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When The Herd Turns
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Once market participants realize the top is in and the only possible result from here on is a loss, the herd will turn and follow the leaders who are selling.
A funny thing happens when the stock market herd turns--all the usual central bank tricks no longer push the markets higher.
Though the mainstream financial media reports on central bank policy as if the policies move the markets, the actual mechanism is not policies per se but their effect on the belief structure of market participants.
If market participants believe the markets are going higher, for whatever reason, they will buy more stocks to reap the anticipated gains.
If market participants believe the top is in and markets will decline, they will sell, i.e. liquidate positions rather than build them. This is called distribution, as the smart money distributes stocks to the greater fools who have yet to get the memo that the top is in and from now on, stocks will only lose value.
What causes the herd to turn? The process is not entirely mechanical or predictable. Those in the front of the herd tend to lead those following, and so we look to the leading stocks, sectors and players for clues as to what the herd will do.
When the leaders of the stock rally dwindle to a few names, that is evidence that the herd is losing its momentum and confidence.
When those leaders no longer make new highs but instead notch lower highs despite good news, that is further evidence that the herd's direction is becoming increasingly uncertain.
When the herd's leading edge veers first one way and then the other, this lack of coherence is also evidence that the herd's leaders are no longer confident in which direction to take.
The herd is all about following the pack in front. The animals just behind the leaders have no way to know what the animals in the rear of the herd are doing; they only know what the leaders are doing, and the herd instinct is to not leave the safety of numbers.
So when the leaders turn, the herd follows. The leaders might sense danger ahead, or see obstacles to avoid. Which way to go? A handful of those in the front decide for all those behind, and that decision is ultimately based on avoiding risk.
Once the herd has turned, all attempts to reverse the change in direction fail as the momentum cannot be stopped.
When the leaders realize that further market gains are increasingly unlikely and fraught with risk, they will exit. The herd following them will also exit, as the selling of the leaders will eventually push markets down despite central bank purchases.
To the leaders who are selling, central banks are simply large-scale chumps, snapping up shares right when those buying stocks are about to stampede over the cliff. Central banks buying equities give sellers more opportunities to distribute to greater fools; they can't change the direction of the herd.
The ultimate hubris of central banks was their supreme belief in their own powers to direct the herd. As long as the herd was stampeding in one direction, the central banks could imagine that their shouted orders were directing the herd.
But once the herd turns, the futility of those orders will be revealed.
Once market participants realize the top is in and the only possible result from here on is a loss, the herd will turn and follow the leaders who are selling.
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Who will be the first central banker to yell "Fire" in a crowded market place?
<Or the first child to declare the Empire wears no fair fiat?>
Running towards the brightly lid EXIT sign doesn’t mean that there is a door under the sign. ;-)
Looney
The PM herd has busteth the fence and runneth amok. Head for the silver hills!
It's a beautiful thing!
https://www.youtube.com/watch?v=zDAmPIq29ro
Just pop a paper bag..
And they're off and running!
More likely an open elevator shaft.
What happens to herds in the end? They get slaughtered!
THE LAST WILL BE FIRST
and THE FIRST WILL BE LAST ...
You are just Too Funny.....
when the herd turns QE4 begins.
it's so damn simple. tapering is bear food. printing is bull food.
Yep. Only when the Banksters, CB and Large Banks, begin to turn on each other in a way that will create a whole new level to the term cannibalism, will the show be over. Until then selectively BTFD's.
large scale woar is the ultimate plan to press the reset button and return us all to feudalism is the goal, salute the nazis is the aim
When the herd turn, 1 thing will happen.
1) They will be turned towards the cliff
The bison's revenge?
America needs to turn inwards, in every which way, literally, figuratiely....
https://www.youtube.com/watch?v=ewdDVOc3tcA
Until the individual does...
It's over.
It really feels like 2015 is 'the year', but stocks will be the last to realize it.
Cb's will be just like the rest of us at some point - simple observers.
The current central bankers, yes.
Not the next generation of central bankers however.
They worship the next financial jesus of the 0.01% and will build a new economic religion on the cadaver of the current one.
This just in: The Whitehouse downplays concern of country turning to shit!
