We’re at the height of the summer holiday season, and it seems much of Wall Street is away on vacation right now. Yesterday’s trading volume on the New York Stock Exchange clocked in at less than 800 million shares, marking the thinnest trading since the week between Christmas and New Year’s.

Stock prices remain near the mid point of their trading range and we don’t expect much to happen one way or another in the near term. That said, our indicators suggest share prices should have an upward bias in the short run and there are several potentially market-moving events this week, despite today’s early selling.

One key indicator pointing to further gains in stocks is the strong readings we’ve had on the weekly Advance/Decline Line for four weeks running. That tells us a broad swath or the market is moving higher. Echoing this, yesterday the average stock on the NYSE climbed 1.5 percent vs. a 0.55 percent increase on the S&P 500, which was weighed down by the drop in Hewlett Packard which was sparked by a scandal in its executive office.

We don’t know if the Federal Reserve will resume with quantitative easing with its policy setting meeting today, or if that additional pump priming will come down the pike later this year, but given the economic backdrop, QE II seems all but certain. Keep in mind that QE II will likely be good for stocks and may be why stocks have been as buoyant as they have been.Read more...

What a difference a week makes. This time last week stocks looked to be on pretty shaky ground. On Tuesday the market opened and the S&P 500 dropped to 1060 and a close below that level would have likely resulted in a retest of the lows around 1010. Small caps stocks, which had been trailing blue chips, were likewise precariously poised. But instead of dropping, stocks rallied from that intra-day low and we’ve tacked on more than 5 percent. And the small fry have climbed even more.

We’re still not happy with the light volume, but the participation has been broad based, which is very encouraging. As for where we go from here we may know definitively in short order. Stocks are coming into overhead resistance right now. If we can manage to close above 1120, we could easily tack on another 2 to 4 percent and perhaps more if the US dollar remains weak.

That said, we can’t get too excited about the market’s prospects given the poor economic backdrop and lackluster forward guidance we’re hearing from many companies. Most likely we’ll remain in a trading range, with downside risk outweighing upside potential.

Among the most intriguing economic indicators right now is Economic Cycle Research Institute’s (ECRI) Weekly Leading Indicator. The good folks at the ECRI remain bullish on the economy’s prospects, despite a -10.5 reading on its Leading Indicator. However, in its entire history, a period spanning 7 recessions, a -10 percent or worse reading from the indicator has invariably heralded a coming recession.Read more...

We’d have to say this is a market tailor-made for a Missourian: Show me the volume, show me the earnings.

The signal-to-noise ratio is fairly low these days. For instance, while last week’s powerful rally erased essentially all of the losses from the previous week, it was unconvincing economic data that sparked the up-move (though that same data a few days prior would have sent share prices lower).

Volume remains persistently light—more so even than would be expected for this time of year. This suggests investors are floundering, searching for a clear direction whether it’s to buy or sell. The lack of volume actually amplifies any move, exaggerating its significance. We therefore can’t get too excited about last week’s advance.

With little to take away from economic reports, investors are now turning their attention to profit reports. Yesterday, Alcoa kicked off the second-quarter earnings season, as it always does.  Despite the market’s reaction to the news we could have another couple of sleepy weeks on our hands this summer, with no real progress. Incidentally, it’s being reported that Alcoa topped expectations in the latest period, but only by virtue of the fact that Wall Street had dramatically lowered their forecasts for the company in recent weeks.Read more...