With traders filing in from Labor Day vacations and trading volume returning to normal levels, the market was to reveal more clues as to its direction.  There certainly has been much speculation (myself included to a certain degree) that the rally off the July lows is/was a sucker’s rally in danger of a collapse once traders returned from summer vacations.  In the first couple days of trading last week, it appeared that scenario would play out after 2 straight days of mild distribution..  However, the steep drop in commodity prices recently (which have stoked inflation fears over the past year) appears to be igniting this market as a massive shift from anything commodity related flows into technology (primarily), consumer descretionary, healthchare, financials and even retail names.  It’s too soon to tell just where the floor of the commodity drop is and whether it can be the catalyst for a sustained market rally, but one thing is fairly certain –   it’s going to be quite some time before we see sustained and substantial moves in these commodities again (see this chart that shows crude taking out its 3 year trend line).   There is just simply too much money pouring out of them right now.  In the long run, this bodes well for the market.

Today’s action was the strongest I’ve seen in a month as prices moved up substantially with volume well above average levels.  SelfInvestors.com Leading Stocks (an indexed handpicked by me comprised of the fastest growing companies near a breakout or having already broken out of a base) also did very well today (yesterday they did not).  One day obviously doesn’t make a trend, but it may be enough momentum to at least get to major resistance areas in the indices that I’ve mentioned in previous reports – the multi year high in the Dow at 11670, the multi year high in the S&P at 1327 and the 200 day moving average in the Nasdaq at 2234.  Despite today’s bullish move and the "economically positive" drop in commodities recently, I’m still very much concerned with these major resistance levels.  I’ll point out again that the rise over the past few months is a steep one with the indices (particularly the S&P and Dow) etching V like bases which are prone to failure.  If and when we test these multi year highs, I would be listening to that little voice of reason over your shoulder saying, "Be careful up here, be careful".

Note: on Friday the all important CPI number will be released.

Here’s a look at the charts and their resistance levels.