Chicago PMI Sinks Stocks

Last night there were some solid earnings reports from the likes of Nike (NKE), Jabil Circuit (JBL) and Micron (MU). And this morning there was a better than expected GDP report, with Q2 GDP being revised upward to -0.7%, better than the -1.2% rate expected.

The futures were trading higher before the market opened, but when the Chicago Purchasing Managers Index was released, the market was hit with a sharp selloff. The Chicago PMI came in at 46.1, which is well below the 52.0 level expected. It was also below the 50 reading from August.

The Chicago PMI is not normally a big market moving event, so I'm not sure why it elicited such a strong reaction today. I would have thought that quarter-end buying would have provided more of a cushion to the news. Of course, the day is still young, so anything can happen.

The S&P 500 bounced off its 20-day average this morning around 1046, and is currently back above the 1050 level. The Nasdaq is seeing similar price action.

The dollar is lower today, providing a lift to commodity prices. Oil is slightly higher, trading near $67, while gold prices are trying to get back above $1000 (currently $998).

Asian markets were mixed overnight; the 10-year yield is flat near 3.29%; and the VIX is +2.2%higher to 25.75.

Trading comment: I continue to look for opportunities to add in small increments to stocks that have pulled back. The stair-step market is still in effect, and trading opportunities abound. The market is also working off its recent overbought condition, and sentiment has yet to become overly bullish.

Some might question that last statement when looking at this week's BusinessWeek cover. It shows a long staircase higher, and talks about why the market can continue to go up. Staircase? Have they been reading In The Money? Anyway, I haven't read the article yet, just mentioning it as a sentiment indicator.

Home Price Index Shows Small Improvement

The market is roughly flat in early trading after a very nice rally yesterday. The CaseShiller Home Price Index rose for the third straight month in July, rising to 144.2 from 141.9. The 20-city composite still fell -13.3%, but that was less than the -14.2% consensus.

Weighing on sentiment this morning was the Consumer Confidence Index for September which came in at 53.1, which is below the 57.0 expectations.

Asian markets were higher overnight, following the U.S. markets yesterday and also a report that the IMF will revise its 2010 global economic forecast higher, with output expected to now grow +3.0%, up from its previous forecast of +2.5%.

The dollar is higher today, which is weighing on commodity prices. Oil is down near $66.60, while gold is also lower around $991. The 10-year yield is roughly flat near 3.30%; and the VIX is up a bit to 25.14.

Consumer staples, healthcare, and homebuilders are leading so far; energy and real estate shares are the weakest.

Monday Morning Musings: Are Merger Mondays Back?

Although it is mostly a slow news morning, as well as a Jewish holiday, there was a flurry of M&A news before the bell:

• Xerox (XRX) is acquiring Affiliated Computer Services (ACS) for $6.4 billion;
• Abbot Labs (ABT) is buying Solvay's pharma business for $6.6 billion;
• American Securities is buying GenTek (GETI) for $38 per share

The stock market is getting a nice boost this morning, after a big down week last week. I suspect that some of this buying is window dressing related to quarter end on Wednesday. Tech stocks are up strong, led by semis, but all 10 S&P sectors are participating.

Asian markets were down across the board overnight, but Europe was higher after Germany's Chancellor Merkel was reelected. The dollar is a bit lower again for the third day, helping boost commodity prices. Oil is higher near $66.50 and gold is up to $995, struggling to get back over the $1000 mark.

The 10-year yield is lower again, to 3.31%; and the VIX is also down today at 25.30 following a 3 day bounce in this index.

Trading comment: I put some money to work Friday. I added to our RIMM positions, and also added to some of our mutual fund holdings in accounts where I had too much cash.

I need to finish my sentiment roundup, and then I will comment on what the indicators are saying. But for the most part, it looks like investor sentiment remains sufficiently skeptical to allow the stair-step market to continue working.

long RIMM

Research In Motion Is A Compelling Buy

As promised on Friday, here is a copy of my coverage of RIMM's conference call from TheStreet.com:

Research In Motion (RIMM) reported a mixed quarter in terms of both results and guidance. EPS came in 3 cents ahead, which wasn't bad, but revenue was light at $3.53 billion. Gross margins were solid at 44.1%, ASPs were in line at $345, and new subscribers and handsets were a touch light at 3.8 million and 8.3 million, respectively.

