What caused the current rally in markets which began in the States on the evening of 28 Oct 2008?  Personally I think this is linked to forced sellers completing their business ahead of the month-end.  Do not forget the settlement cycle here (follow the money!); once a share is sold it takes two or three days (depending upon market) for the cash to show up in the seller’s account – it is no good selling your stock on the final trading day of the month.  What everyone is trying to do at this juncture is to avoid being forced to sell any shares when they are this low.  The reason the stockmarket is so low at the moment is that many other people (insurance companies, hedge funds, individuals who bought shares using money borrowed from Icelandic banks, etc.) have been forced to sell shares into a weak market.  This has pushed stocks progressively lower and this will end when the last of the forced sellers finishes selling their stock.

Unfortunately nobody rings a bell to tell us all when this has happened!!  Market participants eventually figure it out from the way the market behaves – some players work it out quicker than others but that is one of the skills needed to play the game.  What seems to have happened a couple of days ago was that forced sellers simply stopped selling and the Dow Jones rallied 10% (8,200 to 9,000 in a day) as the weight of selling evaporated.  We will find out next month whether the forced sellers re-enter the markets…