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Stock Market Higher As Small Caps Rally; Dow Component Tops Buy Point

The stock market started August trading with gains as investors greeted progress on a major infrastructure spending bill.




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Small caps led the market. The Russell 2000 jumped 1.2%, building on a two-week rebound. The S&P 500, which just notched its sixth straight monthly gain, climbed 0.5%.

The Dow Jones Industrial Average also rose 0.5%. Honeywell (HON) rose above the 234.12 buy point of a cup-without-handle base. Volume was tracking 30% above average. Also in the Dow, Cisco Systems (CSCO) was above a 55.45 buy point but has not followed through much at all from that entry.

The Nasdaq composite climbed 0.5% as well, despite a sluggish technology sector. Technology Select Sector SPDR (XLK) was up only 0.3% as software shares lagged. The iShares Expanded Tech-Software ETF (IGV) fell 0.6%.

Among software leaders, cybersecurity firm CrowdStrike (CRWD) fell nearly 3% and is now testing the 50-day moving average. CrowdStrike is in IBD Leaderboard. Zscaler (ZS) fell more than 2% in the same group.

Semiconductors gave the tech sector some flotation. The Philadelphia Semiconductor Index climbed 1.6% to a new high. The index is up more than 21% this year, beating the major indexes.

One of the big headlines in the tech sector was Square‘s (SQ) acquisition of Australian consumer lending startup Afterpay. The deal is valued at $29 billion. Afterpay provides “buy now, pay later” installment payment plans, which are growing in acceptance. Square stock surged 9% and is now barely extended from a 254.88 cup-with-handle entry.

Breakouts In Aerospace, Autos

Aerospace company Textron (TXT) broke out of a double-bottom base in heavy volume. It is in buy range from the 70.24 buy point. Morgan Stanley and Credit Suisse raised their price target on Textron, which reported a surge in EPS last week.

Sonic Automotive (SAH) cleared a 20-week pattern in huge volume, although the pattern may be interpreted as a double bottom with a 53.74 buy point. Sonic last week reported strong earnings and said it is considering strategic alternatives for its EchoPark used-vehicle business.

The S&P industrial and materials sectors rose about 0.5% after lawmakers made progress on a massive infrastructure bill.

Senators worked through the weekend to hammer out the $1 trillion infrastructure plan, which they hope to pass by the end of this week. The bill includes $110 billion for bridges and roads, $39 billion for public transit and $65 billion for expanding access to broadband, according to The Wall Street Journal.

Chinese Stocks Climb

Chinese stocks rebounded on conciliatory comments from China’s securities regulator. The China Securities Regulatory Commission said it would cooperate with U.S. officials on listings of Chinese companies on Wall Street, according to the Journal. The U.S. Securities and Exchange Commission has said it would raise oversight of Chinese companies that aim to sell shares in the U.S.

The Shanghai Composite rose almost 2%, while Hong Kong’s Hang Seng rose 1.1%. The Nikkei 225 climbed 1.8%. The iShares China Big Cap ETF (FXI) rose 1.2%.

After the close today, Arista Networks (ANET) will report second-quarter earnings. In addition, three oil companies will announce quarterly results: Diamondback Energy (FANG), Continental Resources (CLR) and Pioneer Natural Resources (PXD). All three oil stocks are trying to recover from July pullbacks.

Juan Carlos Arancibia is the Markets Editor of IBD and oversees our market coverage. Follow him at @IBD_jarancibia

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