Guidance was also a bit of a mixed bag. EPS for next quarter is forecast in the range of $1.00 to $1.08 (vs. $1.05 consensus), and revenue is projected to be in the range of $3.6 billion to $3.85 billion (vs. $3.92 billion consensus). I believe the double whammy of missing top-line estimates this quarter and then issuing revenue guidance below Street estimates is what is hitting the stock in after-hours trading. Traders seemed primed to sell the stock on anything but a blowout quarter, so this news has given them ample reason to sell, and probably reason for the shorts to pile on.

However, there were some solid aspects to guidance as well. Gross margins are forecast to be strong again at 43%, and total handsets shipped are forecast to be 9.2 million to 9.9 million, nicely higher than current Street estimates (which are around 9.30). Also, while ASPs are expected to come down, the CEO made the point that the higher ASP products that are launching next quarter aren't scheduled to ship until later in the quarter, and that will make ASPs look a little low on paper, due to the mix.

The CEO was also quick to point out to the analysts who were focusing on ASPs not to lose focus of the big picture. Smartphones are going "mainstream," he said, and the company is focusing on the "land grab." What I inferred from this was that the big picture is that there is a huge pie out there to take advantage of, and they want to get their share. So they will continue to roll out smartphones at the low, medium and high ends of the spectrum in order to grab as much share as possible.

RIMM's management does seem slightly less polished than those at some other big tech companies. I think this idea, combined with the fact that their quarterly results are sometimes "less clean" than others (think Apple (AAPL) ), is one of the main reasons for the discount valuation in the share price. But I don't want that to let me lose sight of the bigger picture, and that is that the secular growth in the smartphone market is strong enough that this company will continue to see solid growth and profitability going forward.

As for the stock, it will surely be down tomorrow, likely in the low $70s. I would not be surprised to see several analyst downgrades that will add additional pressure to the shares. I view this decline as a good buying opportunity. I think it is likely the company can earn $5 a share next year, which makes the current P/E near 15 times. That is too cheap for this company, and I think the stock can trade up to $100 over the next year. That makes RIMM now one of the most attractive buy candidates on my radar.

long AAPL, RIMM

Happy Friday, Except For The Stock Market

Last night I went to see Australian Pink Floyd play. I think it might have been one of the best cover bands I have ever seen. They played the Nokia Center, and the show was phenomenal. I highly recommend it, if you're a fan.

In the land of flickering ticks, stocks are modestly lower, despite several news items that came in on the negative side of the ledger. First, Research In Motion (RIMM) reported an okay earnings report last night, but the negative reaction this morning is intense, driving the stock some -15% lower. I think that is an overreaction, and I will post my comments from the conference call (done for TheStreet.com) later.

There were also some weaker than expected economic reports. Durable goods for August decreased -2.4%, well below the +0.4% increase expected. New home sales for August came in at a rate of 429,000, which is a little below expectations of 440,000.

Last, there was some chest puffing by Iran, who admitted to having a second nuclear facility. Does anyone else find the timing of the announcement nicely planned ahead of the Jewish holiday on Monday?

The dollar is giving back some of its gains this morning, which is boosting oil prices ($66.50), but not helping gold prices, which are back down near $993.

Asian markets were lower across the board overnight; the 10-year yield is also lower to 3.36%; and the VIX is slightly higher to 25.47.

Trading comment: The market has now pulled back roughly 3-3.5% from its intraday highs this week. I am not looking for much more of a correction than that, at least not at this point, so I would look to use further weakness as an opportunity to put some cash to work.

There are several "ifs" that could continue to pressure the market (like China continuing to fall, the dollar spiking and commodities tanking, etc.), but bearish sentiment is on the rise again and if it continues to spike, I see this pullback playing out like the many that have come before it in recent months.

long RIMM

Getting Back In The Saddle

It has been a rough couple of days with my eyes healing, but today they are a little better and I am going to try to put in a full day. If anyone out there has had PRK surgery, I'd love to hear your story.

Today we have a FOMC meeting, so I would expect that action in the market to be a bit muted until after the announcement. There is some chatter that the Fed has been calling around and inquiring about reverse repos, which is Fed-speak for one of the initial steps it would take to remove some of this liquidity it has flooded the system with.

I think this talk is very premature. If the Fed is talking about this, it is just so that it can be crystal clear when the time comes, and have no surprises. I expect today's statement from the FOMC to be little changed from the previous one. I doubt there will be any hint at withdrawing liquidity at this time, as the economic recovery is just taking hold.

The stock market has continued to stair-step higher this month, confounding those who said we would surely get a September correction. I suspect quarter-end window dressing could also start playing a factor as we get closer to month end, making a large correction even less likely, at least for more than a day or two.

