Stocks marched higher into the third quarter on a parade of slowly improving economic data. Improving PMI data out of China and Europe and an improving ISM here in the U.S. contributed to market gains. The ADP employment report was slightly better than expected. Meanwhile a drop in the U.S. dollar was fueling a rally in commodity and material stocks.

The Chinese Shanghai index closed up 1.6% following news that the country's purchasing managers index (PMI) ticked higher from 53.1 in May to 53.2 in June. Readings over 50 indicate an expanding economy. The Japanese NIKKEI index lost about 0.2% as investors digested the quarterly Bank of Japan's "Tankan" business sentiment survey. Sentiment bounced from a record low of -58 in the first quarter to -48 in the second quarter but expectations were for a rebound to -43. Investors were concerned that the Tankan survey revealed that Japanese businesses planned to cut capex spending by 9.4%, which was higher than the 6.9% estimate. The Hong Kong Hang Seng market was closed due to holiday. On the other side of the world European markets were higher and accelerated their gains on the better than expected U.S. economic data. The German DAX gained 2.0%. The English FTSE gained 2.1%. The French CAC-40 rose 2.4%.

This morning the Institute for Supply Management released their manufacturing index. Economists were looking for a rise to 44.5. June's reading came in at 44.8 compared to 42.8 in May. Results under 50 indicate a contracting economy and the ISM has been negative for about 17 months in a row but the trend is rising. In other news the Commerce Department said that construction spending fell 0.9% in May versus expectations for a 0.5% drop. The National Association of Realtors said pending home sales rose 0.1% to 90.7, marking the fourth gain in a row. Unfortunately, what they don't tell you is that a lot of these deals have not been closing due to new rules regarding appraisals.

The private sector ADP employment report for June was released today claiming the U.S. lost 473,000 jobs last month. In their press release Joel Prakken, Chairman of Macroeconomics Advisers, LLC, said that "Monthly employment losses for April, May, and June averaged 492,000. This is a notable improvement over the first three months of the year, when monthly losses averaged 691,000. Nevertheless, despite some recent indications that economic activity is stabilizing, employment, which usually trails overall economic activity, is likely to decline for at least several more months." You can read the full report here: http://www.adpemploymentreport.com/PDF/FINAL_Release_June_09.pdf

It looks like economists were predicting the ADP number would come in around 498,000 job losses so this better than expected reading could bode well for tomorrow's official non-farm payrolls report. Currently estimates are for the jobs report to show -325,000 to -375,000 job losses and that the unemployment rate will hit 9.6%.

Currently the S&P 500 index is up 0.7% at 926 but off its best levels near 932 this morning. The NASDAQ is also off its best levels of the day (1861) and currently trading near 1850, up 0.8%. The Dow Industrials are up 0.9% at 8525. The small cap Russell 2000 is up 1.8% near 520.

Let's take a quick look at charts for the major averages:

Chart of the S&P 500:

Chart of the NASDAQ:

Chart of the Dow Industrials:

Chart of the Russell 2000 index:

Looking over the OptionInvestor.com play list I see that ACL continues to bounce from support near $115 and today's rebound negates yesterday's bearish reversal candlestick. We're not seeing much of a bounce in shares of DECK so traders may want to turn more cautious on this play. Weakness in the U.S. dollar has lifted the FXE euro ETF to a new two-week high. Our call play on TEVA has hit our target. The stock is breaking out past the $50.00 level. Looking at some of our put plays I see that AGU is still under performing the market. More aggressive traders may want to open positions now before shares hit our official trigger at $38.75. Shares of LLL continue to fail under their 10-dma. Strength in tech stocks has lifted SYMC back to resistance at $16.00. The bounce in UPS continues and shares are now testing technical resistance at the 200-dma.