Investors started the week with optimism helping boost the averages over key technical resistance, rallying above the prior rally high and above the 200-day moving averages for the various indices. Internationally, the news wasn’t all that great. The ECB and IMF are still struggling to convince the world that they have this crisis under control. There were two indicators that may have signaled to investors that the bad news had been priced in, at least for now. One was the way the market handled the recent downgrade of Spanish sovereign debt. Bulls saw the market handle bad news well by dipping initially, but erasing the losses by the end of the session, focusing on the good news. The other signal was that stemming from the rise in the Euro. Whether it was from short-covering, Chinese interest, or central bank buying, the Euro had busted support, moved down to the low 1.18 level, and then rallied. That pop was able to move above some of the very short-term resistance points, but I would warn that it did not take on any of the more significant overhead supply. The Euro rally managed to move off the low but we expect it will take quite some time to build a base and reestablish itself as a major global currency. However, the Euro did find a temporary low and did move up enough to offer some reassurance that the beating of the Euro-currency had subsided. The drop in the Euro had been one of the main catalysts for seeing the “risk trade” unwind. As the Euro rallied, investors moved back into those riskier assets.

Another somewhat positive catalyst was that investors were willing to dig to find a silver lining in the news, and we had a lot of economic data out last week. The two most important economic releases were Industrial Production and the Philly Fed Index. May Industrial Production increased by 1.2%, topping expectations for a gain of 0.9%. Consumer goods and motor vehicle parts were two of the stronger components. Heading into the end of the second quarter, the most important numbers to look at are the ones that take the pulse of the economy. What we got was a very strong Industrial Production number, especially heading into early summer. The Philly Fed Index is a June report. The headline Index reading fell to 8.0 from 21.4, but it was mostly the price component that dragged the index down. New Orders rose to 9.0 from 6.1. Any expansion in New Orders should be viewed as positive. Some of the goods went into inventory, as that component rose to 4.6 from -7.9, but we saw Production hold firm at 14.2 versus 15.8. That bodes well for companies enduring a slow-growth second quarter. Remember, the second quarter 2009 was a negative quarter, so the comparisons to a year ago will be easy.

All the news wasn’t good. The Weekly Jobless Claims rose to 472,000, moving further away from the 450,000 level than many feel represents “breakeven” on jobs lost to jobs gained. It’s not an ugly number, by any means. However, we need to see this weekly measure fall under 400,000 to indicate enough jobs are being created to match the number of new entrants to the workforce. Meanwhile, all indications are that the Fed has every intention of maintaining “exceptionally low interest rates for an extended period of time”. The FOMC meets soon and should retain the same language. Since the market enjoys consistency and is expecting the Fed policies to remain on hold, we look forward to the FOMC meeting as a net positive for stocks. This week also has a lot of economic data, but most of them are focused on Treasury auctions and housing data. Existing and New Home Sales figures are out this week. The FOMC statement will be on Wednesday. Durable Goods are reported on Thursday, as well as weekly claims. Friday’s June Consumer Sentiment figures shouldn’t stray much from the preliminary report. GDP for the first quarter will see a revision, but this is a second revision and no change is anticipated.

This week, a few Technology companies are due to report, including Adobe Systems ADBE (+1.2%), Oracle ORCL (+0.6%), Research in Motion RIM (-2.1%), Jabil Circuit JqBL (+0.7%), and Red Hat Inc RHT (-0.7%). If the Euro can stay above 1.2222, we should see money creep into the Tech area, as investors look to increase exposure to the risk trade. Despite the fact that we are moving closer to the much-anticipated earnings season, there are obstacles. Europe remains a wildcard, from day to day. Financial reform is moving closer to a final bill. There are still battles over key components. There is opposition to banks paying into a fund to create a $150 billion safety net in case a “mega-firm” fails. “The Senate bill has a provision that would give bank regulators the authority to borrow taxpayer funds of up to 90% of the value of the assets of a failing megabank”, which could open the door to the taxpayer lending the government trillions. The Senate no longer has the 60 votes needed to break a filibuster, and the Republicans oppose the fund. Needless to say, investors have been a bit apprehensive about the passage of the financial reform bill and what details it might contain. To see that on a chart, look at the S & P Financial SPDR, XLF. After multiple attempts to break below 13.50, the index is tucked in right under its 200-day moving average, currently flat at 15. If the Financials hear what they want to hear, we should breakout above 15 and run to fill the gap at 15.76.

Technically, the averages have consolidated nicely on top of their former resistance levels. I’ve read several news pieces that report that the averages shouldn’t break back below these levels, Dow 10,335, S & P 1110, and NASDAQ 2246. However, I view the implication of breaking these supports is that we may spend a little more time in a consolidation phase. I don’t buy the bear doomsday scenario. Earnings are more important and it ‘tis the season. We continue to look to buy weakness, avoiding those companies with heavy export exposure, as well as the Basic Materials sector. Buy domestic. Buy American!