If you eliminate the correction of last Wednesday the 23rd, the market has had a pretty fair run for 11 sessions " not just in the U.S., but around the world.

Is this just a low volume summer rally? I'm not so sure.

It could be what I surmised in my Week In Review two weekends ago, when I opined that equity prices could rally for several weeks, possibly challenging May 2006 Bull market highs.

It could be that equities will stay bullish in the short run until (i) bond prices start to fall (inflation concerns) (ii) oil and metal prices start to rally again (contributing to inflation) (iii) 3Q06 earnings season (starting early October) fails to meet expectations, and/or (iv) the U.S. Dollar priced in Yen and Euro starts to trend downward.

Yes, certain components of the U.S. economy are rapidly declining " like the auto industry and like the housing industry where supply on the market has jumped to an 11-year high for new houses and 13-year high for existing homes " but others are cranking along very well as is apparent by the very high levels of unfilled orders for (non auto) durable goods.

I suspect that people do not believe that oil prices and metals prices could sustain such high levels in future, and that falling interest rates will ultimately help the weak housing/auto markets.

This chart from Econoday (good through 8/25) is the most significant one I have seen. As long as bond yields fall like such, I believe this rally in equities will persist. The major reasons are (i) rising bond prices are indicating that inflation is not a serious concern to bond traders, and (ii) lower bond yields make the high dividend yields of some stocks very competitive for income-seeking accounts.

In any event the rally in equities is continuing today, which is the point I made in the opening paragraph.