There is an old rule in the world of technical traders that just showed up in the markets as well as many of the stocks with market like movement. The rule is simple, but understanding it can save your from being misled. Never sell the first pullback after a climactic decline. A simple sentence for you to never forget.

If you look at the S&P 500, or any of the broad indices going into the end of the year you will see a strong sell off. As the end of the year drew closer and closer it seemed that the sell off became stronger and stronger. Each day was slightly larger in declines than the previous and the trading volume increased seemingly every day. In addition to that, prices moved further and further from their 20 period moving average, a short term technical tool that traders like to use. Brutal, nonstop pressure to the downside pushed the markets into the end of the year, creating a price chart that began to look like a waterfall, or "climactic."

As is always the case, when this happens and a stock or market moves too far, too fast away from it's 20 period moving average, it acts like a rubber band and price tends to snap back. By December 26th the rubber band took effect and pulled the markets strongly back towards the 20 period moving average. This is when you should remember the rule: Do not sell the first pullback after a climactic decline.

By December 31st the markets had stalled and began to sell off after it's climactic decline. While the media and others start to claim that the bounce is over and more selling is coming, you know the rule: Do not sell the first pullback after a climactic decline. On January 4th you were shown your reason why this rule should be etched in stone in your rule book.