OnIslandTrader's Blog : Oh hello Panic, haven't seen you in awhile!

Today's end of day action was scary no matter how you cut it. Once we broke the afternoon lows, we immediately made a run for the 5-day lows. Maybe it is just good housekeeping and the bulls want to close last Wednesday's gap before continuing the next up leg. Or maybe it is something worse.

The game of beating expectations has worked well for the bulls over the past six months, but that game only works as long as the beaten expectations aren't expected.

Things have changed.

Everyone now expects expectations to be beat, and so the game is ruled by the size of the surprise instead of just the surprise itself. There have been some blowout quarters announced over the past couple days, yet the market hasn't been able to build any momentum off of them.

It is a major warning sign when the market starts selling off on supposedly good news at the end of a rally this size. It's a signal that the good times ahead may have finally been fully priced into the market.

Maybe this will prove to be yet another minor correction on the greatest rally of all time, but if it isn't watch out below. Momentum has been the main driver behind this rally so far, and if valuation doesn't step in to catch the market once momentum is lost, you can see frighteningly large and sharp drops to the downside. Insure your portfolio accordingly.