The market rally on Wednesday was quite a stunner given the already full extension of the market advance following the election. However, as Art Cashin noted in his latest note to his clients (courtesy of Zerohedge)

“Around 11:45, a series of electronic buy programs helped lift the Dow and S&P out of the morning’s narrow range. I noted that in an email to some friends around noon: 

What many of us did not realize at the moment was the probability that the buy programs may have been triggered by events in another sector. Just before the buy programs kicked in, the rally in the Dow Transports was shifting up a gear as the index was on the verge of punching through to a new record high. If the Transports made a new record high, it would confirm the record high in the Industrials, thus giving a Dow Theory buy signal.

As that realization spread, the algorithms kicked in with buy program after buy program and the race was on.”

The problem with the breakout and advance on Wednesday is the exacerbation of the market’s deviation from its longer term mean. As I noted on Tuesday:

“The importance of understanding the nature of reversions is critical for investors. Markets rarely move in one direction for very long, notwithstanding overall trends, without a correction process along the way. While the chart below shows this clearly for the overall market, it applies to individual sectors of the market as well.”

“Importantly, notice the bottom two part of the chart above. When there is a simultaneous culmination of overbought conditions combined with a more extreme deviation, corrections usually occur back to the underlying trend.

This can also be seen in the next chart as well. While the “Trump Rally” has pushed asset prices higher and triggered a corresponding “buy signal,” that signal has been triggered at very high levels combined with a very overbought condition. Historically, rallies following such a combination have not been extremely fruitful.”