The volume in the market since the March 2009 rally began has been extremely light. There have been days when the volume has picked up, however, the large majority of the time the volume has been unusually light. Many investors will make the case that there are a lot less players in the game since the panic of 2008 as many hedge funds went out of business . While this may be true, the major players are still in the game and even bigger than they were before. Companies such as J.P. Morgan Chase & Co (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), Bank of America Corp (NYSE:BAC), Goldman Sachs Group (NYSE:GS), and Morgan Stanley (NYSE:MS) are all bigger than ever and probably the companies that account for the bulk of the volume in the stock market right now.

Since the Federal Reserve Banks minutes were released on April 6th, 2010 the market was told that the Fed funds rate (overnight lending rate to the large banks) will remain at zero percent for an extended period of time. Therefore, these major large banks can borrow money at zero and buy treasuries and equities to make profits at no risk. They no longer need to lend money to consumers or businesses in order to make a profit. When you think about it, why they want to take on that risk with ten percent unemployment, and a housing crisis when they have a sure thing already?

Anyone that trades these markets regularly will notice certain patterns unfold almost on a daily basis. The first pattern that is obvious and happens nearly everyday is the U.S. Dollar weakens shortly after the stock market opens at the New York Stock Exchange. This intra-day decline gives the stock market a lift higher as most commodity and inflationary stocks will rise. Come to think of it, everything seems to rise when the dollar declines intra-day. The second pattern that we see is that stocks such as Exxon Mobil Corp (NYSE:XOM) will catch a bid when the stock market is falling and looks close to breaking an important technical level that could lead to further downside. Similar action will take place very often with Goldman Sachs and J.P. Morgan.

There is an old market adage that states ‘never short a dull market’. This adage has never been so true over the past eight weeks. As long as this market trades higher on light volume it does not take much to move this market higher. Watch these leading stocks closely. When they catch a bid it is likely that the stock market will catch a bid. Until the stock market can get some decent volume this is how it will remain.

Nicholas Santiago
Chief Market Strategist