Business activity in the U.S. expanded in October at about the same pace as in the prior month, a sign overseas demand and business investment will help keep the economy expanding.

The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 58.4 in October from 60.4 the prior month. A level of 50 is the dividing line between expansion and contraction. The group's employment gauge climbed to a six-month high.

Improving consumer spending is lifting sales at manufacturers like Chrysler Group LLC, combined with rising demand from emerging economies and the need to replace outdated equipment, means assembly lines will keep humming. Some Federal Reserve policy makers, ahead of their meeting this week, have said they are willing to take additional steps to spur growth.

"Manufacturing is still moving along quickly," said Samuel Coffin, an economist at UBS Securities in Stamford, Connecticut. "It seems pretty broad-based, autos helped. We have growth perking along in the fourth quarter."

David Fuller's view On October 4th the S&P 500 Index (weekly & daily) fell to an intraday low of 1074.77, recording a decline of 21.58 percent from its May 2nd high for the year at 1370.58. However, on the day of its low earlier this month the S&P turned around and closed at 1123.95, recording a downside failure as you can see on the daily chart above.

One of Fullermoney's technical 'Rules of Thumb' from our two-day workshop, The Chart Seminar, is that failed breaks from recognisable trading ranges which include a dynamic (volatile intraday reversal) are often followed by at least a retest of the upper boundary. We have seen this and more.

What next?

Not surprisingly, we have a short-term overbought condition following one of the S&P's best ever monthly gains. Therefore a consolidation of this rally is now likely. However, such a strong surge back above the 200-day moving average and into the underside of the top formation is very impressive, and perhaps best taken at face value. A close beneath 1190 remains necessary to indicate an upside failure and question scope for a further challenge of overhead trading in coming weeks.