The Insiders' Case For A Stock Market Mini-Crash

Tyler Durden's picture


Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The trade only works if everyone is lulled into staying on the long side until it's too late.

Let's try a thought experiment: suppose we're players in the stock market, Wall Street insiders with real leverage and connections to the Fed. You know, the kind of player who can reverse a decline in the S&P 500 with an order (executed through a proxy) for thousands of call options on the SPX.

Retail participants tend to forget we make money on both the long and short side. The small-fry who provide liquidity always assume a sharp decline in equities is a terrible thing because "everybody is losing their gains," and this general belief is pushed by the mainstream financial media: unfailingly chirpy news anchors' expressions and voices darken when reporting the rare drop in stocks: horrible, horrible, horrible, a drop means we all lose, I'm sad reporting this.

The players are laughing at this play-acting and the gullibility of the audience: insiders make huge gains when they engineer a sharp decline. It's not that difficult to manipulate the market when volume and volatility are low, especially in an age where quant-bot trading machines are programmed to follow trends.

It's also easy to hype stocks publicly while selling (distributing) your shares at the top to unwary punters who believe the PR (the Fed has your back, thanks to the Fed's quantitative easing (QE), the market will never go down, etc.).

But pushing the melt-up higher gets more difficult when the market gets heavy. Markets get heavy when participation thins (i.e. fewer stocks are leading the advance), speculative sectors are rolling over as the crowd of greater fools shrinks and volume on up days keeps declining.

When the markets get heavy, the easy-profits trade is get short and engineer a sharp decline. Nudging a heavy market into a free-fall has a number of advantages to players, other than the gratifying profits from being short equities and long volatility.

1. The Fed needs a decline to "prove" it isn't pushing markets higher, further enriching the already obscenely rich. A thoroughly corrupted Congress is finally awakening to the public rage over the Federal Reserve's blatant enrichment of the few at the expense of the many, and as a result, the Fed has a serious PR problem: Janet Yellen may be a lot of things, but a believable actress isn't one of them. Her performance claiming the Fed acts only on behalf of widows, orphans, Mom, apple pie and the merchants lining Main Street was laughably inauthentic.

A sharp decline would demonstrate that the Fed isn't controlling the market to enrich the insiders--even though a sharp decline would only benefit the insiders who engineered the drop. Heh. No need to be churlish about it. Where's your sense of humor?

2. A mini-crash would panic the herd into selling, enabling insiders to scoop up shares on sale. This is of course the classic insider play: unload enough shares to blow off all the sell stops (i.e. orders to sell if price drops to specified level), which extends the decline and reinforces the panic-selling.

3. Never give a sucker an even break. After two years without a meaningful correction and complacency at multi-year highs, how much profit is there left in pushing an increasingly heavy market up another few percentage points? The big money is in engineering a decline that catches the crowd by surprise and doesn't allow the traders a chance to board the short-bus before it roars out of the station.

Many traders are confident the market will broadcast a technical signal that will give them a chance to get on the short bus with the insiders. How likely is this? If we're engineering a decline, why would we spoil the trade by letting a bunch of peasants get on board? With every quant-bot programmed to recognize all the usual technical signals and systems, why telegraph the trade?

As legendary stock trader/manipulator Jesse Livermore observed, the market will take the fewest possible number of participants along for the ride, and expecting the market to issue a "go short now for easy profits" signal would violate this rule: if everybody shifts from the long side to the short side, the trade is no longer profitable.

The trade only works if everyone is lulled into staying on the long side until it's too late. Traders seem to be waiting for another standard-issue decline in September/October that would set up yet another standard-issue Santa Claus rally. Will it really be this easy to book profits in the second half? When everybody expects the same thing to unfold, it's just another form of complacency.

Complacency--and the confidence that you can beat a confidence game by following what everybody else is following--is dangerous.

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Sun, 07/20/2014 - 17:32 | 4981120 Hugh G Rection
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Another flash crash? That will be fun.

Crash silver back to $5 so I can reload please...

