The Dow Jones Industrial Average finally crossed a milestone 10,000 points this month. Though the mark was greeted with cheers on the trading floor, it didn’t stay there for long, and ultimately closed the month below 10,000 and ended the month flat. The S&P 500 lost 2% and the Nasdaq fell 3.6%.

October was largely a month that saw a weakening dollar. This was to the benefit of commodity ETFs, including SPDR Gold Shares (NYSE: GLD), which gained 3.7% for the month. United States Oil (NYSEArca: USO) gained 8.6%.

Earnings season was a largely encouraging one. The number of better-than-expected reports outnumbered the worse-than-expected ones by a ratio of about 6:1. But there are still big concerns about consumers: spending dropped 0.5% in September. As long as consumers aren’t spending, the recovery could be long and difficult.

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For full disclosure, Tom Lydon’s clients own shares of GLD.

No, the economy is not completely out of the woods. Jobs are still being lost and consumers need to be coaxed with deep discounts to part with their money. That said, there are compelling reasons to be optimistic about the direction in which we’re headed.

Jeff Westmont for The Street has some points about why substantial gains could still be made from this current rally:

• Third- and fourth-quarter earnings could largely beat expectations. Companies are proving they can operate at lower revenue levels despite cost-cutting.
• So far in the third quarter, 80% of companies that have already reported have met or exceeded expectations.
• Retail sales over the last few months have demonstrated a slow, steady improvement. So has the performance of many industrial and technology companies.
• Consumer debt levels are down off their 2007 highs and consumer net worth is 30% higher than it was in 2002.
• Lower interest rates, food prices and commodity prices have all supported disposable income. Housing affordability is up and inventories are below 2006 levels.
• Nearly 50% of the revenue of the S&P 500 companies is international. Since the rest of the world will probably grow faster than the United States, the companies should benefit even if our own economy stays sluggish.
• Historically, unemployment peaks 12-14 months after the stock market bottoms.

Despite the positive signs, there’s a lot of pessimism out there. But those who have stayed out of the rally while fearing a correction have not only been left disappointed, but they’ve missed out on gains. ETFs that track major benchmarks are 10%-14% above their 200-day moving averages, while global benchmarks are nearly 25% above. (How emotions can hurt you).

To have the confidence to buy this rally, consider entering the markets with a strategy in which you’re protected on the downside.

By having an exit strategy and an entry position, you can wade into the markets with a cool-headed logic. By implementing a stop loss, you’ll give yourself a clear-cut signal on which to act when the uptrend reverses itself and either protect any gains you may have made or put a cap on your losses. Having an escape hatch ready can give you the confidence you need to move forward.

For more insight into trend following and how to implement a strategy, check out The ETF Trend Following Playbook.

No rally is guaranteed, but there are lots of reasons to be positive right now. Want 10 more reasons? We’ve got a long way to go and it’s important for investors to be ready to act, either way.

For more stories about trend following, visit our trend following category.

The Chicago Purchasing Managers Index, considered a precursor to the national Institute for Supply Chain Management Index, fell to 46.1 in September rather than rising to the 52 mark expected by economists.

Additionally, the Commerce Department said GDP, the broadest measure of the economy, sank at a pace of just 0.7% in the spring, beating analysts’ expectations of an annualized drop of 1.1%.  Although GDP numbers are promising, the Chicago PMI data is fresher, and reminded investors that the economy still has major obstacles to overcome before a solid recovery can occur, state Ieva M. Augstums and Tim Paradis of the Associated Press.

In the real estate arena, U.S. mortgage applications fell despite attractive loan rates.  The Mortgage Bankers Association said applications fell to a seasonally adjusted 2.8% in the week of Sept. 25, driven down by a 6.2% drop in demand for purchase loans and a 0.8% decline in refinancing requests.  The data further suggest that a rebound in the housing sector will be a slow one.  The iShares Dow Jones U.S. Real Estate (NYSEArca: IYR) was down 1.5% in morning trading.

In other news, a bit of hope loomed the air as the International Monetary Fund announced that likely losses from the global financial crisis through 2010 are going to be reduced by $600 billion to $3.4 trillion.  The IMF’s reassessment of the potential losses stemming from the financial crisis comes ahead of Thursday’s World Economic Outlook, when the fund will publish its latest estimates for the global economy, reports Carter Dougherty for The New York Times.

Overall, all three major U.S. indexes were down in morning trading with the Dow Jones Industrial Average giving up 0.9%, the S&P 500 dropping 0.9% and the Nasdaq down 0.8%.

For more stories on real estate, visit our real estate category.

Kevin Grewal contributed to this article.

The Conference Board said that its index of consumer confidence fell to 53.1 in September, down from a 54.5 in August and a far cry from the 57 expected by economists.  The decline was attributed to concerns about the labor markets. Consumer confidence is truly the catalyst behind an economic recovery, reports the Associated Press.

