9:05am (EST)
The market started August off with a bang which has pushed the major indexes to resistance levels once again, but there other factors favoring the bulls. It’s hard to get excited up at these levels because the market has been here 4 or 5 times in the last few months and failed, but this time the momentum appears to be strong.
We mentioned yesterday’s positive economic reports, and even Fed Chairman Ben Bernanke tried to help the bears by saying “we have a considerable way to go to achieve a full recovery in our economy and many Americans are still grappling with unemployment, foreclosure and lost savings.”
Those remarks had little impact on the market as the bulls started off strong and got stronger throughout the session.
The Dow managed to finish with a 208 point gain, or 2%, and closed at 10,674. The index reached a high of 10,692 which is halfway between our targets of 10,600-10,800. All 30 of the Dow’s components finished in the green, and a break above the higher end of our range will lead to a charge towards 11,000.
The S&P 500 surged nearly 25 points, or 2.2%, to settle right on 1,125 which is the first area of resistance we have been outlining. A push to 1,150 seems likely as the index traded up to 1,127 yesterday.
The Nasdaq lagged but still managed a nice gain of 40 points, or 1.8%, but was stymied at the 2,300 level once again. The index closed at 2,295 and reached a high of 2,299 yesterday and hit 2,307 a week ago today.
We have talked the indexes overshooting these ranges a little, especially the Dow, but for the most part, nothing has changed except that a lot more people are getting bullish. Perhaps there is something to this as the Volatility Index (VIX, 22.01, down 1.49) closed BELOW its 200-day moving average.
For those of you who are new or unfamiliar with the VIX, it is an index that measure fear in the market. A rising VIX means the market is nervous while a falling VIX is good for the bulls. Usually, a reading under 20 indicates confidence and calm while a reading above 30 indicates the bears are in control.
The VIX reached a low of 15 back in April when the market was testing new highs and was at 37 to start July when the market was on the verge of breaking down. This picture may help you understand volatility better, and a continued rally will push the index below 20.
Futures are pointing towards a slightly lower to flat open. Dow futures are down 15 points to 10,602 while the S&P 500 futures are down 1 point to 1,120. The Nasdaq 100 futures are down less than a point to 1,894. There were a couple of blue-chip stocks that disappointed Wall Street with earnings this morning, and we will cover those stories in our 1pm update.
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