The dollar is up today, weighing on commodities; energy and materials stocks are down the most, while consumer staples and tech are up on the day; the 10-year yield is flat near 3.45%; and the VIX is also flat around 23.09.

Trading comment: I have not made too many adjustments to our portfolios this week. Today, RIMM is breaking out to a new high, but it reports earnings on Thursday so I might consider taking some partial profits ahead of earnings. Otherwise, most of our positions continue to act well. Participation remains broad, and group rotation continues to benefit the overall market despite the current overbought condition.

long RIMM

No Blogging Today

I had laser eye surgery over the weekend, and my eyes are still healing. I was hoping to be fully up to speed by now, but my vision is still blurry. As such, I'm going to try to rest my eyes more today and will not be blogging.

Thanks--

Slow Friday For News, But Expiration Still Looms

The market is up slightly in early trading. Yesterday looked like it was going to be a pretty big selloff, but the market again found its footing late in the day and closed down only slightly on the session.

There is not much in the way of market moving news this morning. We could get some volatility into the close at today is quadruple witching options expiration and also the quarterly rebalancing of the S&P indexes.

Asian markets were lower overnight, led by a 3.2% decline in China; the dollar is bouncing this morning, which is weighing on oil and gold prices, but just barely; the 10-year yield is trading higher at 3.43%; and the VIX is getting a small bounce, up +2.2% to 24.17.

Trading comment: My chart yesterday showed one example of how overbought this market is right now. That is keeping me from making any new buys at the moment, but I will likely look to do so on any shallow pullback. I still think a lot of investors are underinvested and could look to put money to work ahead of quarter-end. This phenomenon could also continue right into October, when many mutual funds have their fiscal year ends.

Chart of the Day: S&P 500 Most Overbought Since 1983

The chart above comes from the good folks at Bespoke Investment Group.

It shows the how far the S&P 500 currently trades above its 200-day moving average. Currently, the SPX sits more than 20% above that long-term average. This is an extreme overbought reading, and its also the highest reading in this indicator since 1983.

That's a pretty surprising statistic, and one that supports the notion that the market has run too far to make new buys at these levels. I have been raising a little cash, and will look to use any pullback to try to buy some things lower.

Beyond that, the interesting thing about this statistic is that while 1983 was the first year of the big market liftoff that started in 1982, it was still the beginning of a multi-year bull market. It was not a good long-term sell signal.

Sometimes being overbought can be a good thing. In this case, earlier this year the market got the most oversold its been since the 1930s, so the fact that we're not at an extreme overbought condition could just be a reflexive more back to more "normal" levels in the market.

Regardless of trying to nail the next short-term wiggle in the market, I think the market will continue to work its way higher into year-end and next year. I think it is likely that at some point we will reach those pre-Lehman levels of 1200 on the S&P 500.

Stocks Continue Steady Climb Higher, Defying September Jinx

Stocks are higher again in early trading, after putting in a very strong session yesterday. The market is again overbought, but that hasn't meant all that much recently. Each and every dip has been bought quickly by investment managers, many of whom are likely either underinvested or trailing their benchmarks and thus feeling performance anxiety.

In economic news, housing starts for August hit an annualized rate of 598,000, which was in-line with expectations. Also, initial jobless claims for the week fell to 545,000, which is below consensus of 557,000, so that's a small positive.

In corporate news, Oracle (ORCL) reported an in-line quarter, with revenues slightly light. The stock is trading lower on the news. Financials and materials are the leading sectors this morning, while staples and utilities are lagging for the second day.

Asian markets were higher overnight. The Bank of Japan kept interest rates at 0.1% and upgraded its view of their economy. But the central bank still sees downside risk and is expected to keep rates at low levels into 2011.

The dollar is mixed this morning, as are commodities. Oil is trading firm around $72.50, while gold is slightly lower today, but not by much ($1019). The 10-year yield is lower to 3.43%; and the VIX is lower again to 23.40.

Trading comment: Yesterday we took some profits on our gold etf and materials stocks. Our volatility etf has been under pressure since we bought it last week, but the VIX looks to be holding the 23 level. I also think bond yields have been holding and could see a brief pop, maybe on some of these Treasury auctions that look to increase in size in the near-term.

Other than that, being active trading around our individual stock positions has been good. There are a lot of stocks on the move, and if you take the time, there is no shortage of trading ideas out there. Good luck.

long TBT, VXX

Higher Gold Prices Not Necessarily Indicating Inflation

Sorry for no posts yesterday. I was in San Diego attending the annual Schwab conference. I also had a chance to stop off and do some surfing at San Onofre on the drive back. What a great spot.

