The stock market is extending its gains with the S&P 500 breaking out past resistance and hitting new highs for the year. The NASDAQ is soaring toward the 2,000 level and set to mark its 12th gain in a row. Better than expected existing home sales and another round of positive earnings news overshadowed a bearish move in weekly jobless claims and an earnings warning from UPS. The U.S. dollar is up but that's not stopping the rally in crude oil.

Stocks were strong around the globe. In Japan the NIKKEI index rose 0.7% marking its 7th gain in row. The Hong Kong Hang Seng reversed yesterday's losses and soared 2.9% hitting a new 2009 high. The Chinese Shanghai index rose almost 1% as it trades near one-year highs. The rally in European stocks is really getting overdone. Most of the day stocks in Europe were flat to down but when American companies started reporting better than expected earnings and the existing home sales data hit the wires the markets exploded higher. Mining stocks really led the rally and banks reversed previous losses. A much better than expected June retail sales report for England didn't hurt. Most of the major European markets posted their 9th gain in a row and new highs for 2009. The English FTSE rose 1.4%. The French CAC-40 rallied 2.0%. The German DAX climbed 2.4%.

The National Association of Realtors (NAR) report on existing home sales for June really breathed new life into the market's rally. Analysts were expecting a rise to a 4.84 million unit pace. June results jumped to a 4.89 million unit pace. If you factor in a downwardly revised May reading at 4.72 million June's report was s 3.6% improvement. More importantly June was the third month in a row that sales improved and that home prices improved. Year over year home prices fell more than 15% to an average selling price of $181,800 but from May to June home prices rose 4.0%. Inventories in the U.S. remain high but the supply on the market fell from 9.8 months to 9.4 months. Historically the norm is a six-month supply. Analysts believe that with so much oversupply the trend in home prices will continue lower but the pace of decline is definitely slowing down. While this report was for existing home sales the home builders are seeing a sizeable rally with the DJUSHB home construction index up 5.4% on the session.

Elsewhere the Labor Department said weekly initial jobless claims jumped 30,000 to 554,000, which is only slightly above analysts' estimates. Yet the market ignored the news. For the third week in a row the Labor Department said its weekly numbers were distorted due to this year's unique situation regarding automobile plant closures and layoffs and it will continue to skew results for another week or two. Economists following the initial claims numbers are encouraged that after almost six months of +600,000 new claims per week that today's report is the third week in a row under the 600,000 level. Unemployment is still growing but the pace seems to be slowing down. How long will the markets continue to accept "less bad" economic data? The continuing claims fell by 88,000 to 6.225 million, which is less than anticipated but instead of an improvement in employment it might be due to workers falling off the list as their unemployment benefits expire.

We can attribute most of this rally to another strong round of earnings results. Several headline names not only beat estimates but raised their guidance. Here's a quick summary. Ford Motor Co. (F) reported a loss of 21 cents per share compared to estimates of -0.48 per share. This loss of $424 million is a fraction of the $8.7 billion loss in the same quarter last year. Dow-component McDonald's (MCD) reported earnings this morning that were one cent better than the .97 estimate. MCD said its McCafe products were doing well and the company plans to introduce its new coffee products throughout all of its U.S. franchises. Worldwide MCD's same-store sales rose 4.8% and 3.5% in the U.S.

AT&T (T) delivered better than expected results with a profit of 54-cents a share, 3-cents ahead of estimates. Wireless subscribers jumped to 79.6 million compared to 72.9 million a year ago. 3M Co. (MMM) blew past Wall Street's estimates with a profit of $1.20 a share. Analysts were expecting a profit of .94. MMM raised its earnings guidance and sales guidance for 2009. Another company raising earnings guidance was Hershey Co. (HSY). The candy maker beat earnings by 8 cents and revenues came in better than expected. Cigarette maker Phillip Morris International (PM) also raised their earnings guidance after beating Wall Street's estimate of 77 cents with a profit of 83 cents a share.

One of the key earnings reports today that is being completely ignored is UPS, the delivery company. UPS and Fedex (FDX) are both tightly connected to the economic health of the country and both have issued sobering forecasts going forward. UPS reported earnings this morning that were inline with the 49-cent estimate but management issued an earnings warning for the third quarter. Consumers and businesses are cutting back and trying to control costs and if demand doesn't pick up UPS said they'll have to lay off more employees. UPS said volumes were down across almost all of their different divisions. Their negative tone echoed that of rival Fedex who also lowered their earnings guidance when FDX reported back in June.

The U.S. dollar is bouncing back from its lows today and that would tend to put pressure on commodities. Gold is sliding off its intraday highs and copper futures have turned negative on the session. Crude oil is completely ignoring any strength in the dollar with a huge $1.80 rally to $67.18 a barrel. This is really giving the energy sector a boost.

Currently the S&P 500 index is up 2.4% at 977 producing a rather convincing breakout over the 950-955 zone. The next level of overhead resistance is the 1,000 level. The NASDAQ composite is up 2.48% near 1975 and on pace to mark its 12th gain in a row. The Dow Industrials are up 2.1% and breaking out over the 9,000 level for the first time since early January 2009. The small cap Russell 2000 is up 3.3% and soaring toward resistance at the 550 level.

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 for movers on the OptionInvestor.com play list I see that Lorillard (LO) is up 2.8% thanks to a better than expected earnings report from rival PM. Put play CMP is still under performing and down 2.2%. Put play WABC is bouncing sharply with a 5% gain. Our aggressive, contrarian play on the SPY has been stopped out.