of course...one day of relative under performance does not mean that we will see a brake down in stock prices but at the very least it does raise a warning flag for me.

The Dow has broken its 30 day low today but managed to recover from it.
A renewed sell off leading to new 30 day lows would serve as a strong signal that short term trends are down.

On the other hand...if we are able to build on the 30 day lows stocks might use it is a base to rally from.

Either way, we might have an interesting week ahead of us.

Until tomorrow,

Steve Benger