The herd and trend-following - we are at extremes

 

The herd will cause a trend. This statement goes without saying. Trends occur because there is an increasing number of traders who are willing to pay a higher price, yet we cannot see the herd we can only see their actions. We also know that the herd will get exhausted. again, we don't know when that happens because we cannot see the herd. However, we do know that at some point these trends will reach an extreme. There will be profit-taking whether it is advised or not. There will be an end to new buyers and existing buyers will have used their capital. 

We currently have a strong momentum rally; the herd is at an extreme. The weight of high momentum stocks is also at an extreme. Accept that there is trend exhaustion and there is a limit to the herd's ability to push prices higher; however, talk about the herd is often just talk.