The Bulls Are Back In Town

A stock market that was waiting for a reason to move up got two of them today. First, the nation's largest retailer, Wal-Mart (WMT), reported stronger-than-expected 2Q earnings. Confirmed by strong numbers from several smaller peers, this suggested the real estate crash is not yet cutting into consumer spending power. Second, deal activity is still strong, with Anglo-Australian miner Rio Tinto offering $38.1 billion for Canada's Alcan Inc., surpassing a hostile bid by Alcoa (AA).

With these events driving consumer and materials stocks higher, the dam seemed to break and buyers piled into stocks of all kinds. The Dow Jones and Industrial Average and S&P 500 both closed at new record highs. Even the lagging financial and health care sectors picked up some momentum. Energy was strong despite a pause in the crude oil uptrend. Gold stocks popped up, with the Philadelphia Gold/Silver Index (XAU) rising 3.3%. The rally was global, with Asian, Latin American and European benchmarks also up strongly.

The quandary on days like this is that they usually end with many indicators flashing "overbought" signals. While the benchmarks broke above key resistance, it wasn't by much. Having done so, it is now very important that today's gains stay mostly intact. Today's heavy volume is an encouraging sign in this regard. A reversal from here would probably signal a quick trip down to the bottom of the recent trading range.