ORIGINAL POST:   9:50 AM

The ISM Manufacturing Report on Business is due out in a few minutes.  The details can be found here.

It’s worth noting that the majority of global ISM reports have come in worse than the previous month and in a contracting state.  Zerohedge article and chart here.

As I mentioned Friday, we are due for a little pull back.  It’s a midline of our rising RSI channel, which doesn’t always matter, but can frequently be good for a short-term trade.  I’ll be watching closely for a reaction off these numbers.

Stay tuned.

UPDATE:  10:05 AM

The US has joined the party and is now doing the contraction limbo along with most of the euro zone countries.  The overall index fell from a modestly positive 53.5 to a modestly negative 49.7.  This is the first official contraction in PMI since July 2009 (readings below 50 indicate contraction.)

Prices suffered a serious setback with a drop of 10.5 percentage points to 37.  Exports, impacted by a higher dollar, are also down significantly.  Put them together, and you get a new order reading that fell  12.3 points from a moderately positive 60.1 to a negative 47.8.

Offsetting the negative manufacturing report somewhat is a better than expected Census Bureau report on May construction spending. Total spending was up 0.9% versus expectations of +0.2% and April growth of 0.3% (revised to 0.6%.)

These are the seasonally adjusted figures  (the unadjusted figures aren’t very much off, for a change.)

My take on all this…  manufacturers like to run near full capacity.  They’re able to use their inventory, plant and equipment and labor force more efficiently and will likely see higher profits as a result.

Most real estate developers I know have to run at full capacity.  They’re leveraged up the wazzu and, like sharks, will die if they don’t keep moving forward.  Debt is usually against a project, rather than their personal balance sheets, so if they can find a bank dumb enough to lend on something — they’re building it.

Given the choice of which tea leaves to read, I’ll go with the ISM report.  Even unjustified overbuilding can lead to positive economic knock on effects.  But, like consumer spending (that continues to rise despite a contraction in consumer income) there’s a real risk that the move won’t be sustainable.  We need a side of substance to go with our form.

UPDATE:  11:10 AM

Now, onto our charts:

We ran up a little higher than I expected Friday — likely the result of short-covering, as momentum really picked up at the end of the session.  So, instead of a pause below the price channel midline, we got a rise through the midline and a pause back to the midline.

RSI, on the other hand, reacted below its midline.

I didn’t see this as a big pullback — more of a bump in the road.  But, for those who did play it, it’s important to note that RSI needn’t return to its channel line.  There’s a perfectly good trend line (purple, dashed) that could catch any further downside.  And, so far, SPX hasn’t pierced its price midline.

It tagged it though, with today’s low of 1355.80.  Any push below this key level could take SPX down to the white channel line around 1347.Whether we reverse here or not, I think we have some very big days ahead of us.  I’m seeing a number of charts that indicate an earlier peak than July 20 — possibly as soon as July 9.  I’ve revised the detailed forecast accordingly:

I’ve replaced the target circle with a target rectangle – simply because I want to more precisely reflect the range of probably outcomes: from July 9 to July 22, and from 1389 to 1405.

The purple channel is the leading chart pattern right now.  But, the possibility of a rising wedge is still very much on the table.  I drew a chart that includes both, since the market often likes to keep its options open (keeping as many investors as possible in the dark for as long as possible.)

Stay tuned.