When the ‘herds get spooked,’ this is what a stock market crash could look like

Every time the market seems to be caught in a death spiral these days, buyers are quick to step up to nab the discounts. That buy-the-dip mentality has, again, been bolstered by the idea that the Fed is ready to step in with a rate cut.

“Irony of ironies: Such complacent confidence in the efficacy of central bank interventions is actually setting up a crash scenario,” he wrote on Monday. “Crashes and melt-ups are both manifestations of herd sentiment.” “Confidence in the absolute efficacy of Fed intervention breeds complacency, which is the essential backdrop of stock market crashes,” he wrote. “Crashes don’t arise from a skittish herd, they arise from a complacent herd.”The chart illustrates eight stages of Smith’s crash scenario:No sign of spooked herds on Monday, however, with the Dow DJIA, +0.34% , S&P SPX, +0.51% and Nasdaq COMP, +1.09% all logging solid gains.

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