FINALLY SOME DECENT STOCK MARKET VOLUME

MARKET BOUNCE ATTRACTS SOME VOLUME... A relatively benign inflation report and a sharp drop in bond yields pushed stock prices higher today. As a result, the three main indexes are still safely over their 50-day moving averages. The Nasdaq bounced off its 200-day line yesterday. Market breadth was good with a three-to-one advance-decline ratio on the Nasdaq and the NYSE. The most encouraging feature of the day, however, was the increase in trading volume. That's been noticeably missing from recent market bounces. Although Nasdaq volume wasn't dramatic, it may have broken the lower trend in daily volume that's existed since the start of May (see blue trendline in Chart 1). Chart 2 shows an even more impressive volume bar in the S&P 500. Today's volume was also the heaviest in more than two weeks. We need to see a few more days like that.

Chart 1

Chart 2

DROP IN BOND YIELDS LOWERS DOLLAR, BOOSTS GOLD... A big reason for today's stock buying was the tumble in the 10-year T-note yield as shown in Chart 3. Just yesterday yields were threatening to hit a two-year high. Today they tumbled to 4.69% as bond prices rose. Falling U.S. rates pushed the dollar lower in foreign exchange trading. Chart 5 shows the Dollar Index meeting resistance at its moving average lines. The drop in the dollar gave gold a boost. Bullion gained $3.60.

Chart 3

Chart 4

Chart 5