By the close of Friday’s trading, most investors were wondering the same thing: What happened to the market this week?
It’s a completely valid question – after all, after Thursday’s “Crash of 2:45 p.m.” put the fear of another bear market run back into investors…
So, what exactly when down on Thursday? The biggest problem was Greece. Escalating protests in Greece moved the broad market lower as Wall Street became increasingly concerned that the fallout could be bigger than expected from the financial entanglement that the PIIGS nations are experiencing.
It’s a completely valid question – after all, after Thursday’s “Crash of 2:45 p.m.” put the fear of another bear market run back into investors…
So, what exactly when down on Thursday? The biggest problem was Greece. Escalating protests in Greece moved the broad market lower as Wall Street became increasingly concerned that the fallout could be bigger than expected from the financial entanglement that the PIIGS nations are experiencing.
In the scope of the Europe’s financial risks, Greece is small potatoes compared to countries like Spain and Italy, both of which are facing similar debt to GDP and deficit levels as leaders are in Athens. For now, regulators and analysts are claiming that the fiasco going on in Greece right now isn’t going to happen in other European countries, but that assurance hasn’t been enough to get investors to start buying en masse again.As European concerns pushed the markets into the red, program trading exacerbated the sell-off. Program trading systems, which help major investment banks scalp profits using high frequency trading, are essentially computer systems that execute trades automatically based on technical indicators. Program trading systems execute trades in a matter of milliseconds – or even nanoseconds – and the volume they add to the market can be overwhelming if they all trigger movement at the same time.
But even program trading wasn’t the real reason for the scary sell-off that stocks exhibited around 2:45 p.m…
Right now, that’s being blamed on a trading error at one of the major financial firms on Wall Street. Speculation is that a trader – possibly at Citigroup – accidentally placed a trade to sell $16 billion in E-Mini futures contracts – futures for the S&P 500 index that trade on the Chicago Mercantile Exchange – when he meant to sell just $16 million worth…
Citigroup was still investigating the claims as of Friday.
It’s unlikely that a single trader’s error was alone in causing Thursday’s volatility, however. Blue-chip household goods company Procter & Gamble (NYSE: PG) saw shares tumble materially for a matter of seconds during trading. Consulting firm Accenture (NYSE: ACN) dropped from $41 and change to 1 cent over the course of a few ticks. And a host of other stocks moved more than 60% in the course of a few seconds.
The bizarre trades have been blamed on NASDAQ, but the exchange group claims that the errors weren’t with their system. Still, NASDAQ and NYSE Arca are cancelling any trades that took place for more than a 60% change above or below prices at 2:40 p.m.
If nothing else, Thursday’s market action was a good example of the fact that the market works well – stocks traded for ridiculous levels for only a few milliseconds before traders bid them back up based on their real values. After all, a company like Procter, with real assets and a sizable dividend yield shouldn’t trade at a 40% discount…
When investigators determine what actually caused the market mayhem this week, I’ll keep you updated. Until then, let’s take a look at this week’s Sleuth articles.
It’s unlikely that a single trader’s error was alone in causing Thursday’s volatility, however. Blue-chip household goods company Procter & Gamble (NYSE: PG) saw shares tumble materially for a matter of seconds during trading. Consulting firm Accenture (NYSE: ACN) dropped from $41 and change to 1 cent over the course of a few ticks. And a host of other stocks moved more than 60% in the course of a few seconds.
The bizarre trades have been blamed on NASDAQ, but the exchange group claims that the errors weren’t with their system. Still, NASDAQ and NYSE Arca are cancelling any trades that took place for more than a 60% change above or below prices at 2:40 p.m.
If nothing else, Thursday’s market action was a good example of the fact that the market works well – stocks traded for ridiculous levels for only a few milliseconds before traders bid them back up based on their real values. After all, a company like Procter, with real assets and a sizable dividend yield shouldn’t trade at a 40% discount…
When investigators determine what actually caused the market mayhem this week, I’ll keep you updated. Until then, let’s take a look at this week’s Sleuth articles.
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