One of last week’s most important reports, and the focus of investors’ attention on Friday, was the existing homes report. In anticipation of the report, stocks opened about 50 Dow points higher but then jumped sharply at 10 a.m. when the National Association of Realtors announced that home resales were more than triple analysts’ expectations.

Home sales in July increased by 7.2% from June to a seasonally-adjusted high
of 5.24 million units. It was the largest increase since 1999 and marked the fourth month in a row of increases. And the announcement came as Chairman Bernanke was proclaiming, “Fears of financial collapse have receded substantially.”

That statement and the housing report created enthusiasm for both stocks and commodities, and the broad-based S&P 500 rose 1.9% with every sector gaining while Nasdaq closed at its highest level since October 2008.

But even as the good news was being celebrated some traders voiced the opinion that, in light of the economy’s strength, the Fed might be prematurely forced to back off from the emergency measures enacted to meet last year’s financial crisis. And late on Friday, following the strong close on Wall Street, and after the news of the week had been headlined, the White House raised its forecast for the 10-year federal budget deficit to
about $9 trillion from $7.1 trillion. This puts them in general agreement with prior estimates by the Congressional Budget Office that were denied earlier by the administration.

At the close the Dow Jones Industrial Average was up 156 points to 9,506, the S&P 500 gained 19 points closing at 1,026, and Nasdaq rose 32 points to 2,021. The NYSE traded 1.5 billion shares with advancers ahead of decliners by almost 5-to-1. On Nasdaq 773 million shares changed hands with advancers ahead by just under 3-to-1.

For the week the DJIA rose 2.0%, the S&P 500 gained 2.2%, and Nasdaq was up
1.8%.

Crude Oil (October contract) hit a 10-month high settling at $73.89 a
barrel, up 98 cents, and the Amex Energy SPDR (XLE) gained $1.44 to $52.35. December Gold gained $13 to $954.70 on the stronger economic data in the U.S. and Europe and a weaker dollar.

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What the Markets Are Saying

There were a number of articles this weekend on how “overpriced” the stock
market is and how worries abound that a huge correction is about to occur. One DJ column complained of lagging momentum.

And from a WSJ article, “Some traders are worried that the market could hit turbulence as the U.S. government gradually backs off policies it enacted as emergency measures to spur the economy along,” etc. S&P’s Mark Arbeter began his comments this way: “The S&P 500 is attempting to break out once again, but we still think a pullback is looming.”

But Mark also adds, “If the ‘500’ closes sharply above the 1,020 level for two straight days, we see an extension to the rally.” The “500” closed on Friday at 1,026.13.

The bull has broken from his pen again with new vigor — despite all of the negativity. And so it continues to “climb the wall of worry” that is so characteristic of this stage of the advance. If the breakout doesn’t fizzle quickly, then the market will likely head much higher since there is little resistance before 1,200 and our minimum ultimate goal of 1,245.

Today’s Trading Landscape

Earnings to be reported include: Accuray (ARAY) and Omega Navigation Enterprises (ONAV).

Economic reports due: There are no significant economic reports due today.

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