The herd acted stupidly.
Obama won't be aware that the herd turned until he reads about it in the newspaper.
Imagine a time where central banks words are ignored by the market. Ya can't keep on bluffing when everyone knows you have NOTHING to back it up.
Violation of the coinage act of 1792/1873 is a capital offense.
Let us know when we can buy tickets to the gallows.
Fear and Greed are the two reins that a saavy banker can use to steer the herd. Only the two reins are not equal. Greed goes like gangbusters until the fear rein is pulled and then deflates like a cheap balloon. Fear on the other hand (no pun intended ;-) once it gets pulled, just feeds on itself and gets stronger and stronger until the poor cow collapses from exhaustion...
Moo,,,
;-D
Technical analysis masquerading as psychology?
"To the leaders who are selling, central banks are simply large-scale chumps, snapping up shares right when those buying stocks are about to stampede over the cliff".
The real "chumps" are never the Central Banks! As always debt/loss will be pawned off on the ultimate chumps...The U.S. taxpayer and the next generation.
$70 trillion of global liquidity pumped into the economies and what do we have-: NOTHING.
So what's next oh great all knowing central bankers? More duct tape wrapped around the golden canary's beak to stop it from singing perhaps?
http://earthquake.usgs.gov/earthquakes/eventpage/us20002ag9#general_summary
I find the "the central banks" meme, in the sense of "all central banks are alike" very dangerous, if you really want to understand the world (does not apply to all, of course)
there are over hundred central or national banks on this planet. among them, very different ones like the Russian or the Chinese
hubris? in different degrees. in fact, most central bankers, before they can even think about getting to the business of trying to do some "economic central control", they have first check what the FED is doing, how that will affect their monetary zones, check if there are enough reserves, and so on. in short, reacting to the FED's "primary impulses", and the tides and ebbs of the USD
so I would advise to make a difference at least between the Queen of Diamonds and the many lesser CBs under "Her Benevolent Domination". the One issues the Global Reserve Currency, the others... store it in varying amounts
You are ascribing individuality where none exists. The template for each central bank is the same, as is that of all fiat currencies, regardless of origin. Congruently, the so called "tools" of monetary policy control for each central bank are extremely limited and identical for each such bank. Add to all that, that the relative valuation of said currencies is a much more integrated affair than you may realize --especially at the level of bonds-- and you have the recipe for a global stampede over the cliff. Herald the approach of the Great Conflagration.
Apple has 200 Bil in cash. when it crashes they'll be like a buck seventy five short of being able to buy one of their own iwatches. . . lol Stupid is as Stupid does, look at Baltimore, baseball games with fans locked out. Now that was a fucking brilliang solution. Shiitttt
That cashh is for future stock buybacks, to help Apple's biggest shareholders cash out one step ahead of the whole house of cards crashing down. They know they won't be able to sell iTurds forever.
Unfortunately the so called leaders of this herd create their own money out of thin air and use it to make themselves the only ones that matter. They care nothing for the rest of the herd other than to give them plausible cover for their psychotic actions.
"When the leaders realize that further market gains are increasingly unlikely and fraught with risk, they will exit."
Simple solution, don't give them an exit ... the bulls are QE, the traders are the runners and government is standing at the side with cattleprods pushing the runners back in.
Tyler, as you can tell by my posts over the last few weeks, we and many others have been consistently in agreement on the equities topping process - although I think we were wisely reluctant (and should remain so) about trying to predict absolute tops. Let's also not succumb to the temptation that the central banks did, and assume that we have all the answers.
I believe that there is a good chance that significant tops (or near tops) are in on many of the major world equity markets for this cycle, but given the arrogance of the cabal that leads the CB's, don't put it past them to start "burning the furniture" in one last taxpayer-funded vain attempt to 1) prop up equities to help the exits of their insider trading buddies, and 2) suppress PM pricing to perpetuate the rampant money illusion that still pervades fiat currency valuations - which is a significant component of their power. An example of such a move just occurred at 8:25 EST today (4/30/2015) on the PM markets.
