Jeremy Siegel View

Jeremy Siegel offers this view about recent market activity. An excerpt:

When stocks were in this uptrend, the market attracted many “trend followers” or “momentum players.” These are speculators who make no judgment about whether stocks are cheap or expensive but only want to jump on the bandwagon. There’s an old expression on Wall Street — “Make the trend your friend” — and that’s just what these speculators did. But these trend-followers knew that the bull market wouldn’t last forever. They protect their profits by placing stop-loss orders below the current price. A stop-loss order tells the market maker to sell whenever the stock penetrates a predetermined level. Because the market never moved down 2 percent for so long, many stop-loss orders were placed 2 percent below the market. Once the 2 percent limit was breached, a wave of selling broke out.