Anyway, the markets are higher again this morning. Lately, it has felt that whenever the markets opened weaker in the morning, they regained their footing and finished in positive territory by the close.

That is textbook bull market action, and could be indicating that money continues to trickle in off the sidelines. Of course, it could also be exacerbated by traders that are trying to short things early on, but when the shorts can't gain any traction, they cover by the end of the day.

This morning's economic releases were essentially in-line. The August CPI rose +0.4% for the month, vs. +0.3% consensus. Also, capacity utilization rose slightly in August to 69.6% from 69.0% in July. At this low level of resource utilization, we are still a long way off from having to worry about inflation. There is simply too much slack in the economy right now.

The dollar is lower again today, helping push gold prices back north of $1000. While some think the rise in gold is a forward indicator of inflation, I think it is more a currency phenomenon. First off, as countries try to push their currencies lower to make their good more attractive on the global market, gold benefits.

Also, as central banks like China diversify their holdings, they are likely steady buyers of gold right now. But if inflation were truly a coming problem, I would expect to see bond yields moving higher also. Currently, bond yields are moving lower, indicating the bond market remains equally concerned that deflation is still just as much of a risk.

Asian markets were strong overnight; the 10-year yield is steady at 3.44%; and the VIX is creeping lower, falling to 23.22. Economically sensitive groups such as financials and energy are leading the action so far, while defensive groups like consumer staples and utilities are lagging.

Trading comment: It has already been a busy morning of trading here. I have been trimming our precious metals and materials holdings as they have had big runs. I took partial profits on our gold etf, sold a silver position, and also sold a steel stock. I like to take profits after big runs, and then look to possibly reload these trades on pullbacks.

This continues to be a difficult market to trade for all but the uber-aggressive. Most attempts to hedge or raise cash have proved overly conservative. While I continue to take profits on things that have run, the key so far is to get back in on pullbacks quickly, as dips during this long run have rarely lasted more than a few days.

long GLD, VXX

Monday Morning Musings: Are Chinese Tariffs A Bad Idea?

The market was lower in pre-market trading after the U.S. announced it would impose tariffs on Chinese tire imports. In response, the Chinese threatened to restrict chicken and auto imports from the U.S.

A trade war with China is a terrible idea, especially since the U.S. currently relies on the kindness of strangers (namely China) to finance its trade deficit and actively buy our Treasury bonds. It will be interesting to see how this unfolds, and how the President reacts to China.

The market had been lower in early trading, but has since again climbed back into positive territory. Materials and industrials are strong, while financials and staples are lagging.

Other than that, there is not much in the way of market moving news. The dollar is roughly flat, after a bounce in early trading. Commodities are a bit lower, with crude oil down near $69, and gold slightly lower as well.

Asian markets closed lower across the board overnight; the 10-year yield is a bit higher to 3.38%; and the VIX is +2% higher to 24.68.

Trading comment: I am taking further profits in WYNN on this morning's spike higher. The stock looks a bit extended, and could pull back. My other positions are doing fine, especially tech which has held up great. GOOG is slowly making new highs for the year, and hopefully RIMM can continue to play catch-up to AAPL.

On a personal note, I am not one to drop names, but over the weekend I had the pleasure of attending one of the most beautiful weddings I have ever been to at the Pelican Hill resort in Newport Beach. My friend married the daughter of the CEO of one of the major homebuilders in the country (and all of his competitors were invited also, funny), and as you can imagine, every aspect of the weekend was first class. I brought my whole family down, and we truly had a great weekend. Congratulations to the new Mr. & Mrs. Ozar--

long AAPL, GOOG, RIMM, WYNN

If Sentiment Is Improving On Wall Street and Main Steet, Why Are Big Investors So Bearish?

The market is continuing its stair-step higher, after some upbeat reports hit the wires this morning.

First, FedEx (FDX), which is considered to be a good barometer for the overall economy, raised its earnings guidance and said its seeing signs of improvement in the economy. Also, the Univ. of Michigan consumer sentiment survey rose to 70.2, up strongly from the 65.7 reading seen in August.

With signs of an improving economy, and positive signals coming from the daily action in the stock market, it is surprising to see so many large investors still so bearish. I recently stated that while many expected a pullback in September, if bearish sentiment spiked higher the way it did back in July, that would likely mean another shallow pullback at best. And that is exactly what transpired.

