So what is with all the selling?
I actually was discussing this with a friend today, and I noticed that TK (www.tradingwithtk.com) mentioned the same thing. The markets start to build, today the 10-min intraday downward trendline was broken, a higher high formed, and then it seemed to be gaining some constructive momentum.
But then something peculiar happened... the same thing that has been going on for a number of days. A descending triangle formed.
You can read about descending triangles elsewhere, but generally speaking they are bearish continuation patterns (meaning they form as a pattern during a downtrend and then typically continue the downtrend when through). These patterns represent a price that rallies and then sellers get more aggressive about selling - so much so that they don't wait for it to test a new resistance level. Then, once the lower line of the triangle breaks, it free falls a bit (the pattern gives a target, but that is a different discussion).
Today, a descending triangle formed right before 3 PM EST. We all saw what happened from there.
So what is the cause of this? Mutual fund and hedge fund redemption. People all over the place want their money in cash, and the way mutual funds and hedge funds work (at least lately) is they sell lightly through the day and then just start dumping during the last hour.
I'm not sure what will happen tomorrow, but if we get constructive movement that abruptly turns into more descending triangles, I will buy puts.
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