Keeping diaries have been healthy for not only information but for psychological balance. A market that has become this overextended has to be compared to other similar situations. I referred back to late 1999 into the 1st quarter of 2000. What will happen is a correction will materialize that will surprise all but a handful of old traders. I wrote a special advisory later in the week talking about some of these special events, but also notes that I have depicting my mental states in these types of extreme environments. The many years I have traded has taught me several things but the one thing that is incontrovertible is that markets extend more than they should and do have out of control moments. This market has taken prices to emotional levels of frenzy that are not healthy for the long term. It is time to really concentrate on the internals of the market. Wednesday afternoon the market closed with a high plus tick with approximately 900. This is demonstrating that there was market on the close action which is once again is exhausting more energy. Perhaps even more noteworthy is that this push was unable to take out the highs of the days which other days the highs were penetrated in the last hour. I am watching closely to see a pattern change as this would be a clear indication of the environment shifting.
It is always interesting for me to compile stock market anomalies. The rarity of events is always a unique observation to ponder. Thursday was the 11th straight day we have had a higher low. That places this rally in the top five percentile. We are seeing a precedent whereby the market also has not corrected 20 points or greater on a daily basis since we experienced the April 18 low at 1530. This is very rare and unique but also dangerous cause the over extension of the market has stretched the “rubber band” too tight. The bonds got an adrenaline shot Thursday as their power increased while the trading day progressed. The overall market was oversold so this bounce is expected. The question is, will it have staying power or is this just a quick short-covering spike?