FURTHER CRACKS IN THE ECONOMIC REBOUND SCENARIO

I cannot emphasize enough how certain sell side strategists (no names mentioned) have influenced their community and most likely the long only community also, that the small bounce in Manf ISM heralded a second half recovery and that the forward looking stock market should therefore bottom.

I think it is no accident that the Dow closed at a new closing low (Dow Theory sell signal to boot) just as the second crack appeared in that theory with last nights release of the Philly Fed Manf Index. It plunged to -41.3 vs -24.3 previous and -25 consensus to a new low for the cycle.

In the details of the report, most major subcomponents pointed to an accelerating pace of decline, including new orders (-30.3 vs. -22.3), shipments (-32.4 vs. -16.7), unfilled orders (-32.1 vs. -31.1), delivery time (-29.2 vs. -26.5) and employment (-45.8 vs. -39.0). One noteworthy improvement was the 6-month outlook, which rose to 15.9 from 7.4 previously—interesting given the broad-based weakness in current conditions. Denial? The prices paid component pointed to a slower pace of decline (-13.7 vs. -27.0), although the deterioration in pricing power among producers accelerated as prices received fell even lower (-27.8 vs. -26.2). The fact that both the NY and Philly manufacturing indices were significantly worse than expected (and significantly worse than in January) implies downside risks to the February ISM number.

The LEI or Leading Economic indicator posted another increase for the same reason it advanced the prior month-strong positive contributions from two financial indicators, the real money supply (worth0.54 points) and the yield curve (another 0.23). The uptick is therefore just a direct result of the FED actions. The FED smokescreen got blown away by the Philly!

Look for 'give up' type selling from long only's and a "white flag" from certain strategists. Maybe no yacht this year after all.