Summer Trading Volume Nets Nasdaq Gains

Volume was lighter across the board as many on Wall Street are taking vacations. Summer months, June through August tend be on the light side for volume. The Nasdaq showing once again it is the leader of this market. Big cap indexes like the S&P 500 and Dow Jones Industrials continue to lag behind the tech laden index. Price action on the Nasdaq continues to look higher as Tuesday’s trading day will be day #4 of our most recent attempted rally. What this market is showing us, it may be a bit difficult to pull off. However, lots of call buyers in Goldman Sachs (GS) for their earnings release which could spark a powerful rally.

As the nations mid-section dries out Corn has put in, for the time being a short term top. Corn is heavily subsidized for its use in ethanol. It has been the catalyst for the dramatic rise in price. Farmers who grow corn sure have powerful Washington lobbyists considering corn has to be broken down into sugar to make ethanol. It makes me wonder why we aren’t using sugar. At any rate here is the chart:

For good measure, we should examine our sugar chart.

Another commodity that has broken a recent downtrend is cotton. Chart:

Why the commodities? As the FOMC looms in a week’s time inflation will begin to come to the forefront. In recent weeks you have Ben Bernanke and other Fed Governors speak out about the increased inflation risk. This market will be driven by fear and will influence the bias of the traders in these markets. Look for both Cotton and Sugar to move higher.

If the FOMC does not hint strongly enough at fighting inflation the market will sell off. However, if the FOMC decides to aggressively fight inflation by raising the Target Rate by more than 25bps you’ll see a longer term positive reaction by stocks.

I’m looking for this market to follow through. Of course, I will need to see the indexes higher by 1.7% and volume higher than the previous day.

Cut those losses and enjoy your day.

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