Stocks turn positive following better than expected economic data. The focus Tuesday is definitely on the economy with several key reports released this morning. Data on producer prices, retail sales and the Empire State Mfg. Survey all were released this morning and the bulls were pleased with what they heard. The major market indices have gained ground in six of the past seven sessions and the rally looks to continue Tuesday.

Retailers will get attention Tuesday following earnings from Best Buy (BBY) and the August retail sales report. Electronic retailer Best Buy announced that earnings in the second quarter fell 37-cents a share from 48-cents in the year ago period. Analysts were expecting earnings of 41-cents, though revenues did rise to $11 billion from $9.8 billion. Despite missing estimates, the company did note that traffic is improving. BBY shares are down slightly in early trading at a price near $40.20.

Retail sales in August rose 2.7 percent, helped by the "Cash for Clunkers" program. However, even when auto sales are excluded, retail sales rose more than expected at 1.0 percent. On a year on year basis, retail sales are down 5.3 percent, much better than the 8.3 percent decline seen in July. Excluding motor vehicles sales, retail sales are down 6.2 percent compared with the year ago period, an improvement from the 8.6 percent drop in July. Though the employment sector continues to struggle, consumers seem to be getting more optimistic.

Producer prices in August rose 1.7 percent, more than double expectations. The core rate, which excludes food and energy prices, rose 0.2 percent, just a tenth above estimates. In the past year, producer prices are down 4.3 percent with the core rate up 2.3 percent. This data isn't getting much attention, but some economists might be a bit concerned about potential inflation pressures. There is no doubt that the Fed will have its work cut out for it to combat inflation down the road given the billions put into the economy by the government.

Another positive for stocks Tuesday came from the Empire State Mfg. Survey. This measure of manufacturing activity in the New York region rose to nearly 19, up from 12 in August and above estimates for a reading near 14. Any reading above zero points to expansion and now the attention will turn to the industrial production report on Wednesday and Thursday's Philly Fed Survey.

Though retail sales data was better than expected, the bulls are finding it tough to push stocks much higher. The inability for positive news to push stocks higher will be viewed positive by the bears, which are looking for any reason to sell. This could be the case if economic data the rest of the week doesn't live up to expectations.

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