On Tuesday, the euro was strong following successful bond offerings from Spain, Ireland and Belgium, and U.S. markets responded with a triple-digit Dow Jones Industrial Average (DJI) advance. All 10 of the S&P 500’s (SPX) major sectors scored gains, and the Nasdaq (NASD) rose 2.8% as technology stocks were in high demand.

The PHLX Semiconductor Sector Index (SOX) rose 5.5% following a Best Buy Co., Inc.’s (NYSE: BBY) Q1 report showing that its sales in notebook PCs were strong. However, despite the gain in notebook sales, BBY missed its earnings target and the stock fell more than 6%. 

Industrial stocks gained 3% with all 57 members of the sector advancing. Illinois Tool Works Inc. (NYSE: ITW) rose 2.5% after reaffirming its earnings forecast for 2010. 

The most significant technical event of the day was the breaking of the respective 200-day moving averages of the various indices. The barrier has been a thorn in the side of the market since March, so by closing above it, technicians will set their sights on the next resistance level.

The euro closed at 1.234 versus the dollar. It was the highest close for the euro in over two weeks.

At the close, the Dow was up 214 points to 10,405, the S&P 500 rose 26 points to 1,115, and the Nasdaq gained 62 points to 2,306. 

The NYSE traded 1.2 billion shares with advancers over decliners by more than 5-to-1. The Nasdaq crossed 616 million shares with advancers ahead by 4-to-1.

Crude oil for July delivery rose $1.82 to $76.94 a barrel on a more optimistic global economic outlook. The Energy Select Sector SPDR (NYSE: XLE) closed at $55.62, up $1.58. 

August gold rose $9.90 to settle at $1,234.40 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 4.3 points, closing at 176.95.

What the Markets Are Saying

In just one week the Dow and the S&P 500 jumped from the lows of the year to above their respective 200-day moving averages. And the Nasdaq achieved that worthy goal for the second time in as many days. The performance, though still lacking in volume, is impressive because prices not only knocked out the 200-day moving average, but also the 20-day, which results in a trading buy signal.

The impact of this week’s trading is reflected in our internal indicators, which, though slightly overbought, tell us that the rally has further to go. Some commentators are already arguing that the pop above the 200-day isn’t that meaningful since the Dow briefly accomplished the same feat on June 3 before plunging again. That’s true, but the penetration was intraday, not on the close, and to a technician, that is a world of difference. In fact, the failure of the Dow to hold above its intraday high on June 3 resulted in a test of the March low just three days later.

But there are some disturbing factors to consider, such as the continued low volume on advancing days versus high volume on declining days. This is a signal that the market remains in weak hands. Furthermore, investors are still riding the waves of headline news. Yesterday’s broad advance was made with just 1.3 billion shares traded on the NYSE, and the momentum came from the successful European bond offerings.

But for now we’ll take what we can get. And what we will probably get is a trading pop to the next resistance line at Dow 10,625, which is midway in the 10,550 to 10,750 resistance zone. For the S&P 500, that translates to a 50-day moving average at 1,143 and a resistance zone of 1,115 to 1,150.

If you are a trader, you may want to hop aboard for a quick ride north. But be careful out there — new headline news that could pound prices again might be just minutes away.

My wife and I will be visiting our son, his wife, and our three granddaughters in Texas until my next report on Monday, June 28.

Today’s Trading Landscape

Earnings to be reported include: Canadian Solar, FedEx and IHS.

Economic reports due: bank reserve settlement, MBA purchase applications, housing starts (the consensus expects 650,000), producer price index (the consensus expects -0.5%, 0.1% ex-food and energy), industrial production (the consensus expects 1%, and 74.5% for the capacity utilization rate), and EIA petroleum status report.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.

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