Sun, 07/20/2014 - 18:06 | 4981270 knukles
knukles's picture

Can't happen.
The Child King is sending The Stallion of State to Egypt (Why the fuck Egypt?) to Straighten This Shit Out.

Sun, 07/20/2014 - 18:39 | 4981380 Pure Evil
Pure Evil's picture

If the Stallion of State is headin out the gate Egypt is in for a long horse dickerin.

Sun, 07/20/2014 - 19:30 | 4981556 max2205
max2205's picture

Charles has to get off the crack.....

Mon, 07/21/2014 - 00:43 | 4982361 bunzbunzbunz
bunzbunzbunz's picture

I clicked for the asian lips and all I get is Yellen? Oh, well, it took a while, but I finished.


Get free bitcoins once per hour at

Sun, 07/20/2014 - 19:54 | 4981632 tempo
tempo's picture

Cash to primary dealers is growing and that's all the counts. SPX 2000 this week. Who cares about August, much less 2015.

Sun, 07/20/2014 - 17:22 | 4981121 Pairadimes
Pairadimes's picture

Why does everyone keep calling that strange little man 'Janet'?

Sun, 07/20/2014 - 17:25 | 4981139 ZerOhead
ZerOhead's picture

It's the bad haircut...

Sun, 07/20/2014 - 18:07 | 4981275 knukles
knukles's picture

Right.  Otherwise you'd recognize Moe.

Sun, 07/20/2014 - 19:05 | 4981464 espirit
espirit's picture

...Or Jamie Dimons udder brudder.

Sun, 07/20/2014 - 19:20 | 4981523 SoberOne
SoberOne's picture

That's good shit! Brudder from another udder.

Sun, 07/20/2014 - 20:58 | 4981803 flacon
flacon's picture

Because he had a hard time growing facial hair.

Sun, 07/20/2014 - 21:36 | 4981905 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Eunuch form Munich?

Sun, 07/20/2014 - 17:34 | 4981169 Hugh G Rection
Hugh G Rection's picture

More importantly, what qualifies a retired jockey to run The Fed?

Sun, 07/20/2014 - 17:55 | 4981238 El Oregonian
El Oregonian's picture

Unsuspecting new "Insider": "Shhh, we're still looking for the mark..."

Sun, 07/20/2014 - 20:08 | 4981667 Ginsengbull
Ginsengbull's picture

I bet it has an Adam's Apple.

Sun, 07/20/2014 - 17:23 | 4981127 OldPhart
OldPhart's picture

Yada yada yada...haven't been in the market since 2008.

Sun, 07/20/2014 - 17:25 | 4981140 hugovanderbubble
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You are the best Charles Hugh¡


One Spanish Supporter¡

Sun, 07/20/2014 - 19:01 | 4981450 Raymond K Hessel
Raymond K Hessel's picture

Hugo, you're at a TEN and we need you at a four.

Sun, 07/20/2014 - 17:30 | 4981159 fonzannoon
fonzannoon's picture

I hope they have a mini crash so I can btfd


 - everyone

Sun, 07/20/2014 - 17:34 | 4981166 Al Huxley
Al Huxley's picture

I've come to the conclusion that the best way to know what's going to happen next is to follow the mainstream media.  You don't have to believe it, just read it, because its purpose is to direct the behavior of the majority, and its very good at its job.  So for example, reading here, there's all kinds of doubt as to what happened with MH17, but the MSM story is clear - Putin did it, and the West needs to intervene militarily.  So there will be a war, because that's the story that's been sold.  Knowing the facts doesn't help predict the future, following the narrative does.


So with regards to the market, well, as long as the official media story is that all's well in the market, then the markets will go up, and you could be on the wrong side of that trade for the right reasons for a long fucking time.  Better to wait for the initial crash, then let the official narrative get unpleasant, and then switch to the short-side, anything else is fighting the most merciless propaganda juggernaut in human history.

