CLOSING WRAP-UP, August 24

Major market indices rally Friday to leave stocks higher for the week. The Dow () ended the session with a gain of 142.99 points to close at 13,378.87. The S&P 500 () added 16.87 points Friday to 1,479.37. The NASDAQ () tacked on 34.99 points to finish the session at 2,576.69. Volume remained very light on the session with the NYSE trading 1.18 billion shares and the Naz turning over 1.66 billion shares. Market breadth was positive by a 26-to-7 and 21-to-9 margin on the Big Board and Naz respectively.

Better than expected earnings news from several retailers and strong economic news provided strength Friday. In fact, the bulls stepped up to the plate late in the session to leave the major market indices higher by more than two percent on the week. At the same time, volatility slowed, leaving the fear indices off sharply on the week. The CBOE Market Volatility Index () fell 30.91 percent to 20.72 with the Nasdaq Volatility Index () down 23.48 percent to 20.69.  This is a sign that traders feel a bottom might have been reached for stocks.

Friday benefited from a lack of bad news about the subprime sector. In fact, strong earnings from Ann Taylor () and Gap Inc () provided strength not only for retailers, but for the entire market. Both companies’ bested earnings guidance and provided a strong outlook and this is something traders were pleased to hear. This is especially true after the CEO of Countrywide Financial () stated yesterday that he sees a recession coming for the U.S. economy. Shares of GPS rose 6.4 percent on the session with ANN up 9.4 percent.

In economic news, durable goods orders rose a much larger than expected 5.9 percent in July. Nondefense durable goods orders ex aircraft, a proxy for business spending, gained 2.2 percent following a 0.1 percent decline in June. Of course, August’s data could be weak given the problems we’ve had in the credit markets this month.

New home sales rose more than expected as well in July, up 2.8 percent to an annualized rate of 870,000. This put the year on year rate at a decline of 10.2 percent, but this is less than half of June’s 21.1 percent drop. Nonetheless, home builders will remain on the defensive as they try to rid themselves of 7.5 months of inventory.

It’s normally a positive for stocks to rise the last hour of trading as it shows interest from institutions. However, the lack of volume is a concern for technicians and there are still several wildcards that could send stocks lower in the short term.

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