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John Lee

What Happened To S&P 500?

By John Lee on October 8, 2008 | More Posts By John Lee | Author's Website

Many of you are/were probably wondering what happened today (Tuesday). There was significant weakness in the continuation of yesterday’s (Monday’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

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