Sun, 07/20/2014 - 17:44 | 4981202 fonzannoon
fonzannoon's picture

I was away over the weekend with some buddies on a guy trip. Everyone on the trip concluded that Russia was directly behind the malaysian flight being downed. So I took the other side of the trade. After everyone was done ridicluling me I asked them what made them so sure it was Russia. "It had to be!" was all I got. I said "so you require no evidence to come to your conslusion?". "Whatever dude, you and your bs conspiracy theories...." was the canned response.

So a few mins later some stupid commercial comes on showing the footage of the moon landing and I said "clearly that was filmed in a studio". One of my buddies was like " know I am starting to think there is something funny with that". Once he said that the other guys conceded that they are not so sure about it. I did the Tom Hanks money pit laugh. That was all I could do.

Sun, 07/20/2014 - 17:53 | 4981229 Al Huxley
Al Huxley's picture

Exactly my point.  I don't need to believe anything I see on MSM, but if I want to know what most other people believe, and what will be used as the basis for whatever action the government's going to take next, that's my best source.  I was on a sales call in 2003 in Ohio with a KPMG consultant (I think it was KPMG, these fuckers change their names so often it's hard to tell) and he was expounding to me the virtues of going into Iraq to kick Saddam Hussein's ass for blowing up the towers.  You want the majority to believe something, just get Fox and CNN to tell slightly different versions (red-team blue-team versions) of the same story, and that's all it takes.

Sun, 07/20/2014 - 18:11 | 4981286 NoDebt
NoDebt's picture

Jeez, you guys have gotten really cynical.  How could that have happened to you?

Sun, 07/20/2014 - 19:51 | 4981623 espirit
espirit's picture

It's... It's the HERD MENTALITY.

The MSM binding makes for strength, for all the wrong reasons.

Just my .02 sense? cents? scents?

Mon, 07/21/2014 - 01:56 | 4982441 OldPhart
OldPhart's picture

We lived through Eisenhower, Kennedy, Johnson, Nixon, Ford, Carter, Reagan, Bush 1.0, Clinton, Bush 2.0, and the current dipshit.

Mon, 07/21/2014 - 03:25 | 4982524 Chief Wonder Bread
Chief Wonder Bread's picture

Whoa there Phart!  914 days to go on the current dipshit.

Sun, 07/20/2014 - 18:15 | 4981295 knukles
knukles's picture

Guys... Check this out.  Note the convoluted wording:


On CBS, Kerry also said that “there’s enormous amount of evidence . . . that points to the involvement of Russia in providing these [antiaircraft] systems, training the people on them.” And he said that the United States “saw the launch” of a missile from rebel-held territory in eastern Ukraine and recorded its trajectory at the time the plane disappeared from radar.

So stalwart SecState says that missiles launched from rebel territory.  Yes, they were supplied by Russia (most likely)... But so the fuck what?

Missile launched from Rebel Territory.
By word of US Govt.

Sun, 07/20/2014 - 18:37 | 4981369 Boondocker
Boondocker's picture

You have more patience than i.  I cant stand to watch them.  If their lips are moving its a lie, misdirection or BS.

Sun, 07/20/2014 - 19:02 | 4981457 Raymond K Hessel
Raymond K Hessel's picture

So they have tapes recording radar for no good reason all of sudden but let the flight go anyway?  Is there tape rolling on the radar following the first Malaysian one-way flight to bottom of the ocean?

Sun, 07/20/2014 - 19:49 | 4981617 Toronto Kid
Toronto Kid's picture

Here's my take on things:

Putin sold rocket launchers to the Ukrainian government.

The Ukrainian government failed to adequately secure the rocket launchers.

Rebel seperatists obtained the rocket launchers and gave them to fools in their own army to operate.

Someone decided that MH17 was to fly through airspace where aircraft was being shot down.

Here's what I want:

Sanctions against Putin for selling rocket launchers to entities who were unable to secure the rocket launchers. This 'Putin's finger was on the trigger' is just hysterical gibberish. Don't sanction him for killing 298 people onboard a civilian jet; sanction him for giving fools Russian-made weapons. He seems the sort who will understand sanctions for the weapons but will dismiss any perceived hysteria altogether.

