US Stock Market Plunge Exposes Systemic Weakness

click the chart
The falls are going so fast that you can watch them on screen and not get bored. This is the next down wave starting, and it’s big and unstoppable. It looked like a 2% down day 30 minutes ago then suddenly whoosh! It’s heading for 10% easy.

Why on Britain’s election day, I am not sure.

The Yen has risen 5% on the day against the dollar. The dollar is up 2.5% so far against the Euro.

The FTSE will no doubt be hammered in the morning.

For whoever has won the British election, this will be a baptism of fire. Stock markets events like this don’t happen too often. This is a world-changing political event.

UPDATE – in the two minutes it took to write this post the markets have bounced from an 8% loss to a 4% loss. Amazing. I’ve never seen such volatility before. The dip to 8% loss was so fast it’s not even visible on charts. But it happened for about ten minutes.

Look at the volume bars in top chart showing how many are selling.

The evidence lifted from Google
The three lines are the Dow Jones, the S&P 500 and the Nasdaq.


Reuters – blame it all on a mistake, and algo trading.* High-frequency trading seen exacerbating plunge

* Slide might have begun with erroneous trade

* Senator urges “meaningful regulatory framework soon”

* Nasdaq, NYSE say they will cancel some trades (Adds Nasdaq and NYSE to cancel some trades, NYSE comment on advantage of human element, CME comment on Citigroup)

By Matthew Goldstein

NEW YORK, May 6 (Reuters) – A spine-chilling slide of nearly 1,000 points in the Dow Jones Industrial Average, its biggest intraday points drop ever, led to heightened calls for a crackdown on computer-driven high-frequency trading.

The slide, which in one 10-minute stretch knocked the index down nearly 700 points, may have been triggered by a trading error. Major stock indexes eventually recovered from their 9 percent drops to close down a little more than 3 percent.

The world is so full of jobsworths who think they control markets that traders have to say ‘sorry’. we must have made a mistake.’

It’s like kids being controlled by bossy teachers. Not convincing at all. If prices are too high, they come down. Full stop. In this age of computers these corrections happen fast.

Now come on, kids. No more mistakes now. If you think about it, it’s because of all these overblown egos running the world that stocks are falling so fast in the first place. If they could say that putting Greece in the Euro so fast and so carelessly was a mistake, it would help confidence. But the loons who run the world (or think they do) cannot imagine that anything they do can be a complete and utter hooey. That’s why markets have to fall, because government has become a farce.

The crash will smash the political power of those who think they have risen above democracy. There will be gain, but so too will there be pain. The teachers need the lesson, not the kids.

The falls are so big the systems cannot cope and start going lala…as predicted by some wise heads. The coming crash will completely dislocate the system which is not as robust as the screen traders believe it to be. The Procter & Gamble investigation shows that trades are happening over too many separate electronic exchanges. If one goes wrong, all the others catch the virus in seconds. In any case, the fact that the panic is one of selling tells you how confident markets are in their current valuations. The sell-off started in mid-April. It’s just gathering strength, and finding the limits of what they can cope with, which isn’t much it seems.

Citigroup probing rumour of erroneous NYSE trade

7 May, 2010, 0803 hrs IST, REUTERS
NEW YORK: Citigroup is investigating a rumour that one of its traders entered a trade that helped precipitate a drop of almost 1,000 points in the Dow Jones Industrial Average, a spokesman for the bank said on Thursday.

Citigroup, the third-largest US bank, currently has no evidence that an erroneous trade has been made, the spokesman said.

Earlier, sources told Reuters that the plunge in the Dow Jones Industrial average — its biggest intraday point drop ever — may have been caused by an erroneous trade entered by a person at a big Wall Street bank.

Market sources said the erroneous trade may have involved shares of the so-called E-Mini, a stock market index futures contract that trades on the Chicago Mercantile Exchange’s Globex trading platform. The composition of the E-Mini is similar to the stocks in the S&P 500.

A CME spokesman said it found no problems with its systems.

Other market sources said the erroneous trading involved the IWD exchange-traded fund or the S&P 500 Mini. A person close to BlackRock, which manages the IWD, said there was no unusual trading in the iShares product.

Amid the sell-off, Procter & Gamble shares plummeted nearly 37 per cent to $39.37 at 2:47 p.m. EDT (1847 GMT), prompting the company to investigate whether any erroneous trades had occurred. The shares are listed on the New York Stock Exchange, but the significantly lower share price was recorded on a different electronic trading venue.

“We don’t know what caused it,” said Procter & Gamble spokeswoman Jennifer Chelune. “We know that that was an electronic trade … and we’re looking into it with Nasdaq and the other major electronic exchanges.”

A different P&G spokesman had said earlier the company contacted the Securities and Exchange Commission, but Chelune said that he spoke in error.

One NYSE employee leaving the Big Board’s headquarters in lower Manhattan said the P&G share plunge lay at the center of whatever happened.

“I’ll give you a tip,” the employee said, speaking on condition of anonymity. “P&G. Check out the low sale of the day. Something screwed up with the system. It traded down $30 at one point.”

Nasdaq said it was working with other major markets to review the market activity that occurred between 2:00 p.m. and 3:00 p.m., when the market plunge happened.

The exchange later said it was investigating potentially erroneous transactions involving multiple securities executed between 2:40 and 3:00 p.m.

Nasdaq also said participants should review their trading activity for potentially erroneous trades.

The Tap Blog is a collective of like-minded researchers and writers who’ve joined forces to distribute information and voice opinions avoided by the world’s media.

2 Responses to “US Stock Market Plunge Exposes Systemic Weakness”

  1. The Network says:

    the feds stepping in buying stock to stop the halt

  2. tapestry says:

    Maybe part of the story. That plus profit taking. An 8% fall in one day is almost unparallelled. There are no doubt trading limits in any case, whereby trade is suspended if the falls are too heavy to stop the computers from crashing the market with programmed trading.

    The gold rise is entirely unconfirmed by silver. The gold rise is a rising diagonal, a very weak chart pattern according to those who know. This could well be gold’s top.

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