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12:30pm (EST)
The bulls used some overseas news to stage a big rally this morning while economic reports continue to come in mixed here in the US. Futures were pointing towards a strong open after China and Australia reported growth in their economies while a better-than-expected ISM number here at home added some extra gravy.
China’s said its manufacturing sector rose in August for the first time in four months while Australia’s economy grew by the fastest pace in three years during the second quarter. Meanwhile, America’s Institute for Supply Management’s manufacturing index grew to 56.3 in August from 55.5 in July. Wall Street had been expecting a decline to 53.0.
The rally has been a head scratcher for the bears given that the ADP report said private employers cut 10,000 jobs in the U.S. last month compared to a gain of 37,000 jobs in July. This doesn’t bode well for Friday’s “official” report on unemployment but the bulls don’t care. They are partying today.
The Dow is currently up 234 points, or 2.3%, and is at 10,248 while the S&P 500 is higher by 29 points, or 2.7%, to 1,077. The Nasdaq is showing a gain of 56 points, or 2.7%, and is at 2,170.
Resistance levels are Dow 10,200; S&P 500 1,070; and Nasdaq 2,150. These levels have obviously been “stretched” and we will have to see how the gains hold up into the close.
In corporate news, Apple (AAPL, $250.45, up $7.35) will be giving Wall Street an update on its product line and investors will be able to watch the event in real-time streaming video over the internet. We are expecting the company to announce an upgrade for the iPod touch which could include a camera with the same touch screen and operating system as the new iPhone4.
There is also chatter the company could roll-out a newer version of its iTV at a price of $99 which could jump start sales. It’s no secret Apple is negotiating with the big cable and TV studios for the right to rent their shows on iTunes which continues to grow at an incredible pace.
We will be back in the morning with a full update but are expecting Friday to be insane. The ADP report is usually a good indicator on what the numbers for unemployment are going to look like and the bulls could get sideswiped if they aren’t careful. On the other hand, today’s rally has been enough for the bulls to break key resistance levels and if they hold, the market could continue to rally no matter what Friday’s numbers are.
The key thing missing in today’s rally is the lack of volume…
Bulls Looking for More
Thursday, September 2nd, 2010
9:05am (EST)
The market started off strong on Wednesday and got more mojo as the day wore on. The bulls were hungry after losing the past two weeks to the bears and they were down this week before they staged an impressive rally that pushed the major indexes past previous resistance levels. It also put the bulls in control as they are positive for the week but yesterday’s action could be a classic ”bear market trap” or the start of a rally back to the upper end of the current trading ranges.
The first day of September has usually been bullish so we weren’t “shocked” by yesterday’s rally; just the magnitude. The last time the market had a 3% gain on this day was back in the late 90’s when the S&P rallied 3% and 4% in back-to-back years. Of course, this was the start of the internet boom that eventually took the Nasdaq to 5,000. We all know how that story ended.
So, to make a long story short, we kept our emotions in check.
The Dow finished Wednesday with a gain of 255 points, or 2.5%, to close at 10,269. All 30 companies that make up the index saw their shares rise. After making a FRESH 52-week low of $12.18 on Tuesday, Bank of America (BAC, $13.21, up $0.76) was the Dow’s biggest winner as shares surged 6%. Now that the index has crossed 10,200 the next level of resistance will be at 10,400.
The S&P 500 popped 30 points, or 3%, to finish at 1,080. The index ran a little past out 1,075 target which means a run to 1,100 could be in the cards. This is where major resistance comes and we will be very surprised if the bulls can bust through this brick wall.
The Nasdaq also banged out a 3% win, rising 63 points, to close at 2,176. The next stop for the index could be a test up to 2,200-2,250 and Tech is going to make or break this market environment.
Now, what does this mean for the rest of the week?
Futures are pointing towards a slightly higher open but we are expecting today to be a “flat” day as neither the bulls or bears will be willing to bet the house ahead of Friday’s key nonfarm payrolls report which will be released before the market opens for business.
The ADP report from yesterday can offer good clues as for what to expect which means the jobs report will deliver some bad news. But what if the numbers are “better-than-expected”? Then the rally could continue. One thing for certain, we would almost bet the house that the Dow is going to move triple-digits tomorrow.
The other thing we are pretty certain about is that the market will rise on Tuesday. The day after Labor Day is usually pretty bullish.
Given this research, it can play out one or two ways.
The first, the market stays flat today and rallies on Friday and Tuesday on good employment news and history.
-OR-
The market gets a terrible number on Friday, tanks, and there is a little love on Tuesday for the bulls.
Also, watch for the CBOE Market Volatility Index (VIX, 23.89, down 2.13) to test 21-22 if the rally continues. Despite yesterday’s big drop, the VIX soared nearly 11% in August and could trade down to these levels if the rally continues for another week or so. The longer-term trend (over the next 6 weeks) is lower as there was been no follow through on the recent rallies here and there.
We go a little more in-depth about the current market conditions inside our Members Area as we have quite a few NEW trades we are targeting. We like to use our “Watch List” as a way to “target” great entry prices on option trades we may be considering and yesterday’s rally could have been just what the doctored ordered.
As we head to press, Dow futures are higher by 8 points to 10,280 while the S&P 500 futures are up a point to 1,083. The Nasdaq 100 futures are showing a 3 point pop to 1,823. Subscribers, check for the updates.
Tags: bac, option picks, option trading alerts, stock options trading, VIX
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