I want the testicals of the Ukrainian government official who failed to adequately secure the rocket launchers. I want said testicals bronzed, mounted, and hung from the ceiling of the UN.

I want the testicals of the Rebel seperatist who gave the rocket launchers to fools, again bronzed, mounted and hung from the ceiling of the UN.

I want the fools who fired the rocket launchers to be eviscerated and their testicals bronzed, mounted and hung from the ceiling of the UN.

I want the individual who made the call to have MH17 fly through dangerous airspace to be locked in a room with the family members of those who died on MH17. I want the family members to be told who they will be locked into a room with.

As weapons get more and more dangerous, they will more and more be used by fools who have no common sense and liberally use the word 'oooooops'. The damage done by these weapons held by fools will get greater and greater, so there must be enough punishment inflicted so that other packs of fools go 'maaaaaaybe we won't use these' when presented with the really dangerous weapons.

Sun, 07/20/2014 - 19:55 | 4981640 espirit
espirit's picture

Personally, I think it was civilians that shot it down by accident when they were looting the abandoned launcher.

Joystick with big red button meets hand.

Sun, 07/20/2014 - 20:00 | 4981645 Toronto Kid
Toronto Kid's picture

Then I want their testicals, bronzed, mounted, and hung from the UN ceiling.

Sun, 07/20/2014 - 22:37 | 4982089 espirit
espirit's picture

Didja see the vid when civs found the abandoned APC?

Once a gamer, always a gamer.

Linky please. somebody?

Mon, 07/21/2014 - 00:35 | 4982348 Tall Tom
Tall Tom's picture

I believe that it may have been a USAF F-117 Stealth Fighter that knocked that plane out of the sky.


The truth is that we do not know what in the hell happened.


I cannot believe any Government Official, foreign or domestic, about anything at this point. They have lied over the many decades so many times that anything they utter (or shall I say udder, Knucles???) is absolutely incredible...lacking completely in veracity.


Case in point...NINE ELEVEN.


Need I write more?

Mon, 07/21/2014 - 01:17 | 4982407 mc888
mc888's picture

Way off topic. But ok: MH-17 was canceled that day.

Wanna take a guess which aircraft was shot down? And why eyewitness accounts from the crash site stated the bodies were in advanced stages of decomposition?



Sun, 07/20/2014 - 18:04 | 4981262 disabledvet
disabledvet's picture

Why do you think those buildings are so tall in Manhattan? "Greatest show on Earth" was invented there.

Not only are you and I at a disadvantage in arguing for evidence...but by the time something comes along to disprove the meme "the lie is already the truth" and people ignore it.

This article is a case in point in how otherwise really smart people would still prefer you believe complete and total bullshit than anything based on actual EVIDENCE.


Treasury investors such as myself got HAMMERED.

That's the EVIDENCE that I know this is true!
But I stuck with the play because I still believed in the EVIDENCE.
And "the act" (Taper) that was causing me to lose money was NOT destroying the thesis. (Mid cycle slowdown, bullish trade going back to 1983.). In fact I thought the Fed response would help me as this was clearly not bullish for the economy...and with a runaway "war mongering effort" going on six years now "bearing fruit" I thought...well, none of the parents who have kids of fighting age (or the political class for that matter) seem concerned about vets or their war fighters ("your just canon fodder" is all I've been told since I've returned) well, why not bet on a "long Eastern Front Campaign and the trillions in issuance that would be required for everyone to get rich off it."

Hit a home run last week by staying tight with this stance...and strongly believe "his party is just getting started."

Sun, 07/20/2014 - 18:24 | 4981322 Elvis the Pelvis
Elvis the Pelvis's picture

We definitely have a huge asset bubble.  But this bubble doesn't bode well for the gold bugs.  It indicates a Fed trying to escape froma deflationary blackhole.  And good luck with that.  Then again, what do I know.  Bitchez.

