Economic Data Sets Early Tone For Trading


Simpler Trading Team

Dec 05th 2022  .  3 min read

Economic Data Sets Early Tone For Trading

When the opening bell sounded, markets were slow to react as they awaited the S&P U.S. services Purchasing Managers Index (PMI) to be announced 15 minutes into the trading session. This report’s median forecast was 46.2, which was spot on for the final numbers.

This reading is based on a scale of 0 to 100, with 50 being the baseline. Any number above 50 indicates expansion in economic trends found in the manufacturing sector compared to the previous month, whereas a reading below 50 reveals a contraction.

This report revealed a modest contraction. Although this was the median forecast, the markets reacted negatively. 

Indexes quickly began to sell off, with some of the strongest names following along. Two notable names that reversed from their highs were Netflix, Inc. (NFLX) and Apple, Inc. (AAPL).  Last week, these technology giants displayed strength, and can be used by traders as a gauge moving forward.

Less than an hour after the PMI report, the Institute for Supply Management (ISM) revealed contradictory numbers. The median forecast for this release was 53.7%, and numbers came out at 56.5%. This data is read on a similar scale as the PMI using a scale of 0 to 100. These reports are very similar as the survey is the same, but the ISM weighs each category evenly whereas PMI is not adjusted. Even though this data would typically be read as bullish, the market did not react this way.

How the market treats good news as bad news or vice versa can reveal the current agenda on Wall Street. 

After both reports were digested, the market continued to trend lower. Another notable finding of price action today was the fashion in which the market went lower. This selling appears to be controlled and institutional based on how there was no real panic in the selling today. 

Roadmap for coming trading sessions

The market closed lower, leaving plenty of room to each side with clear targets in each direction.

A critical level moving forward will be the psychological level of 4,000 on the S&P 500 futures. As this week progresses, this level will act as the line in the sand for the market.

On the upside, if 4,000 can hold, there is the 200-day simple moving average (SMA) at 4,047. This is also very close to another critical level of 4,050, so this should be a target on every trader’s chart moving forward. If the market can clear 4,050, there is a point of control (POC) level at 4,080.

On the downside, if 4,000 breaks, there is a big target of the 21-day exponential moving average (EMA) at 3,970. This 21-day EMA will be a real test of strength as the market has been trading above it for the last 17 sessions. 

Market begins week red

The Nasdaq and the S&P 500 were negative to close the session. The S&P 500 closed down 1.77%, losing 72 points, while the Nasdaq closed down 1.92%, a loss of 220 points. The Dow Jones followed, closing down 1.36%, declining 469 points.

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