A few vaguely related themes from the animal world:
I was trying to find a quote I read about cattle stampedes and the parallel with trading. It was something like:
When cattle are moving together there are faster ones at the front and slower ones at the back. It only takes something small to scare one group and have them run to rejoin the main group. This is how a stampede begins.
Anything unusual may start a stampede. Especially at night, things such as lighting a match, someone jumping off a horse, a horse shaking itself, a lightning strike, a tumbleweed blown into the herd, or “a horse running through a herd kicking at a saddle which has turned under its belly” have been known to cause stampedes.
The point of this is that yesterdays price action on the S&P reminded me of a stampede. People were getting very short during the first 2 hours of trading. When there was no price improvement near the end of lunch time then the risks were clearly to the upside. A small move back up caused a bit of a stampede and a late day short squeeze.
On herding (not the type mentioned in the FT on index hugging):
Mark Douglas in Trading in the zone:
How it is that a flock of birds or a school of fish can change direction simultaneously. There must be a way in which they are linked to one another. If it is possible for people to become linked in the same way, then there will be times when information from those with whom we are linked can and will bleed through to our consciousness. Traders who have experienced being tapped into the collective consciousness of the market can anticipate a change in direction just as a bird in the middle of a flock or a fish in the middle of a school will turn at the precise moment that all of the others turn. However, setting up the kind of mental conditions most conducive to experiencing this seemingly magical synchronicity between you and the market is no easy task.
Here are a group of Sardines who have been pushed to the surface by dolphins and get attacked on all sides: