Stocks Pop, Then Drop Following Weaker ISM Data

The index managed to fill the gap from Friday’s drop at the open and reversed lower once the gap was filled. The weakness came following the ISM manufacturing report, which was worse than expected and suggests that growth may be slowing faster than the consensus viewpoint. This sent yields and spread sharply lower.

We still have a lower sloping RSI, MACD, and advance/decline line. Additionally, the index appears to want to move lower towards that trend line around 4,330.

Yields on the 10-year Treasury note moved sharply lower Monday following the weaker than expected ISM reading. The yield curve continued to flatten, and while many speculated on the reason, the only one that mattered was that the flatter curve was telling bonds were worried about future growth rates. Based on the 10-year, it would seem that rates still have further to fall and have not bottomed yet. We could see 1.12% relatively soon.

This isn’t good for the reflation trade, and yestereday, the Invesco S&P 500® Equal Weight ETF (NYSE:RSP) started sharply higher up by nearly 1% but managed to finish the day down 15 bps. The RSP was starting to look like a failed breakout attempt, but it was still too early to say for sure.

Bank of America (NYSE:BAC) looked weak, and it should, given the falling rate and contracting spread environment. However, $37 looked like one place it could stop falling.

Ford Motor Company (NYSE:F) has given back all of its post-earnings gains, with a clear downtrend and support somewhere around $12.75. (NASDAQ:AMZN) had a fairly weak response today to Friday’s big sell-off, with the stock finishing the day flat. It probably doesn’t speak very well of what is to come. Given the weaker growth outlook, it seems lower prices are likely to come, with the next level of support at 3,160.

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