July's stock market rally has carried over into the first trading day of August. Investors were happy to see some improvement in the ISM data this morning. A strong performance by stocks overseas helped set the tone. The S&P 500 managed to briefly trade over the 1,000 mark for the first time since November 2008. Meanwhile the decline in the U.S. dollar continues and that's giving commodities a boost.
Asian markets were mixed. China is still red hot. Both the Shanghai index and the Hong Kong Hang Seng are up three days in a row and both are up 7 out of the last 8 sessions. The China purchasing manager's index (PMI) climbed to a new 12-month high in July and marked its fifth month in positive territory (over 50). This helped push the Chinese Shanghai index to a 1.4% gain. The Hong Kong Hang Seng was up 1.1%. The Japanese NIKKEI broke a three-day winning streak with a very minor 0.04% loss.
European stocks displayed a lot of strength today. Much better than expected earnings from Europe's biggest bank, HSBC, lit a fire under the banking sector. Commodities, mining and oil stocks also performed well. European markets started the day strong and then saw another surge higher in the last hour thanks to the U.S. ISM data. The French CAC-40 gained 2.0%. The English FTSE rose 2.19%. The German DAX rallied 2.4%.
In the U.S. this morning the big story was the ISM data. The Institute for Supply Management is a private trade group of purchasing managers and executives. Their monthly gauge of economic activity rose from 44.8 in June to 48.9 in July. Economists were only expecting a bounce to 46.2. Readings over 50 indicate expansion and a growing economy. While July was the 18th month in a row that ISM manufacturing index came in under 50 you can we're getting close to positive territory. We've come a long way from the 28-year low of 32.9 back in December 2008.
In a separate report the Commerce Department said construction spending improved. Economists were looking for a drop of 0.5% in June. The government said spending actually increased at a seasonally adjusted rate of +0.3%. The Commerce Department also revised May's readings from -0.9 to -0.8%. Residential construction rose 0.5%. The Federal government's spending jumped 1.9%.
While we're on the subject of spending it looks like congress is close to passing a bill that would raise the $1 billion cash-for-clunkers program to $3 billion. Shares of Ford Motor Co. (F) are up another 6.5% around $8.50 a share. The stock had hit $8.86 this morning as investors bid the stock higher ahead of its monthly sales report. Ford said U.S. sales jumped 2.3% to 165,279 vehicles making July the first monthly gain since 2007. Analysts are starting to rework their estimates and factor in how the cash-for-clunkers program will improve the annual sales pace for the auto industry.
I heard one analyst say that consumers who use the cash-for-clunkers program will save on average about $800 a year in gas thanks to better fuel efficiency. That's good news since oil is on the rise. Crude oil is up more than $2.20 and approaching $72.00 a barrel. If the economy is improving then demand should be rising as well - at least that's the thought process. Demand remains weak but a falling U.S. dollar is boosting oil futures and the rest of the commodity sector. The dollar broke down to new 2009 lows on Friday and the sell-off continues. Gold is on the rise and hitting new seven-week highs. Copper futures are soaring and hitting new highs for the year.
Currently the S&P 500 index is up 1.1% and dancing with the 1,000 level. I wouldn't focus too sharply on the 1,000 mark itself. There was an analyst on CNBC this morning that suggested we watch the 1,010-1,030 zone as resistance, which sort of lines up with the early November 2008 high and the mid-month high of October. The NASDAQ composite is up 0.9% and flirting with the 2,000 level and its long-term trendline of resistance. The Dow Industrials are up 0.89% around 9250. The small cap Russell 2000 index is up almost 0.8% around 561.
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:
A quick scan of the OptionInvestor.com play list reveals the FXE over the $144.00 level. The high today was $144.39. Our first target to take profits is $144.50. More conservative traders may want to take profits now. The GDX gold-miner ETF is also hitting new relative highs and appears to have broken the neckline on an inverse head-and-shoulders pattern. JCP is breaking out and has surpassed our entry point to buy calls. The OEX is hitting new relative highs and only a few points away from our target at 469.00. Looking at the puts I see that GENZ ha continued to sell off and the stock has broken support near $50.00 and hit our trigger to buy puts at $49.90. Strength in the Dow Industrials has helped UTX temporarily trade over resistance at $55.00 and hit our stop loss.