Today’s rally is very impressive when you look at the size of the gains. Almost every sector is trading sharply higher as the rally is broad based. Bonds are selling off a bit so there can be a case made that money is now rotating into stocks. The talking heads in the media all have their pom-poms out and are saying the bull is alive and well. On the surface everything looks good. However, before we anoint the September 1st pivot there are a few problems with today’s euphoric move higher.

The first negative that I notice today is that the volume remains very light. This is somewhat expected as this is the trading week ahead of the Labor Day holiday in the United States. Many traders and investors can say that today’s rally is just a technical bounce during a light volume week when the real traders are all on vacation. Everyone knows that the powers that be do not want the market to crumble ahead of the long holiday weekend. After all the major stock indexes are still down by more than 10.0 percent from the April 2010 high. If you have not noticed the pattern already the major market indexes rallied ahead of the Memorial Day holiday in the U.S. in late May. They also rallied in early July just before the Independence Day holiday and now we enter the final holiday in the summer called Labor Day and the market is having a sharp rally.

Please realize that these holiday periods are when consumers will splurge and spend money. As you may know by now U.S. consumer spending accounts for 70.0 percent of the gross domestic product (GDP) in the United States. If the consumer does not start spending soon the plan by the government and the Federal Reserve Bank will fail. The United States simply does not manufacture and export enough goods to keep the economy going unless the people in the U.S. spend and consume goods. September is going to make for an interesting month. Enjoy the rally for now while it lasts.


Nicholas Santiago
Chief Market Strategist