Bulls prevail Wednesday as traders digest better than expected economic data. The Dow ($INDU) gained 89.64 points to close the session at 11,502.51. The S&P 500 ($SPX) tacked on 10.15 points to 1,281.66. The Nasdaq ($COMPQ) added 20.49 points to 2,382.46. Volume remained very light on the session with 820.4 million shares traded on the NYSE and 1.57 billion shares exchanged on the Naz. Market breadth was positive by a 24-to-7 and 18-to-10 margin on the Big Board and Naz respectively.

The economy remained a focus Wednesday with data on durable goods orders leading the way. Orders in July rose 1.3 percent, well above estimates for growth of just 0.1 percent. However, the year on year figure is still negative at a decline of 4.5 percent. Maybe the most positive aspect of the report was the gain of 1.6 percent in nondefense capital goods orders that exclude aircraft orders. This is a key component of the GDP report and is used as a proxy for business spending.

Oil prices didn’t support stocks today as crude rose $1.88 a barrel to a price of $118.15. the fact that Tropical Storm Gustav is heading toward oil installations in the Gulf of Mexico is too blame, especially when forecasts are for Gustav to turn into a hurricane. Better than expected economic news also pushed prices higher, along with the release of weekly inventory data. The EIA announced that inventory levels for crude fell by 100,000 barrels when a gain of a million barrels was expected.

Financials were a positive for stocks Wednesday with the sector benefiting from comments from the Atlanta Fed President. Mr. Lockhart stated that inflation should moderate into 2009 due to the slowing economy and falling energy prices. Gains in Fannie Mae (FNM) and Freddie Mac (FRE) also were a positive with the mortgage lenders up 15.3 percent and 19.7 percent respectively.

There was strength in home builders today with some analysts starting to feel that a bottom is approaching. This isn’t necessarily shown in recent economic news, although mortgage applications did rise this past week. Home sales, existing and new, were still weak in July, but traders are looking more at direction and the pace of decline more than the actual figure. Overall, stocks are seeing only modest moves on very light volume, but this should change in the weeks to come as traders return to work following summer vacations.     

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site