August 1-5, 2011

The S&Ps retested below 1280 today but stayed above 1270. This Monday morning had very severe erosion. We are into a 6th day of declines that has created my daily CCT to be very oversold. The bonds are in one of the most incredible rallies that we have seen in 2011. They have reached heights that have brought interest rates to the lows of 2011. It is always very important to have a diary of the market. A true student of the market will keep a diary much like they keep a personal diary. We are also into a situation whereby the tone of the market is turning from complacency to fear. The bonds have literally spiked from 127 ½ to the 131 area without any appreciable pull backs. This is simply too much too fast. On Wednesday we saw a bear raid this morning generate new lows and then the turn came. A V bottom has several ingredients. The first is to have an excessive down move, the second is for 50% higher volume. The third is for the price reversal to finish the S&P futures in the plus column at the day’s close. Two of the three have been accomplished as we watch for the close. We declined over 8% in approximately one week of trading. We also have 8 consecutive down days on the Dow. My internals are in an oversold position on my daily CCT. Numbers such as we are currently experiencing generally result in a 30 to 50 S&P rally very quickly. Thursday registered the highest oversold in the CCT since the first quarter of 2009. There is a critical panic in this market. Thursday’s collapse represents one of my greatest capitulations ever. We had 94 instances of -1000 tick or greater. We also experienced 8 individual instances of -1400 tick. Putting this into perspective plays out like this: The last time we had more minus 1000 tick instances was 1997, 14 years ago. I have never had 14 instances of minus 1400 tick since the crash of 1987, 24 years ago--INCREDIBLE! In the bonds we are seeing astonishing volume as this volcanic eruption exists. Therefore these lofty heights will create a sharp pullback once reality overcomes this fantasy reality. Friday was a very important day. We recorded -1600 tick as well as numerous -1000 ticks throughout the day. Throughout Thursday night the bonds journeyed to 135 '05. This represents a blow off high with excessive volume. The bonds have had a 9-point rally since last Friday. This is entirely too much too fast. Friday’s volume will probably be the highest we have seen in several years.