Market's rise is a rally without a cause

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By David Weidner, MarketWatch


NEW YORK (MarketWatch) -- The stock market looks pretty attractive right now, but it's a spooky beauty not unlike that vacant resort where Jack Nicholson stayed in "The Shining."

The S&P 500 surged 7.7% in July, and Monday's rally -- fueled by European bank earnings, especially HSBC Holdings -- kept the momentum going on the first trading day of August.

As MarketWatch's Mark Hulbert reports, August has historically been a great month for investors. The Dow Jones Industrial Average has returned 1.3% on average for the month since 1896. Only July has a better record at 1.4%, Hulbert notes.

"The odds are more in your favor if you place that bet during August -- rather than waiting until the entire trading community is back at their desks in September," he wrote. Read Mark Hulbert's column on August investing.

Greece shmeece. We're going to be rich.

Ah, were it only true. But just as that uninhabited resort made the Torrance family begin to see things, a Wall Street summer rally without investors looks suspicious. Are we really seeing gains or ghosts? And how does this movie end? With a bloodbath? Or are we just going to be left staggering in the cold?

Consider that trading volume across the exchanges was at a low for the year in July. CME futures, ICE futures, NYSE Group Inc.'s European futures all slumped. U.S. cash equity volume was 8.2 billion shares a day in July, down 12.2% from June and down 6.8% from July 2009.

Though trading historically does slow during the month, the lack of activity is striking in an earnings month, according to a report issued Monday by analyst Richard Repetto at Sandler O'Neill & Partners.

"Summer seasonality would suggest things get worse before they get better," Repetto concluded. ............(more)

The complete piece is at: http://www.marketwatch.com/story/a-rally-without-a-cause-2010-08-03