By Nicholas Santiago on August 2nd, 2010 3:18pm Eastern Time
Everything is wonderful in the stock universe today. The major market indexes are advancing sharply higher on the back of positive news out of China and the falling U.S. Dollar Index. Investors are even seeing the 10 Year T-Note yield inch higher today to 2.95% indicating that maybe some big fish are taking some money out of bonds today and putting it in stocks. Leading energy names such as Exxon Mobil Corp (NYSE:XOM), and Chevron Corp (NYSE:CVX) are both trading sharply higher as the U.S. Dollar declines to fresh three month lows. Leading commodity stocks such as U.S. Steel Corp (NYSE:X), and Freeport McMoRan Copper & Gold Inc (NYSE:FCX) are soaring higher by nearly 5.0 percent on the session. From the outside this inflation rally looks picture perfect.
However, there is something that is missing from today's large stock market advance; the volume. Today the SPDR S&P 500 Trust (NYSE:SPY) is trading 121 million shares as of 3:00 pm EST. Since the March 2009 low the major indexes have rallied on light volume and declined on extremely heavy volume. This tells us that the true conviction of a bull market is missing. During past years a true bull market moves higher on heavy volume and declines on very light volume. Since 2009 this market has done the opposite and this is why when the corrections occur experienced traders and investors run for cover. Most traders and investors truly feel the the moves to the upside are lacking conviction.
As for now the major stock market indexes have have rallied by more than ten percent since the early July pivot low. This recent rally has been very impressive especially for the many of us that played it and benefited from it. There could still be a little upside left in the tank. However, when markets rally on this type of weak volume you must always be careful because it is truly lacking conviction.
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