Despite positive economic data early in the session, the major averages remained unfazed during first hours of today’s trading. The market again kept its negative bias as crude oil pushed back towards yesterday’s all-time high of $143.67. The upside was mostly fueled by an ABC report that said Israel may be preparing to attack Iranian nuclear facilities later this year.
The Dow and Nasdaq gapped higher after 10:00ET on the back of two pieces of better than expected economic data. Construction fell 0.4% in May, which was better than the consensus expected. Economists forecast was a 0.6% downturn. Meanwhile, sequential growth in the prior month was revised upward to a 0.1% decline.
June ISM Manufacturing Index came in at 50.2%, showing expansion from 49.6 in May, beating the consensus expected drop to 48.0. Stronger components included the production index, which increased to 51.5 from 51.2, and the backlog of orders index, which increased to 47.5 from 46.0.
Today’s ISM Manufacturing index report is a bullish sign for the US economy and remains consistent with a real GDP growth rate of about 2.7% based on the average index level of 49.5 in Q2 of fiscal ’08. The major averages trended higher over the next hour, regaining all of their opening losses, led by a rebounding financial sector.
But in a thin market, with treasury prices gaining as investors sought safer places to park their money, two pieces of economic data were not enough to hold struggling stocks up. The indices were hitting new lows for the day at mid-session as the price of oil continued to pressure the market. The downside was also helped by a sharp drop in sales at Ford Motor Co. (F) reported its North American auto sales during June fell 28.1% year-over-year. Shares of the company are down more than 30% year-to-date, trading at a multi-year low.
Given the early market slide it didn’t look like a recovery was in the cards however, improved positive bias and some bargain hunting was to be expected after a dismal first half. This brought into play resistance levels of 2304/2312 for Nasdaq Comp, 1284/1285 for S&P 500 and 11400/11410 for the Dow.
Next resistance zones of interest above are at 2320/2325, 1290/1291 and 11470/11480 respectively.
In other news
The ISM prices paid index hit 91.5 versus an expected reading of 87.0 showing further signs that inflation remains a deteriorating issue that must be addressed. Private non-residential construction (business structures) increased 0.2% in May and is up 16.6% versus last year.
– Shares of Lehman Brothers (LEH) and Goldman Sachs (GS) were initiated with an Overweight rating at Morgan Stanley. Earnings estimates and price targets were cut for Bank of America (BAC) and Wachovia (WB) at Credit Suisse.
– WSJ reported InBev urged Anheuser-Busch (BUD) to accept its $46.35 billion buyout offer and offered a fresh indication that it is willing to pursue a hostile bid.