To wit, today's release from Greenwich Alternative Investments showed a huge increase in bearish sentiment among Macro Managers. Those managers that are bullish fell from 40% in August to just 13% in September, while bearish sentiment rose from 50% to 66%. Additionally, the AAII survey yesterday showed bulls dropped to 37%, while bears rose to 44%. I am surprised to see bears outnumber bulls at the same time the market is making new yearly highs.

Until we see a more pronounced rise in bullishness, I think that the pattern of shallow pullbacks will continue. The 10-year yield is down again today, to 3.29%. The persistent drop in yields is a bit concerning to me, and something to keep an eye on.

Trading comment: I am taking partial profits in some recent trades, WYNN and PAAS. Both have had nice bounces. These moves don't make me less bullish, I just want to be active in taking profits and trading around my positions.

long PAAS, WYNN

Stocks Creep Higher As Companies Issue Mixed Guidance

The market was down a bit in early trading, but has since climbed back into positive territory. President Obama gave a speech last night on healthcare reform. I missed the speech, but the jist is that the size of the plan would be $900 billion over 10 years and funded with spending cuts and tax increases. Healthcare stocks are up so far, in-line with the market.

A few companies updated their earnings guidance last night, with mixed outlooks. Proctor & Gamble (PG) issued in-line guidance, and its stock is nicely higher; Texas Instruments (TXN) raised its third quarter guidance, while Monsanto (MON) lowered guidance for 2010 to $3.10-3.30 vs. consensus of $4.12. The news is pushing its stock -5.35% lower and weighing on the ag sector.

The dollar is lower again, helping boost oil and gold. Oil prices touched $72 after OPEC said that it would leave crude output levels unchanged, while the IEA raised its world oil demand for the third consecutive month.

Also, today's jobless claims numbers were generally better than expected.

European markets were mixed, despite the ECB leaving interest rates unchanged at 0.5%, and the FT reporting that UK housing prices rose for the second straight month in August. Asian markets were higher overnight.

The 10-year yield is lower to 3.41%, and there is another 30-year Treasury auction today. The VIX is -3.2% lower again today, falling to 23.55.

Trading comment: The VIX is getting to very low levels, and I think getting long volatility here offers a good hedge. I am buying a position in the volatility etf (VXX). Yesterday I added some trading long positions in STEC and WYNN. Also, long-time holding FWLT is breaking out today to its highest level since last November. The stair-step market marches on.

long FWLT, STEC, WYNN, VXX

The market is moving higher again this morning on little newsflow. At this pace, the market could hit new highs for the year by the end of this week. That would be another frustrating blow to the bears, who have done their best to highlight how bad the month of September has been historically for the market.

The dollar is lower again today, but it doesn't seem to be bothering investors. Industrials are the biggest gainers this morning (+1.8%) among the major S&P sectors, while utilities (+0.2%) and staples (+0.2%) are lagging. Financials are basically in-line (+0.8%), despite a handful of upgrades in the sector.

The lower dollar is boosting commodities again. Gold is back at $1000, and oil is trading just below $72 ahead of the OPEC meeting, where oil ministers are expected to leave production targets unchanged.

Asian markets were lower overnight; the 10-year yield is higher to 3.50%; and the VIX is -3.6% lower back down to 24.69, and moving further below its 50-day average which it broke below on Friday.

Trading comment: Before the close yesterday I added a couple of trading positions in WYNN and STAR. I should have bought STEC also, as it rarely goes down for more than a day lately. It is breaking out to new highs today, and I may look to add at least a partial position. The other two names are acting strong as well.

long STAR, WYNN

Does Gold Topping $1000 Signal Coming Inflation?

The market is trading higher this morning, on no real news other than enthusiasm among investors to get back in the energy and materials sectors as the global economy continues to firm up.

The IMF said over the weekend that the world economy will likley begin to recover early next year, earlier than it has previously expected.

Also, commodities are roaring higher as the dollar continues to slide to its lowest levels in nearly a year. The UN made some comments about replacing the dollar as the global reserve currency, which likely exacerbated the selling.

The lower dollar in turn boosted commodities, with oil breaking back above the $70 level and gold spiking above $1000, a key area. Many people are discussing the idea that gold surging above the $1000 level is a sign of pending inflation, but there are other reasons for the rise in gold prices.

