Why did the markets dump late in the trading session?

It was the last chance to take the novices' money before the weekend.

As I warned in the previous post the markets would dump during the final hour of the trading session. I should have also warned that the last 30 min. of the day the market would attempt to rally. But it's okay because the last 30 min. sets up the next move on Monday. I will get back to that.

First of all, to understand the late day dumping you have to understand the mind set of the market of the preceding days. From the last day of August to the recent highs, the market managed to rally about 7% on the SPY having only 1 or 2 negative days in between that time. Add in the fact that Monday had a large gap up was "icing on the cake."

Too many people turned bullish; the news and even Warren Buffett. But I warned that people were late to the party, they had turned bullish into massive resistance; SPY $113.20.

For a week, the institutions managed to rally the market up so much and so fast that they had embedded the bullish mindset needed going into options ex week. Options ex week is notoriously known for a week of games Wall St. plays on the novice investor to "shake them out" of their positions. That is why there was so much whipsawing.

As you can see below, the first hour of the trading day was always the hour for the markets to dump and on heavy volume (this is the shake). But as the day progressed, volume got lighter--these are the novice investors. And as a novice investor, what are they thinking? They think to themselves, "the markets are bullish, 'buy the dips.'" Hence, a floating market.


**note how heavy the volume was the last 10-minutes of the day

But each subsequent day, the novice would get stopped out of their positions because the markets are dumping. This is how the institutions make their money. And even with a late hour dump in today's session, you see it again: novice investors stepping up to buy.

The late day buying looks to me that Monday will gap down and the next move down could be big. (-150 DOW?). That's just my personal take on how the market's behaved this week and may behave Monday.

Last minute bear flag could signal a gap down Monday

And YES, I am aware of the Inverse Head and Shoulders pattern on the daily chart. I don't like to trade the pattern in anticipation. Rather, I wait for the clear breakout and then trade the pullback. Just because you see the the pattern developing doesn't mean it will play out. Remember last year's H&S pattern back in late June? Exactly...