This will be a painful, but necessary, first step for the restoration of rationality to the western world - with no illusions held that success will be easy. I'm all for capitalism, just not crony capitalism. It took 100+ years of manipulation by the cabal to get us into this mess for their benefit. They will not relinquish power easily, and there will be many twists in the road as this dynamic system continues to unravel.
Also, it is important to encourage constructive dialogue about just what rationality might look like in a post-cabal internet-enabled world. It’s easy to be critical of what exists without having to commit to what constitutes improvement. Almost certainly less centralization of government and more local control of our lives is part of the equation.
Control by whom? The current owners of capital and land? Because that's the same cabal ...
Actually, while they are not generally considered part of the most wealthy elite in this country, there are a lot of owners of capital and land that are not part of the cabal. I would suggest that you explore the ethnicity and makeup of those who control the media, central banks, wall street and our politicians (and those who are collaborating with them) to get a better understanding of the composition of the cabal.
This article is sheer nonsense. Perhaps a decade ago there was some truth to it but today its plain wrong. The central banks control the money flows and therefore they control the HFTs and therefore control the direction of the market on any given day. There is not enough non-computer generated trading any longer for there to be a herd that is not controllable by a central bank on any given day.
Beware of used doom salesmen.
What herd? The "herd" has already quit the market. The market is owned by the government, all bought with its monopoly money.
There are the pension fund managers but it appears that they have also all been bought.
My thinking on the acumen of the world's central banks vacillates between them being inept and crazy, versus shrewd and crazy like a fox. What I don't wonder on is the degree to which they are self serving, and
beholden to the stateless .0001%. As long as their quirt directs the herd, regardless of the intentionality of the move, they are in a position to capitalize. War, peace, recession, boom or bust; they will make the
best of it for themselves and their ilk. It is a New World Order. All the rest is theatre to provide context and narrative for me to blather on about.
I think you give them to much credit, yes they "gain" regardless (paper gains at least). I'm pretty sure they have no more real control over where this train is going than you or I though.
It's heading for a dead end, but which one, when and what happens after. A new rise of fascism in response to the imbalance caused by their wealth accumulation might be the dead end, but this time I doubt they will have other continents to hide on while the fire rages ... I wouldn't put a bet on anything. They'll have plans of course, but until they have ED-209's ready to go I doubt any of their plans will survive contact with the enemy ... so, not quite yet.
Hope you're right. They may not need the ED-209's if they can get us to turn on each other in a WW-3 type scenario, or domestically by exploiting the left/right divide. TPTB are very good at obfuscation and redirecting blame. Get folks all riled up about the SNAP program while it is a pittance compared to the largesse of our corporate welfare handouts.
So long as Governments can continue buying financial assets with tax revenues from the "future" - everything is going to be okay
The herd is the FED and they have software. BTFD
<-- there is no herd
<-- there is no spoon
---> The FED is the market
---> The market is the FED
<-- Everything is AWESOME!
<-- Everything is AWESOME!
The application of rule .308 to the banker criminals can be very quick and not for kiddies to watch.
http://www.liveleak.com/view?i=fe7_1380252338
<iframe width="640" height="360" src="http://www.liveleak.com/ll_embed?f=01dd0aab3049" frameborder="0" allowfullscreen></iframe>
The blowback against criminal progressive oppression will be a tsunami.
Grimaldus
The problem is that it's a herd of lemmings and those lemmings don't have the slightest idea how to turn the herd.
There is an implicit assumption that 'the herd' and the 'Central Bank' are somehow influenced by their corresponding movements as though they are equally influential in terms of being a 1 : 1 ratio, and can be viewed as ratio level data. Clearly, if the historical data indicates that the CB pronouncements do not have this directional influence then by following the logic neither does the herd. In brief, the herd simply moves based on a fight/flight response, and the CB moves based on a single-mindedness of aggression/monopoly/theft, and hubris. Bottom line is that expectations rule the markets and not the herd or the CB.
Savers should get negative rates!!!!
has the herd turned or has the ugly turd herniad the bull market's cojones ?
