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With a stock market advance in six of the past eight sessions, the bulls are now feeling in complete control. And it is no wonder that many are calling the low of early March the end of the bear market.
The Dow Industrials are up 14.79% from the March 6 low. The S&P 500 has gained 16.64%, and the Nasdaq has gained 15.48%.
But as the indices rise to the top of the first overhead barrier, volume is declining on days when the market advances.
On Friday, the NYSE traded 1.6 billion shares, down from Thursday's 1.8 billion shares. And yesterday, the NYSE traded just 1.5 billion shares. The highest volume day this week was Monday -- a down day during which 1.9 billion shares traded.
With major market reversals we normally see high volume on up days and low on down days. But on rallies in bear markets, the opposite is true -- and that's what we're seeing now.
As a result of the enthusiasm generated from a week of solid advances, the internal indicators are now overbought. In fact, the long stochastic is more overbought than at any time since the Nov. 4 top, which marked the high of the bounce following the October low.
Traders who are long would be wise to nail down profits and prepare for a downside reversal. The buying could continue for a day or two more, but all indications are that the rally is nearing its upper limit.
My Trade of the Day is the ProShares UltraShort Financials (NYSE: SKF), which is the inverse financial. The technicals show that it could climb more than 50% from its March lows.
Sam Collins is a contributor to OptionsZone.com.
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