Margin Selling

The steep, waterfall selloffs that hit the market late Thursday and Friday afternoons had the markings of forced margin selling. I checked around, and couldn't get any real confirmation of it, but that doesn't mean it wasn't happening.

If some large funds (hedge funds or mutual funds) were getting some combination of margin calls or investor redemptions, they would be forced to engage in this kind of reckless selling that can drive a market lower in a heartbeat.

Since this selling is artificial by nature, these are the kind of declines that are often short-lived, and thus more profitable to fade. Moreover, they are coming after the market has already experienced a lengthy decline, rather than at the beginning of a new one. So if we get more of them next week, I want to use the temporary weakness to build positions in my favorite stocks.