In an unusual move the stock market is up sharply ahead of an FOMC decision on interest rates. Normally stocks tend to trade sideways as investors await the Federal Reserve's decision and commentary on the economy. It's widely expected that Ben Bernanke and crew will leave rates unchanged so the focus will be on their outlook for the economy. What's really impressive is that the market's rally today is very widespread. I don't see any sector indices in negative territory. Homebuilders are leading the way after some positive comments out of Toll Brothers (TOL). Gambling stocks, insurance and airlines are also big winners today.

What's even more surprising about the market's strength today is that it follows some very sharp declines in China. The Hong Kong Hang Seng index fell over 3%. The Chinese Shanghai Index plunged 4.6%. Compared to its neighbors the Japanese NIKKEI fared okay with a -1.4% loss. There was another economic report out in Japan that showed wholesale prices crashed 8.5% in July. Over the last few months there has been a steady stream of data that says Japan is falling deeper and deeper into a deflationary spiral.

European markets shrugged off weakness in Asia. The major indices recovered from early morning losses and rallied higher throughout the session. Investors ignored a report showing England's unemployment hit new 13-year highs in the second quarter. Meanwhile in Germany's one of the world's largest utility companies reported better than expected earnings and said they see a "stabilization" in demand for energy, which is another hint that the recession is slowing down. The English FTSE index gained 0.97%. The German DAX gained 1.2%. The French CAC-40 rose 1.48%.

Here in the states the Commerce Department said our trade deficit grew less than expected in June. Economists were predicting a jump of $28.5 billion. Results showed a 4% increase from $26 billion in May to $27 billion in June.

Investors are keeping one eye on the bond market. The U.S. Treasury is selling $23 billion worth of 10-year notes today. Today's auction follows yesterday's $37 billion sale in 3-year notes.

One of the big stories today was homebuilder Toll Brothers (TOL). The company is due to report earnings on August 27th but management pre-announced some better than expected results. Revenues for the company's quarter, which ended July 31st, fell 42% to $461.3 million. The real news was a 3% jump in signed contracts. This was the first year-over-year increase in four years and a 44% jump from signed contracts in their second quarter. Furthermore TOL said cancellations fell to 9% the lowest level in three years.

The real estate sector also got some mixed news from the National Association of Realtors (NAR). The latest survey showed that home prices have continued to plunge with values falling more than 15% in the second quarter over 2009 compared to a year ago. Yet at the same time prices rose 4% from the first quarter of 2009 with the median price of a home climbing from $167,300 to $174,100. Foreclosures are still on the rise and they're keeping pressure on prices. On the positive side these low prices are driving more sales with several markets seeing a sharp rise in number of homes sold. Unfortunately, the rate of sales may start to slow down. According to the Mortgage Bankers Association the number of mortgage applications fell last week thanks to rising interest rates. While historically still very low the rate for a 30-year fixed mortgage rose to 5.38% compared to 6.57% a year ago. Overall investors are ignoring the NAR data and mortgage numbers and focusing on TOL's report. Shares of TOL are soaring 14% to new 2009 highs. The DJUSHB home construction index is up 4.88% and nearing new 10-month highs.

The retail sector also had some good news. Department store operator Macy's (M) reported better than expected earnings this morning. Analysts were looking for a profit of 15 cents a share. Macy's delivered 20 cents on revenues that were slightly under expectations. More importantly Macy's significantly raised their guidance going forward. Shares of Macy's are up 4.3% and hitting new 2009 highs. The RLX retail index is up 1.1%. Retail titan Wal-Mart (WMT) reports earnings tomorrow morning. Wall Street is looking for WMT to report a profit of 86 cents per share.

Currently the S&P 500 index is up 1.4% and back above the 1,000 mark. The NASDAQ Composite is up 1.8% and back above the 2,000 mark. The Dow Industrials are up 1.5% and quickly approaching the 9400 level. The small cap Russell 2000 index is up 2.2% and nearing its highs around 575. We knew that any correction would be shallow but this is ridiculous. The Dow Industrials only pulled back above 200 points after a 1300-point move. The S&P 500 gave up 2.4% from its recent high after a 16% rally. That's not a correction. This pre-Fed decision rally is suspicious and I would be cautious here.

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:

Scanning the OptionInvestor.com play list I see that CHRW has broken out over resistance and hit our trigger to buy calls. AAPL is bouncing but remains under its recent highs. The volume on the bounce in CVX is very low. GENZ is up 1.9% but still under its 10-dma. IBM is back to testing resistance near $120. With the NASDAQ bouncing the QLD is up 3.5%. Weakness in China has kept a lid on shares of SNDA and the stock is down 1.7%. Gambling stocks are bouncing and WYNN is up 5.8% and nearing the $59.00 level. Look for resistance at $60.00.