Tuesday, October 7, 2008


Many of you are/were probably wondering what happened today. There was significant weakness in the continuation of yesterday's rally. There were also deep corrections which neutralized the trend all morning. At this point, it was an easy choice to exit and go short. We've seen many ascending and descending patterns form nearly everyday now, and today is no different. A descending triangle formed which is a bearish pattern.

Below, the red line indicates yesterday's close. Notice how the trend line that formed the descending triangle acted as resistance all day long. This is very unusual and there wasn't a single, clean break above. The SPX is now sub-1,000.

So what happened? There were no short-sellers covering to sustain yesterday's rally. Add to that the lack of buying demand from anyone who's trying to stay in cash, plus all the institutions tripping over each other trying to get out, and you've got yourself a very big problem. After sharp declines, or capitulation days, short sellers are the first wave of buyers that immediately correct oversold levels. Unfortunately, we did not have that and you can blame that on the SEC. Since the ban was enacted, the market fell over 15%. This ban is scheduled to end tomorrow night. There's a point where these regulators have to realize that the market must function freely so it can establish true equilibrium.

S&P 500 (SPX) - 1 day

S&P 500 (SPX) 5-day

Don't forget to try out the Free Trend Analysis. It's FREE, so give it a shot!


JB said...

I shorted a bunch of stocks today and made a lot of money, at least I thought so. I was trying to figure out how to subscribe to your posts but after clicking on several different links, could not figure out how to do it. Perhaps you could point me in the right direction. - seaglass

John C. Lee said...

go slightly down and focus on the left. You'll see the green box, then the wall street survivor box,right after that, you see the many ways you can subscribe

Anonymous said...

So I saw you mention about reaction rally on your other post, What exactly do you mean by that?

John C. Lee said...

here, read my article on bear markets:


Anonymous said...

Woah~!! So are we in our third leg down right now? how many legs are there? By the way, premarket down about 300 right now! short again tomorrow?

Anonymous said...

Hey john manny here, market so volatile any gains people sell. LDK was up today you think more upside ahead or no ? take care