Friday saw a sudden drop in NDX 100 index, considered as a worse week of the past two years. Interestingly it happened right after one of the best months of the past two years. I do believe that it was just another profit taking episode and nothing else. After a sharp run up that we saw in the last month, some profit-taking by nervous short-term stock holders was all but natural. The whole process, however, may be somewhat more complicated. A sell off like this is usually is the product of several participants with different mindset, account size and profit goals. Usually a long and sustained run-up develops within its participants a mindset of never ending bull market, where these players keeps on buying a market that is dully rewarding them and enticing them to keep increasing the bet size. After a while and some considerable gains a mindset of 'giving it all back' sets in and a slight decline on any given day turns that mind set into a fear, what makes it worse is the triggering of stop loss orders, traders watching their fortunes turning from big gains into losses start selling their long positions in a panic. Adding to euphoria is the short sellers doubling down on their positions from days or weeks prior, who were closely watching an extended markets and anticipating a sell off to happen soon. The result is a sharp and abrupt declines just like the one we witnessed last Friday that evaporates several weeks of gains within hours.
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