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There is very Little Mustard on this Rally

Today the major stock market indexes are all soaring higher by more than 1.5 percent. The BHP Billiton Ltd (NYSE:BHP) buyout offer for Potash Corp Sash Inc (NYSE:POT) has given new life into this market today. The rally is broad based as the energy and technology groups have joined the agriculture sector in today's advance. On the surface everything looks rosy, however, there are a few things to be worried about when you examine this move.

The first negative that anyone can easily spot for this rally is the light volume. As of 3:15 pm EST the popular SPDR S&P 500 Index (NYSE:SPY) has just traded 124 million shares. This is extremely light volume for a regular day never mind a day when the market is in rally mode. This tells us that there is very little conviction behind this move higher by the major institutions. Since March 2009 the market has rallied on light volume and declined on very heavy volume. I suppose this is the new normal that the media keeps referring to.

The second negative for this rally is that it is happening during an options expiration week. One can really never tell what is truly going on during this week as a lot of institutional games will get played. Often the institutional traders will try to whip out the small retail options trader that is trading the expiring contract. Please don't think for one minute that these large institutions do not have computers that are trying to calculate where the small options trader has placed his bet. When an institution makes an options trade it is usually a large block in the tens of thousands of contracts. When the small retail options trader buys a put or call it is usually for a small amount of contracts under fifty and usually even less. This is a week for the institution traders to capitalize.

The last negative factor for this rally is the weak financial stocks. Stock such as J.P. Morgan Chase & Co (NYSE:JPM), and Wells Fargo & Co (NYSE:WFC) are actually negative on the trading session. Other leading financial stocks such as Bank of America Corp (NYSE:BAC) are positive only by a few pennies, however, the stock looks terrible on the daily chart. This is not good action today any way you slice it or dice it.

The point move in today's market rally is very good. The rally is broad based across most sectors except for the financial stocks. However, the volume is absolutely horrible and this tells us that the real money that moves markets is lacking conviction. Enjoy the large point bounce today as it may not last too much longer. There just isn't any mustard on the sandwich.

Nicholas Santiago
Chief Market Strategist