Light Summer Trading and Meager News Reaction

With the market trading on very light volume it has been like watch paint dry the last few days. Despite some encouraging economic data, stocks had a listless session and made another lackluster finish.

With the market trading on very light volume it has been like watch paint dry the last few days.

Yesterday

Despite some encouraging economic data, stocks had a listless session and made another lackluster finish. Nonetheless, the major indices managed to eke out a fractional gain, which means that the Dow has finished higher seven straight times.

There weren't any individual leaders for the broader market this session, but retailers (+0.7%) did garner support following better-than-expected earnings and an upside forecast from Dollar Tree (DLTR 50.13, +2.23) and Williams-Sonoma (WSM 17.21, +1.74).

Home improvement retailers (+1.4%) also gained, but their strength was owed to an encouraging new home sales report. Annualized new home sales for July hit 433,000 units, which is well above the 390,000 that had been expected. What's more, the 9.6% month-over-month increase for July is the sharpest rise since 2005. That helped bring inventory down to a 7.5 month supply from an 8.5 month supply. The better-than-expected new home sales report brought about a broad-based buying effort that took stocks to their best levels of the session. However, gains were capped as buyers seemed unwilling to chase stocks higher. That left the major indices to drift lower.

With participants sitting on the sidelines the rest of the day's news items didn't have much of an impact on the overall market. As such, market participants were essentially unimpressed by news that durable goods orders made their sharpest increase in two years by spiking 4.9% in July. Economists had called for a 3.0% increase. Though the increase exceeded expectations, the results were generally the result of the Cash for Clunkers program. Excluding autos, durable goods orders increased 0.8%, which was largely in-line with expectations.

Stocks did drift to afternoon lows following news that an auction of 5-year Treasuries produced a high yield of roughly 2.49% and a bid-to-cover ratio of approximately 2.5. A lack of conviction behind the selling effort enabled the stock market to make its way back to neutral territory. The lack of interest on the part of participants was also made evident by the lack of trading volume this session. Hardly 1 billion shares traded hands on the NYSE. Dow unch., Nasdaq unch., S&P 500 unch., Nasdaq 100 -0.2%, S&P 400 -0.1%, Russell 2000 +0.1%

One thing to watch is the fact that Dry shippers have not particpated in the rally even though strong economic growth is being projected for China. There are some increasing views that China's pace of growth may not be as strong as projected and that the rise in the recent Chines stock market may be subject to a further fall after correcting over 20%. A 20% correction has to be put in perspective of a 100% run up. Considering the US stock market has not experienced any pullback or correction since the march low there is an increasing probability for some give back over the next few months and would in fact be healthy for a further advance.

In addition although the US housing data is certainly a good improvement it remains to be seen if it can be sustained as banks are holding on to a number of troubled properties so as not to flood the market with foreclosures. We will be paying attention to the overall housing mix of numbers, consumer spending, and unemployment statistics coming out in September to further the bullish case of further market gains.