The stock market rallied on stronger economic data this morning. Positive readings in the ISM manufacturing index, pending home sales and construction spending all helped alleviate some fears that the economic recovery may be unsustainable. Unfortunately the positive mood is fading as stocks erase early gains. Lending giant CIT filed for bankruptcy protection making it one of the largest bankruptcies in U.S. history. Meanwhile the dollar retreated this morning, which is giving commodities a boost.

Asian markets were mixed. The Japanese market lost 2.3% as investors reacted to Friday's negative consumer spending and sentiment data in the U.S. A rising yen hurt exporters. Somehow China was able to ignore the U.S. data on Friday and focus on stronger domestic earnings results and a stronger China Purchasing Managers' Index, which hit an 18-month high at 55.4 for the October reading. The Chinese Shanghai index rallied 2.7%, this helped pulled the Hong Kong Hang Seng off its lows to settled at -0.6%.

European markets were generally flat to down until the positive economic data in the U.S. fueled a rally. Material stocks also got a boost from the down dollar. Investors will be eager to see the Bank of England's upcoming decision on interest rates and their quantitative easing program when the next meeting ends this Thursday. The English FTSE rose 1.1%. The French CAC-40 gained 0.88%. The German DAX managed a 0.29% gain.

The major report today was the Institute for Supply Management's manufacturing index. Economists were expecting the ISM to rise from 52.6 in September to 53.00 in October. This morning's report showed the manufacturing sector was stronger than expected with a rise to 55.7. This was the best reading since April 2006 and marked the third month in a row above 50. Readings above 50 indicate expansion and growth. Another surprise was the employment gauge inside the ISM index. The biggest drag on the economy is unemployment and today's report showed the ISM employment index surged from 46.2 in September to 53.1 in October. This particular gauge hasn't been above 50 since July 2008 and the rise could bode well for this Friday's upcoming jobs report.

Another surprise report today was construction spending. Economists were expecting a 0.3% decline in spending. The Commerce Department said construction spending rose 0.8% in September, which follows a similar rise in August.

The National Association of Realtors (NAR) also provided some positive news. Pending home sales rose for the eight month in a row. September's pending home sales rose 6.1% to 110.1. Economists were only expecting a rise to 103.8. Pending home sales haven't been this strong since December 2006. Unfortunately, this backward looking data doesn't help much. Pending home sales for August and September soared because consumers are trying to close on a house before the new homebuyer tax credit expires at the end of the month. I believe this has already been factored into the market's estimates for the recovery.

Speaking of the recovery it just got a little tougher for small to mid-sized businesses. CIT Group is a major lender to about 2,000 vendors who supply merchandise to nearly 300,000 retail outlets. After months of fighting to stay out of bankruptcy the company finally gave up. This is one of the biggest corporate bankruptcies in U.S. history. CIT's filing listed $64.9 billion in debt against $71 billion in assets. Today's move wipes out any common stock shareholders and the U.S. government, which loaned CIT $2.3 billion in TARP funds may be out of luck. The good news is that most retailers have already placed their orders and managed funding for this 2009 holiday shopping season. If this had happened earlier in the year it could have been very bad news for the economy. CIT's management claims they will keep their lending arm open and active as they work through this Chapter 11 bankruptcy. They hope to be out of bankruptcy in just a few months.

A quick look at the major market indices reveals that the early morning bounce has now been erased. Stocks have accelerated lower in just the last thirty minutes. The S&P 500 is down about 0.4% near 1,031. The NASDAQ composite is off about 0.5% near 2,034. The Dow Industrials are clinging to the unchanged level with a 0.02% loss at 9,709. The small cap Russell 2000 index is down 1.0% and under its 100-dma at 557.

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:

Chart of the U.S. dollar ETF (UUP):

Scanning the play list for any big movers we see that overall stocks really aren't moving that much. The IYT transport ETF is still sinking and now under its 100-dma and exponential 200-dma. Chinese stock NTES has reversed lower with a 4.1% decline. RIMM is an exception with the stock off 6.0% and hitting $54.30 midday. Our second target to take profits in RIMM is $53.00.