The housing sector continues to show signs of life as the Standard & Poor’s Case-Shiller Index, a home price index of 20 major cities, showed home prices rising 1.2% in July from June, marking the third straight month of increases.  To add to this, the index has risen at an 8% annualized rate in the three months to July, the best performance since early 2006, states the Associated Press.  Despite the upbeat news, the iShares Dow Jones U.S. Real Estate (NYSEArca: IYR) was down 1.7% in morning trading.

Crude oil continued to decline as the U.S. dollar gained ground.  Anticipation of the release of an unfriendly government report indicating large crude supplies hovers over the volatile commodity.  Crude fell to $66.51/barrel on the New York Mercantile Exchange.  The United States Oil Fund (NYSEArca: USO) was down 1.1% in morning trading.

Overall, the Dow Jones Industrial Average was down 0.4%, the S&P 500 gave up 0.4% and the Nasdaq was down 0.6% in morning trading.

For more stories on oil, visit our oil category.

Kevin Grewal contributed to this article.

A busy week of economic data is expected on Wall Street this morning, and it could soon sharpen the picture for investors. One of the major reports expected is the monthly reading on the job market, which will be out on Friday. Unemployment is considered one of the biggest hurdles the economy has yet to overcome, reports Sara Lepro for the Associated Press.

Also upcoming this week include home prices, manufacturing, consumer confidence, construction spending and factory orders. There are also going to be some updated outlooks from companies before the third-quarter earnings season kicks off.

Xerox (NYSE: XRX) recently announced that it will purchase Affiliated Computer Services (NYSE: ACS) in a $6.4 billion cash and stock deal, which will enable Xerox to expand into technology and data management. Additionally, pharmaceutical company Abbot Laboratories (NYSE: ABT) announced that it will purchase Brussels drug company Solvay, giving Abbot full control of its Belgium development partner’s cholesterol departments and exposure to emerging markets. The news sent the SPDR S&P Pharmaceuticals (NYSEArca: XPH) up 2% in morning trading.

In other news, crude oil edged above $66/barrel on the New York Mercantile Exchange as the dollar gave up most of its earlier gain against a basket of currencies, boosting the appeal of oil and commodities to investors. The news sent the United States Oil Fund (NYSEArca: USO) up 1.3% in morning trading.

Overall, all three major U.S. indexes were in positive territory this morning, with the Dow Jones Industrial Average up 1.3%, the S&P 500 adding 1.5% and the Nasdaq jumping 1.9%.

For more news on crude oil, visit our oil category.

Short-term incentives and measures to stoke the economy are not fixing the real problem of sustained growth as businesses reduce payrolls, bank lending contracts, and consumers save more and spend less, comments Steven Pearlstein for The Washington Post.

The Federal Reserve took bold and necessary steps to prevent the collapse of the financial system. But the Fed also created so much liquidity that some fear that another financial bubble is forming.

As the money flew off the printers, the Fed was cutting interest rates in inter-bank lending to basically zero. However, banks kept interest rates unchanged for everyone else, and the result is that “spreads” between bank-to-bank lending and lending to everyone else are close to record highs.

The entities that are actually borrowing are hedge funds and other investors who use the money to purchase stocks, corporate bonds and commodities, pushing prices higher. Some ETFs to watch for activity include:

• DIAMONDS Trust, Series 1 (NYSEArca: DIA): up 14.0% year-to-date
• PowerShares QQQ (NasdaqGM: QQQQ): up 43.3% year-to-date
• SPDRs S&P 500 (NYSEArca: SPY): up 19.1% year-to-date
• iShares iBoxx $ Invest Grade Corp Bond (NYSEArca: LQD): up 8.9% year-to-date
• iShares S&P GSCI Commodity Indexed Trust (NYSEArca: GSG): up 4.9% year-to-date

The excess liquidity is also being used to finance new “carry trade,” borrowing at low U.S. rates to buy bonds in places with higher rates.

• POWERSHARES DB G10 (NYSEArca: DBV): up 17.7% year-to-date

The Central Bank is determined to stay its course, using anything that will strengthen the balance sheets. Fed officials won’t be increasing interest rates and reducing liquidity until they decide the economic recovery has a proper foothold.

For full disclosure, Tom Lydon’s clients own shares of LQD and QQQQ.

Max Chen contributed to this article.

It’s important to keep a few tidbits in mind when picking out a stock, according to InvestingFirstSteps.

Beat the market? A lot of investors are too focused on “hot tips” or phenomenal returns in certain stocks. It should be noted that even professional traders who are paid to track the stock markets rarely provide returns of 11% or more, on average. We follow a 200-day moving average to help guide us. You can read more about this strategy in The ETF Trend Following Playbook.

ETFs. ETFs are popular and easy to use. They’re transparent, meaning you know what’s in them at all times. They trade all day on an exchange, just like a stock. And, on average, they’re cheaper than mutual funds. ETFs seek to reflect returns on the underlying index such as the S&P 500, Dow Jones Industrials Average and NASDAQ Composite. The ETFs listed below are based on a major indexes in the United States – from this point, you can access commodities, currencies, specific sectors and much, much more.

• SPDRs S&P 500 (NYSEArca: SPY)
  

• Diamonds Trust (NYSEArca: DIA)
  

• PowerShares QQQ (NasdaqGM: QQQQ)
  

For more information on investing, visit our ETF 101 category.

