Today’s market scenario that I want to discuss is one that you’ve probably heard me warn about in the past in either various posts or in our chat room, but nonetheless, they end up usually being some of the worst trading sessions for the bulls, mainly because it comes completely by surprise. 

So let’s just jump right in it, what-do-ya-say? 

The situation is this – you’ll see the market open sightly down or slightly up, either way it doesn’t really matter, but preferably, it tends to occur most when it’s slightly down. 

• After the open, it spends 15-30 minutes in positive territory. This gives the bulls the impression that the bears are giving up the battle early on and the bulls will lay on some new long positions. 
• This initial move doesn’t usually exceed 8 or so points on the S&P. If it does then the behavior falls into some other category. 
• Then all of a sudden (still within the 1st hour of trading usually) the market will pullback… nice and steadily, not causing much alarm. 
• But the it doesn’t stop, and then you’ll see it break the morning lows from the first hour of trading. Once that happens button down the hatches and get ready for an unexpected fight like the one shown below (it goes to show the importance of keeping a ‘cash position in your left coat pocket). 

The Result: A solid day of non-stop selling – often leading to 2-3% sell-offs in the market…and I’m not kidding, it gets ugly.

There usually is very little in the way of a bounce or relief rally intraday.

If you don’t get out of your longs when your stops hit, you’re going to take a royal beating for it. And to be completely honest, I don’t know what it is that causes the melt-down as I described… it just does, and sometimes that’s all you need to know when trading the markets.