What caused the crash?
Here’s what I am hearing. There was a "fat finger" that caused someone to execute a large order for PG, a Dow component at a price in the high 30s when it was trading above 60. Another word out is that someone entered a $16 BILLION trade instead of a $16 million trade – talk about fat fingers. This triggered a lot of stop loss orders in Dow Futures and caused a cascade of losses that at one point reached more than 1000 points on the Dow.
The market whiplashed up to only 350 down before resuming its descent because intraday 9% moves cause casualties i.e. hedge fund liquidations. last I saw, the market traded down to near –500 on the Dow before responding to –400 where it is now.
Error or not, the markets are de-risking and the problem with Greece is creating panic. If anyone has info, send it my way in the comments.
Update 1550 ET: Now, Citibank is being identified as a POSSIBLE location of a trading error.
A friend wrote me about P&G:
“WRONG! Mkt went into freefall at 2:39, P&G collapsed at 2:46. This is an effort by those who seek to profit from the crash to convince everyone that it was all a technical error so its safe to get back in. In fact, decline accelerated markedly at 1:16 when SP500 violated major support at 1150.”
UPDATE 1610 ET: The NASDAQ is confirming that the P&G story is real and was a factor in the freefall. Details to come later.
UPDATE 1650 ET: If Citi takes the blame for the crash, will it need to make everyone whole who got stopped out on stop losses triggered by the meltdown? If so, that’s going to be billions of dollars.
Update 07 May 2010 810 ET: Citi denies the fat finger rumour. The two best takes I have seen since are “Jesse’s Café Américain: PLUNGE! 1987 Style Sudden Drop in US Stocks Driven by Program Trading and a Ponzi Market Structure” and “On the Fat Fingered Trade and Market Freakout: naked capitalism.” Long story short, the markets are very tense because of the European sovereign debt crisis – especially the credit markets. We are in a critical state; anything could trigger massive carnage until the euro problem is resolved.
VIX went up by more than 50% while Yen is up more than 5% .10 year Treasuries have recovered from 3.29% yield to 3.41% yield beginning at 3.59% and the US markets have recovered from down 8% to down 3% . Don’t know why the stock markets recovered so quickly after falling equally quickly while the currency pairs show no signs of recovering.Is it a sign of Plunge Protection Team?
WRONG! Mkt went into freefall at 2:39, P&G collapsed at 2:46. This is an effort by those who seek to profit from the crash to convince everyone that it was all a technical error so its safe to get back in. In fact, decline accelerated markedly at 1:16 when SP500 violated major support at 1150.