The low-volume “dog days of summer” have been anything but uneventful. Rather than a sleeping dog, this summer has been more like a rabid dog—gyrating wildly and scaring the heck out of everyone in its path.

Nothing seems to be strong enough to lift the market out of its doldrums.  Not the shiny corporate earnings announcements from Wal-Mart (WMT) and Home Depot (HD).  Not the exciting merger talks between BHP Billiton (BHP) & Potash (POT) or between Intel (INTC) & McAfee (MFE). Not the slightly improved global economic picture.

One hesitates to put too much emphasis on any given week when discussing market trends, but this week could be the tipping point for the current market. Despite the S&P 500's 50-point gain last week on virtually no news at all, the fact remains that it is still more than 12% below the April 23rd high of 1217 and still has not broken out of the downward channel that began on April 26.

It has been a week of sparse market-moving news, but what news there was continued to be generally supportive of the market’s slow growth recovery. Remarkably, volatility continues to be very low. Unlike the 6 to 10% gyrations (in both directions) of late 2008 and early 2009, we’ve seen very few days this year when the market has moved more than 1% in either direction.

Last week brought us murk and fog in an otherwise bright New Year. All style/caps were down for the week, though not drastically. The worst was Small-cap Growth (- 1.12%); the best was Large-cap Growth (-0.6%); and the rest crowded between these uninspiring returns. But given the tremendous amount of cash on the sidelines, the market seems unlikely to turn disastrous.

by David Brown, Chief Market Strategist

David Brown