by Charles Hugh Smith
Of Two Minds
Hapless bagholders have two options: buy the dip and be destroyed, or hang on hoping for a reversal and be destroyed.
One often overlooked characteristic of the current stock market bubble is the extremely small exit for sellers trying to avoid becoming hapless bagholders. Bubbles always present small exits because once sentiment turns, buyers vanish and so price goes over the waterfall and crashes on the rocks below (accompanied by the screams of all the punters who reckoned they’d exit at the top).
But modern markets have characteristics which have diminished the exit to a tiny hole in the wall. These include:
1. The dominance of index funds. When shares of the index are sold, every constituent stock gets sold. This triggers cascades of selling that overwhelm “buy the dip” buying.