Sam Collins

Rally Should Continue Despite Overbought Market

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A new pattern of daily trading has emerged, and it's the opposite of the one from just a few weeks ago. For the past six trading sessions, stocks have started off weak and ended strong.

Volume picked up yesterday as new highs for the year were made by many stocks. And the major indices were strong with new highs in the Dow Jones Industrial Average (DJI), the S&P 500 (SPX), the Nasdaq (NASD) and the NYSE Composite. 

Yesterday, the Dow's strength was focused on General Electric (GE), up 6.25%, American Express (AXP), up 3.43%, Bank of America (BAC), up 2.74%, and JPMorgan Chase (JPM), up 3.38%.

Gold futures continued to climb, and so did mining stocks. Recent weakness in the U.S. dollar has contributed to gold's strength, and yesterday the dollar hit a 12-month low against the euro and a seven-month low against the yen.

Solid economic numbers helped fuel yesterday's rally, too. The August consumer price index was higher than expected, industrial production for August was higher, and capacity utilization was slightly above estimates.

At the close, the Dow had gained more than 108 points to 9,792, the S&P 500 was up 16 points to 1,069, and the Nasdaq rose 31 points to 2,133. 

The NYSE traded 1.6 billion shares with advancers ahead of decliners by 5-to-1. The Nasdaq traded 790 million shares with advancers ahead by slightly more than 2-to-1.

Crude oil for October delivery rose $1.58 to $72.51 a barrel, and the Energy Select Sector SPDR (XLE) gained $1.35 to $55.89.  

December gold rose $13.90 to settle at $1,020.20 an ounce, and the PHLX Gold/Silver Index (XAU) rose $3.09 to $174.17.

What the Markets Are Saying

Now every major index and most secondary ones have not only made a new high for the year, but closed above the resistance line of the bull channel that has marked the current advance. Volume has increased along with obvious institutional buying, especially on the close.