One reason is the big wedding season in India, which causes demand for gold to spike in the country that uses the highest amount of gold per capita. Also, as currencies weaken (not just the dollar) global central banks look to increase their gold holdings. Third, don't forget the demand that simply comes from investment speculators looking to profit from the trend of higher gold prices. And with the advent of gold ETFs, speculating on rising prices is now easier than ever, and increases the investment demand for the yellow metal.

If there was truly inflation at our doorstep, I think it would be showing up in higher bond yields, as well as some of the inflation datapoints that we continue to get each month in the economic releases of CPI, PPI, unit labor costs, etc.

While the energy and materials sectors are leading the action so far, healthcare stocks are actually lower on the day amid reports from the New York Times that the White House is still weighing a public option for its healthcare reform bill.

Asian markets were higher overnight; the 10-year yield is steady at 3.44%; and despite higher stock prices today, the VIX is also trading higher at 25.69. I would expect the VIX to be lower today, so this might be something to watch.

Trading comment: I have not yet taken profits in our gold etf (GLD) positions, but am close. I am also watching a highflyer name (STEC) that I am interested in adding if it continues to pullback. Otherwise my exposures in our portfolios are about the same. I am still mostly invested, although cash balances remain a bit above normal levels.

At this point, last week's pullback looks like another short affair, and the "stair-step" market that I have continually described remains in effect.

long GLD

Jobs Report Has Something For Both Bulls And Bears To Like

The August nonfarm payrolls report showed another drop in the number of jobs lost, as payrolls fell -216,ooo vs. expectations for -230k. This shows that the pace of job losses continues to slow, although we are still a ways away from seeing positive job growth.

As the chart above shows, the job losses associated with this recession has been much worse than the average recession. The job losses this time around have been both deeper than average, and have lasted longer. I think the silver lining here is that the above picture is showing what has already happened, and as the economy stabilizes a bounceback in job growth could help foster a stronger recovery than most expect.

The bears will hang their hats on the fact that the unemployment rate ticked higher to 9.7%, reaching its highest level since 1983. I think the bears felt that after two days of a low volume bounce in the stock market, today would be the day they could press their shorts and the market would decline again.

It's still early, so anything can happen, but the market seems to be hanging in there. I am particularly pleased with the action in the VIX. The VIX is down another -5.5% today, after a large plunge yesterday, and is now back below its 50-day average. This is a welcome sign, and lowers the likelihood of another sharp selloff (at least that's what options traders are signaling).

The dollar is higher this morning, which is weighing on commodities. Oil is back down to $67.75, and gold is trading near $990 after a big surge higher this week. Energy stocks are mostly higher, while materials stocks are mixed.

Asian markets were mostly higher again overnight as well, after officials made comments about the need to support a healthy equity market. Can you imagine? Those guys want their stock markets strong and higher, while our President seems to care little how his various initiatives could impact stock prices. If our Administration publicly said they wanted a strong stock market, I think prices would soar.

Trading comment: I have not done a lot of trading this week, as I awaited to see how deep the pullback would be. I mentioned that I have been long gold (GLD) for a while now, and will be looking to take partial profits as gold nears the $1000 level.

long GLD

Does the VIX Breakout Portend More Selling?

The market was weak in early trading, although it is bouncing back toward positive territory as I write this. This morning's ADP Employment Report showed more job losses than expected (-298k vs. -250k consensus), but second quarter productivity was revised higher while unit labor costs were revised lower. The positive inflation implications didn't have much impact on trading.

Yesterday the market was down sharply, despite the strongest ISM Manufacturing index reading (52.9) in 18 months. The bears will jump all over this, saying that when the market doesn't respond positively to good news, it means we are headed lower.

I won't necessarily argue with that, although I would add that we are overbought and due for a pullback. So yesterday's action wasn't all that surprising to this observer. But at this point, I think it is still likely that the pullback will be mild. I think bearishness will spike again, and underinvested PMs and hedgies will look to put money to work ahead of a possible year-end rally.

The dollar is lower this morning, helping commodities, but gold is the standout of the day. Gold is spiking higher, above $965, and staging a nice breakout on the charts. I have been patiently long the gold etf (GLD), so today's action is welcome.

Asian markets were lower overnight, except for China which bounced; the 10-year yield is lower again, now down to 3.35%; and the VIX is roughly flat near 29.15.

The VIX was the chart of the day yesterday, as it spiked +12% higher on a surge above its 50-day average. This was the highest close above its 50-day since the rally began back in March. If the VIX is contained around these levels, I won't worry too much. But if it continues to break above the 30 level, it could mean we have to be on the lookout for another nasty bout of selling.

long GLD