I think the idea is that our "seller" only gets the selling started and after he has pushed the price down sufficiantly there would be a selling panic, long squeezes, etc. He wouldn't sell any more at this point himself, wait for the price to find a bottom, then re-buy (and hope price would rebound).
Again, I think that even this hypothesis is based on a fundamental misunderstanding of the markets.
It's possible and I don't understand enough about markets to shed enough light.
However I think the story you told initially is easier to dismiss than my modification, no?
EDIT: my "story" is not based on the misconception that one could sell any amount at "last price", btw.