The stock market has begun the last full week of August on a positive note. Economic data continues to improve giving traders no reason so sell yet. Major indices in the U.S. and Europe are trading at ten-month highs. Rising expectations for the economic recovery are driving another rise in crude oil, which is quickly approaching $75.00 a barrel.
Asian markets were strong as investors got a chance to react to Friday's existing home sales jump in the U.S. and Fed Chairman Ben Bernanke's comments about how the U.S. is poised for recovery. The Chinese Shanghai was the laggard with a 1.1% gain. In Hong Kong, China's largest oil refiner Sinopec raised their earnings guidance and helped power a 1.6% rally in the Hang Seng index. The Japanese NIKKEI surged 3.3%, which erased the rest of last week's losses. The sharp rise was a bit surprising as many expect Japan's stock market to trade sideways ahead of the country's general election on August 30th. Currently public opinion polls are suggesting the Democratic party will beat the Conservative Liberal party that's been in power for years.
European markets, which delivered impressive gains on Friday, continued to rally and closed near 10-month highs. Britain's Institute of Chartered Accountants said that business confidence has finally turned positive for the first time in two years (source: Reuters). Meanwhile the 16-country Euro zone reported that new industrial orders soared in June. Economists were expecting new industrial orders to rise 1.6% from May to June. This morning's report showed a 3.1% bounce month over month but orders were still down 25% from a year ago. The larger 27-country European Union reported that industrial orders actually fell 0.4% bringing the yearly change to -24%. Overall the tone is still bullish in Europe. The English FTSE gained 0.9%. The German DAX rallied 0.96%. The French CAC-40 rallied over 1%.
In the United States the rally continues with financials still leading the market higher. Airline and gambling stocks were also showing relative strength this morning. Commodities are making a strong showing. Copper, silver, grains and oil are all posting gains in spite of a bounce in the U.S. dollar. Oddly enough gold was not participating in the rally.
In economic news the Federal Reserve branch in Chicago released their national activity index. The trend continues to improve. The index rose from -1.82 in June to -0.74 in July. Negative numbers indicate contraction in the economy but July was the highest reading in 19 months. The monthly data can be somewhat volatile and many economists watch the three-month average, which rose from -2.18 in June to -1.69 in July.
Monday has been a slow news day. In this vacuum Dr. Doom is making headlines again. Nouriel Roubini, the infamous economist that predicted the massive financial meltdown, wrote an opinion piece in the Financial Times on Sunday. Roubini reminded the public that there is a large risk of a double-dip recession. Not everyone agrees. Influential analyst Laszlo Birinyi believes that the stock market's rebound will be much, much stronger than anyone expects. Birinyi has predicted that the S&P 500 will rise toward 1,700 by 2011-2012.
Currently the S&P 500 index is up 0.6% at 1,032. The NASDAQ composite is up 0.3% at 2,028 and appears to be paring its gains. The high was 2,036 this morning. The Dow Industrial Average is up 0.5% at 9,561. The small cap Russell 2000 index is up 0.4% at 583.
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:
Glancing over the OptionInvestor.com play list for movers I see that tobacco company Lorillard (LO) has broken out past resistance at the $75.00 level and hit our aggressive trigger to buy calls at $75.75. FSLR, a put play, is bouncing from very oversold levels near $120. IBM has hit our put-play stop loss at $120.10 and hit our trigger to buy calls at $120.25.