V.6:3 (99-101): Survival of the fittest by Philip Gotthelf

V.6:3 (99-101): Survival of the fittest by Philip Gotthelf
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Survival of the fittest by Philip Gotthelf

With the proper tools and right attitude, the "Crash of '87" represented one of the greatest profit opportunities in history. A single short S&P 500 futures position could have delivered an amazing $60,000 without even picking a top or bottom. However, we have the benefit of 20/20 hindsight. Could we have spotted the Crash in time to profit? If so, could we have maintained the cool discipline required to stay with short positions long enough to take advantage of "Black Monday" and moves that followed?

The answer to the first question is obviously yes. It is the second question so many must answer in the negative. In reality, few were able to sustain positions through the wild swings that took place the week before Black Monday.

An examination of the December S&P 500 chart (Figure 1) reveals that the market held support at 31000 throughout October 12. This area was tested in mid-September and late August. In addition, the June/July consolidation held above 31000 for more than four weeks. Therefore, strict chartists should have sold the S&P 500 on October 12, 13 or 14. The support was violated. Furthermore, the 10-day moving averages had been penetrated.

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