MARKET RALLY CONTINUES, BUT ON LOW VOLUME -- BOND YIELDS STAY FLAT WHILE T-BILL RATE JUMPS

WHERE'S THE VOLUME... Friday's higher prices continued the market rally that started the previous Thursday. The three charts below show major market ETFs all back above their 200-day moving averages, which removes any immediate threat of a bear market. All have recovered more than half of their July/August decline, The Dow Diamonds and the S&P 500 SPDR are now in position to test their falling 50-day lines. Since a market bounce that could last two to four weeks was expected, this week's bounce doesn't tell us if the worst is over or if there's another downswing to come (that could at least retest the recent lows). One important thing missing from the rally is volume. All three charts show remarkably light trading this past week. In fact, today's trading was the lowest since the days surrounding the July 4 holiday. Chart 3 shows the PowerShares QQQ Trust (QQQQ) closing slightly above its 50-day line today. Unfortuntely, that also came on unusually low volume. Low volume tends to exaggerate price moves and shows little buying enthusiasm. That's especially true on a Friday afternoon in August.

Chart 1

Chart 2

Chart 3

T-BILL MONEY MAY BE MOVING TO BONDS... I suggested on Wednesday that two positive signs for the stock market would be an upturn in short-term T-bill rates and the yield on the 10-Year T-Note. Chart 4 shows the 3-month T-Bill rate jumping back over 4% today. That suggests that some of the panic buying of T-Bill has run its course for now. Unfortunately, we're not seeing the same bounce in bond yields. Chart 5 shows the 10-Year T-Note yield still relatively flat. That suggests that while some of the money coming out of T-Bills may be moving back into stocks, a lot of it is going into longer-term maturities. It also suggests that bond holders are somewhat skeptical of the stock market rally.

Chart 4

Chart 5