My first thought was that Monday’s 11.08% gain for the Dow Jones Industrial Average was indeed the biggest gain ever. After doing some research though, it turns out I was slightly wrong…. it was the Dow’s biggest one-day gain since the 1930’s. It’s still pretty impressive though. Nonetheless, I have a problem with it. In fact, all the bulls may have a problem with it.

I don’t know when the market became such a fast-acting herd, but I swear that’s what I see right now. It’s all or nothing, and people react to news and ideas in a matter of seconds. However, they don’t think about longevity, they aren’t patient with prices, and they assume the current environment will last forever. That’s why you get days like today. Stocks rallied about 12% on the mere possibility that the world’s financial governors will get their act together. All well and good, but did things really improve 12% worth over the weekend?

The risk we all run in the aftermath of today’s bounce is profit-taking. The sheep that were indiscriminately buying today will be the first ones out there selling - even the smallest of profits - tomorrow. Of course, that’ll send stocks lower again. Such has been the case for several weeks now.

If it were just one day here and there that we saw it happen, no big deal. However, we’ve seen these giant swings - mostly bearish - more in the last few days than we ever have before. I can deal with occasional volatility. When things stay volatile and unpredictable though, it messes it up for everybody.

Anyway, I mentioned that the big up day today was actually a problem (historically), and here’s why - these big single-day wins are usually followed by even bigger losses. If history is repeated, then we can look to make lower lows within several days.

The only caveat this time around is that this was the biggest day that did NOT occur during or before the Great Depression, or was NOT associated with October of ’87’s crash. So, maybe we’re comparing apples to oranges. I hope we’re comparing apples to oranges anyway.

My theory… a lower close tomorrow is actually the ideal thing for the bulls. It will cool off the buying mood to something healthy, and let us walk through a recovery rather than sprint through it. If the hell-bent buyers attack again tomorrow and send the market through the roof, I’m pretty certain it will invite profit-taking. In turn, the pullback started by said profit-taking will convince everyone else that Monday was fluke. Thus, down we’ll go again. Even if the rug doesn’t get pulled out from under the market on Tuesday, we’re still at risk later this week if we rally too much, too fast.

Needless to say, this is why I’m not worrying about values right now - they’re irrelevant. This is all about the dynamics of fear and greed. People can’t stick with one or the other.

By the way, here’s the data about the Dow’s best and worst days. We really have been making some history this month.

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