Sun, 07/20/2014 - 19:13 | 4981484 Raymond K Hessel
Raymond K Hessel's picture

Why do you think those buildings are so tall in Manhattan? "Greatest show on Earth" was invented there.

In the voice of the Sprint Hamster, "Yes.  That's why those buildings are so tall in Manhattan."


Sun, 07/20/2014 - 22:59 | 4982169 SuperRay
SuperRay's picture

Same as it ever was. War is the answer. Cause Russia is leading the charge in devaluing the dollar. The party's about to be over. We need a huge distraction. And more profits for the fucking warmongers.

Sunday morning shows make me want to vomit. Those lackey news talking head should go to Colorado and get the plague

Mon, 07/21/2014 - 00:45 | 4982364 Tall Tom
Tall Tom's picture

We have a CURRENCY BUBBLE. We have an out of control DERIVATIVES MARKET BUBBLE.


That is at the very core. That does not bode well for ANY FIAT CURRENCY...especially the US DOLLAR.


Looking forward to the complete destruction of the FRAUD. That is what the honest man seeks. He seeks a return to TRUTH.


My vote is a complete lack of CONFIDENCE. I vote NO CONFIDENCE by opting out and storing my wealth in Gold.


So you, being a dishonest man, can have all of the confidence in FRAUD as you may like. You will reap the destruction which you sow.


Enjoy your dismal and abtsmal existence before you face Hellfire.

Sun, 07/20/2014 - 18:07 | 4981273 NOTW777
NOTW777's picture

russia was winning; why in the world would they shoot down a civilian airliner????????

Sun, 07/20/2014 - 18:48 | 4981412 viahj
viahj's picture

the same reason Assad would gas his own people when he was winning


Sun, 07/20/2014 - 20:27 | 4981713 Everybodys All ...
Everybodys All American's picture

God rest to the souls of all who perished and prayers to all those directly affected with this massacre.  It might be a little too early to assign blame or decide who is ultimately responsible with the Malaysian jet liner downing. But all the direct evidence that I've heard and read would show the separatists downing this and other airplanes recently. The why now is what causes people to yell conspiracy. I have found that this younger generation has become skeptical of nearly everything. Maybe rightly so. However, you have to admit sometimes what you see is what you get and not everything has to be a conspiratorial outcome.

Say you buy into the conspiracy theories. What good does that do anyone on either side? Does this draw the US further into the Ukraine? Maybe it does but not under Obama. Is this a way of drawing the US and Russia into WWIII. I don't think it will.

Btw I junked you for saying the US didn't land on the moon. The process of getting to the moon took many decades and I was old enough to see it all unfold. Also, tomorrow is the 45th anniversary of the landing and I can remember it all like it was yesterday.

Still pisses me off to this very day that Obama shutdown the shuttle program and not one person in the media questioned it. The space program is what made this country different. Just goes to show you how far down the wrong road the US is going with this current president and some prior that people can't even envision the US being able to land someone on the moon.

Stand up for what you believe but just be aware that not everything is a conspiracy.

Sun, 07/20/2014 - 22:40 | 4982108 espirit
espirit's picture

Orion and Constellation were the next gen, which is what O'baminator cancelled.

The STS was toast under 'dubya'.

Sun, 07/20/2014 - 20:34 | 4981733 oudinot
oudinot's picture

You should hang around with some more 'enlightened' friends.

Sun, 07/20/2014 - 22:41 | 4982111 chopd livr
chopd livr's picture


Sun, 07/20/2014 - 19:30 | 4981551 Ginsengbull
Ginsengbull's picture

There will be no war, at least not one involving American troops.


Russia will take half of Ukraine.


Europe will cry, but not much.

Sun, 07/20/2014 - 17:39 | 4981188 q99x2
q99x2's picture

This guy is an imbecile. The graph clearly shows you are to BTFD at 1900.

Sun, 07/20/2014 - 22:42 | 4982113 espirit
espirit's picture

That's sooo... last century, lol.

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