Max Chen contributed to this article.

The Commerce Department reported that new home sales edged up 0.7% in August, however, this increase fell short of the 1.6% expected by economists.  This is good news, but investors were unsure how to take it due to its discrepancy from anticipated results.  The news sent the iShares US Dow Jones Real Estate Index (NYSEArca: IYR) up 0.2% in morning trading.

In other news, the Commerce Department reported a decline in orders meant to last three years or longer by 2.4%, after increasing 4.8% in July and missing analyst expectations of an increase by 0.5%.  The drop was due primarily to a sharp fall in demand for commercial aircraft, a highly volatile portion of the orders report. Even excluding aircraft and other transportation goods, orders were flat in August.

In Philadelphia, a Group of 20 world leaders are uniting behind a plan to force banks to tie compensation more closely to risk and tighten capital requirements, while they agreed to maintain stimulus measures to spur the global economy.  Additionally, they are turning their attention from crisis management to overhauling the rules governing financial markets as the group assumes the mantle as the world’s main forum for global economic cooperation, states Simon Kennedy and Gonzalo Vina of Bloomberg.

In the fixed income world, benchmark borrowing costs for highly rated state and local governments dropped to a 42-year low this week, as the pace of new municipal-bond issues slowed and cash flowing into mutual funds accelerated to a record.  The weekly Bond Buyer 11-Bond index, which tracks tax- exempt yields on 20-year general-obligation debt with an average Aa1 rating, fell 14 basis points, or 0.14 percentage point, to 3.79 %, its sixth straight decline.

Overall, the Dow Jones Industrial Average was down 0.1%, the S&P 500 dropped 0.1% and the Nasdaq gave up 0.4%.

For more stories on real estate, visit our real estate category.

Kevin Grewal contributed to this article.

A day after the Federal Reserve announced that economic activity is improving, the National Association of Realtors said that existing home sales fell 2.7% in August, compared to a gain of 7.2% in July, snapping a four-month rally.  The number of home sales fell to an annual rate of 5.10 million units as compared to expectations of 5.35 million units.  The news sent the iShares Dow Jones U.S. Real Estate (NYSEArca: IYR) down 3.5% in morning trading.

The Labor Department reported that the number of newly laid-off workers seeking unemployment benefits fell for a third week. Initial claims for unemployment insurance fell by 21,000 to 530,000, much lower than the 550,000 expected by economists and an indicator that the economy is stabilizing.

Scott Lanman of Bloomberg states that the Federal Reserve plans to reduce its emergency programs that auction loans to commercial banks and Treasury securities to bond dealers as the financial markets continue to improve.  Additionally, Fed policymakers committed to complete their $1.25 trillion in purchases of mortgage securities and extended the end-date of the program to March from December.

Black gold fell sharply in morning trading as a government report showed a larger-than-expected buildup in crude supplies.  Additionally, oil demand fell by 3% and gasoline supplies surged by more than 5 million barrels even though refineries took in 316,000 fewer barrels of crude each day.  The United States Oil Fund (NYSEArca: USO) was down 2.9% in morning trading.

All three major U.S. indexes are in the red, with the Dow Jones Industrial Average dropping 0.4%, the S&P 500 giving up 0.8% and the Nasdaq declining by 1.1%.

For more stories on oil, visit our oil category.

Kevin Grewal contributed to this article.

The Fed is expected to make its announcement this afternoon. The U.S. Central Bank will likely keep rates at zero, but investors are waiting for indications of when interest rates may rise as well as clues about the strength of the economic recovery. The announcement will be made at 2:15 ET.

In the earnings arena, foodmaker General Mills (NYSE: GIS) reported a 51% increase in profits on lower ingredient costs and strong demand for its products. The maker of Cheerios reported quarterly earnings of $1.28/share, beating Wall Street’s expectations of $1.03/share.  The company has witnessed increases in sales as more people are choosing to dine at home.  The news sent the PowerShares Dynamic Food & Beverage (NYSEArca: PBJ) up 0.1% in morning trading.

In the real estate sector, mortgage applications jumped to their highest levels since May when interest rates were below 5%, states Julie Haviv for Reuters.  The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications for the week ending Sept. 18 increased 12.8% to 668.5.  This increase was fueled by consumer desire to refinance loans as well as obtain new mortgages to purchase homes.  Despite the news, the iShares Dow Jones Real Estate (NYSEArca: IYR) was down 1.4% in morning trading.

Globally speaking, the G-20 summit is taking place in Pittsburgh were President Barack Obama is trying to convince European leaders to impose more stringent rules and regulations on bank pay limits.  Some believe this will be tough, as European countries are becoming increasingly impatient at the pace of action on climate change and financial regulation in the U.S. Congress and by the Obama administration.

Overall, the Dow Jones Industrial Average dropped 0.2%, the S&P 500 was down 0.3% and the Nasdaq gave up 0.1% in morning trading.

For more stories on real estate, visit our real estate category.

Kevin Grewal contributed to this article.