As Euro-optimism grows on Greece's N'th turnaround in QE merry go round (Varou having been shown the door, revolving encore?), As the Sauds now decide to arm to the teeth and ride roughshod over all who doubt of their supremacy in lands of Allah, as China starts to print moar and decides to marry its bourse to HK bigtime, as Baltimore declares a new civili war now rampant between black herds and white police turds, what will Yellen do to calm the buy-back craze of Apple's one company hold on its PRIZE index?
Meanwhile back at the WH ranch the fight begins for who will be Potus is place of white man's last hope of a brown emperor in land of red necks, now looking for black blood on the streets of Philadelphia...the blood of a disease that has a name called race hatred.
"I had a dream" now destined, in the eyes of many here on ZH forum, for the dustbin of History as multiculturalism has now been declared "dépassé" in land of Jefferson, just like Christianity-- the religion of universal love, irrespective of race or origin -- has now been considered dépassé in all of Occident.
We love to hate not only the Infidel but also ourselves, perennial heretics to some bygone definition of "orthodoxy". The heretic in every religion is the enemy within and considered worse than the enemy without. Dogma always defies reform. Bigotry always defies reason. And the paranoid always sees a "terrorist" to threaten his vision of freedom through security; to the point of wanting a policeman attached to every lampost and an NSA eye to every nook and cranny.
Within our rich ringfenced ghettos we ONLY live for the Greenback and all the Oil it can bring back from broke-back Syrac the land of historical origins of the western civilization thread.
What a return to the past this has become! Neo-cons and neo-feudals of another age.
You mean to tell me peak stupid has been reached?.... Or is this a just a stupid plaaaa-teau?
Let’s see if the FED can pull this overweight rabbit (hare, hairball, er.. whatever they’re calling PPT maneuvers these days) out of its putrid ass.
There doesn’t appear to be any shortage of stupid from my vantage point.
~ DC
When the herd turds, you got a whole nother set of problems.
END PRIVATE CENTRAL BANKING. PERIOD. It's the root of all evil in our current financial and political world. It is a cancer on the body politic. It is a relic from our authoritarian and industrial past and must be abolished. It is anti-democratic and actively undermines and corrupts democratic institutions. It places far too much power and money in the hands of far too few. It should be replaced by central banking created, owned and controlled by the people and by their representatives pursuant to the peoples' constitutional and inherent powers to create and control the money supply. Central banks should be chartered to act in the public interest and be transparent. Do that and see how the world changes. Our material world is controlled entirely by money. Therefore, those who control the money, control everything. In a democratic society, that contol must reside with the people, not a handful of private and extremely rich individuals and families. Like the dictators, kings and queens of the past (the ones who made our lives miserable), they won't give up this power voluntarily or easily. It will have to be pried from thier grubby, clutching, dirty little hands. Like all revolutions, it will be accomplished either by obtaining the necessary votes, or, failing that, at the point of a gun.
In 1991 I was about 20 miles East of Guadalajara as the last Solar eclipse of the century neared totality. It was a mostly cloudy July day but right there at that moment in time the sky was clear and there was space to pull off the side of the highway. As we waited beside the road, the light became very surreal as the sun slowly became a tiny sliver…
Suddenly the lights went very dim, dark like dusk or dawn, not night like! The heat slowly began to dissipate and the birds began to sing… It had been dark for a couple of minutes when we first heard the herd. Along the other side of the highway was a fence that ran parallel to the road. Nearly directly across the road from where we were was another fence that ran perpendicular to the road. There was a small herd of cattle that were obviously caught off guard by the day suddenly appearing to be over. The herd was apparently alarmed and must have decided to head back to where they usually spend the night…
They had gotten their shit together enough to come trotting along following the fencerow and must have started feeling fairly secure until they came to a corner, the point across the road where the fence turned perpendicular. Since they were all following each other it became a bit of a jam when they all reached the corner together. For a few moments, confusion reigned as there were cattle colliding and turning in confusion. A few "moo's" were heard but it didn't take long for them to all become properly aligned with the fence running perpendicular to the road and soon they were all trotting along away from the road together following the fencerow until they disappeared over the hill…
I always assumed that this is what it looks like when the herd turns! I suppose they made it back "home" by the time the lights came back on about seven minutes later. It was all rather amusing.