The best on-line estimate is that there are approximately 198,000 - 200,000 people employed in New York City's securities industry. And, world-wide there are approximately 1.09 million people employed in the financial empires. They are essentially paid to buy stocks, bonds, mortgage securities, etc. You get the idea. And, as you can see from this "end-of-day" one-minute chart, they were doing that at the end of the day and even past the cash close. They 'must have' more stock (or futures in this case).
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| ES SEP Futures - 1 min - Until They Can't |
Think of it. This is what they are paid to do. They wait until the end of the day, and then they buy and they buy and they buy. Clearly, they are Smart enough to count to five, and to measure to 2.618, and they are going to do this every day - every single day. Why? Because their bosses tell them to. Their employers are Smarter than them (clearly), and they are well-connected with people with gobs of money who benefit when stocks go Up. They don't benefit so much when stocks go (shush, gulp) down.
Today was 'mostly' a down day in the equities indexes. The daily ES futures - at one point - hit its lower daily Bollinger Band, before some of this rebounding took place.
My question is this: What will these minions do IF or when stock prices do decide to head for a steep decline? Are they going to continue the rabid buying into the close because they're told too - even, again, if it should turn into a down market? Why would they do that? They are Smart, aren't they? Although I am not claiming the market is acting like a perpetual motion machine (which really only applies to a closed system), there comes such a time as people remember this is largely a confidence game, and at some point confidence gets stretched to the point of incredulity before it unravels.
It becomes apparent how the machines are being used to make this happen, and how - at some point - there is a sense of diminishing returns. Oh yea, that's right, today was a down day. But, they were buying hands-and-fists into that close. And they are going to do that until their employers realize that it just isn't working any more. Sometimes, they are a bit slow on the uptake - if you get my drift.
The point is - in a true bear market - they 'sell' into the close because they figure it is likely the next day's prices will be worse than today's prices.
For the ES, the Elliott Wave count has not changed. This can still be the (e) wave down of the triangle but - as stated previously - it certainly doesn't have to be. The lower this wave goes, the lower is the likelihood of that count holding.
Have an excellent start to the evening,
TraderJoe
Someone observed that "The Herd" is always wrong at significant market turns. Ah...but who indeed comprises said herd? Is it the minions in the financial services sector you reference? Or is it perhaps another cohort? I have no idea whether or not these minions outnumber other market player ieither in number, or buying power, or perhaps both. If they are truly smart, then surely they have heard the old adage about markets going up the escalator, but down the elevator! I would contend that greater fortunes are made with elevator traders than made by the minions convinced money cannot be made in down markets. Obviously unless you are Paulson or Burry, not many believe that, and I deed the BTFD crowd, whoever they may be, has been correct for a very long time. Change in the wind...?
ReplyDelete"the herd" as I understand it has a slightly different context than "a large group of lumbering animals". Yes, there is some of that - let me explain. If you think about 1) 401k holders, 2) pension funds, 3) 'always invested' (required to be fully invested mutual funds), etc., and large, very large public sector corporations involved in stock buy-backs - that typically only act after CEO or Board approval, 4) very large banks that can not 'easily' post billion dollar trades, and 5) companies about to IPO - plans for which often takes months and years, then, yes, there is an element of 'large and lumbering' to it. They simply require too much confidence that something has changed or need too many approvals to change policy not to be the infamous "Joe Grandville bagholders", as it were.
DeleteBut Prechter used the term "herding" to mean, "in the absence of information" about, say, how far a market will decline, "people will tend to seek the guidance of other members of the 'herd' to set their limits, get back into the market, etc." So, their buy recommendations accumulate at the highs, and their sell recommendations cluster around the lows - just when the market is ready to reverse.
In post-Prechter times, with the advent of servers co-located to the exchanges, news-reading bots and trading algorithms, social-media scraping data gathering, etc., some of what "used to be the herd" has changed complexion and can act 'faster-than-a-speeding-bullet' when news arrives. Thus, the Goldmans and Blackrocks of the world, are now part of the "wave makers", rightly or wrongly, an advantage that formerly accrued to a) company insiders, b) exchange specialists, c) Dow Jones news 'ticker' readers, etc.
But, beware this change in context because a) they can trade against us, and b) they can trade against their very own clients.
Further, Prechter's 'lack of information' often stemmed - and still does somewhat today - from people who are not aware of market movements at the time. Some of that is because people are at work or otherwise occupied - understandable. But in his day very few had heard of a Fibonacci ruler, or an exponential moving average. And there wasn't a well-known way - or as well developed of a way - to 'hedge' positions with options. So, some of the basis for herding, has actually been removed. But, you still have the ever-present "peer-pressure" for buy-side recommendations when everyone knows of the over-valuation because the so-called analyst does not want to stand out like a sore thumb.
It is both peer-pressure, and supervisor pressure that keeps them too long on the wrong side of the boat. Look how long it takes a Moody or Finch or an S&P Global to downgrade a rating as just one example.
TJ
It may be that index funds still have cash inflows ... so they buy slowly, passively during the day to invest 80% of their cash, then finish up aggressively at the close to get to 100% invested, which is their mandate, their bogey.
ReplyDeleteDon't know how true it is, but I heard that HFTAs now execute the lion's share of equity and futures trading.I would be interesting to know the exact percentage. At some point AI algos trading will be the dominant force, if not true already. When that happens it will not matter what any human trader does if they are on the opposite side imo.
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