Technology with attitude

What In The Hell Happened Yesterday On Wall Street?


Wall Street

Human error? Computer error? Greece? Spain? China?


Wall Street Journal tries to sort out the mess…

A bad day in the financial markets was made worse by an apparent trading glitch, leaving traders and investors nervous and scratching their heads over how a mistake could send the Dow Jones Industrial Average into a 1,000-point tailspin.

At its afternoon low, the Dow had plummeted 998.50 points, its biggest intraday point drop ever. The swing from its intraday high was 1,010.14 points.

The Dow eventually rebounded to close down 347.80 points, or 3.2%, at 10520.32, its worst percentage decline since April 2009. Stocks from Dow components Procter & Gamble and 3M suffered precipitous declines. At one point shares of P&G tumbled 37%.

Okay, but what happened?!?

Traders theorized that an initial trading error triggered a piling-on effect from computerized trading programs designed to sell when the market moves lower. At the same time, pre-set orders form individual traders and investors to sell on declines during market downturns were likely triggered.

The volatile moves in many stocks likely triggered a wave of additional trades as hedges such as limit orders and options strategies kicked in. That could have caused the market to plunge further.

Oh…I see…the market worked exactly how it was supposed to…and nothing stopped it.

Well…we’ve heard all about automated systems trading stock so fast that it’s virtually unstoppable…haven’t we Goldman Sachs?

And to that point…

Accelerating the declines, high-frequency hedge funds, which use computers to trade at super high speed, appeared to pull back from the market as prices collapsed. These hedge funds have grown to account for a significant amount of trading volume, and their absence likely created a void into which prices fell.

Scared yet folks? No? Then you can’t see the forest fire for the falling trees.

But let’s talk about Greece for a moment. The country recently secured some loans from the IMF and the European, but investors aren’t convinced…

It seemed to sneak up on us, the issue of Greece indebtedness. The problem isn’t complicated: the country borrowed way too much and now is struggling mightily to pay back what it owes. Now, its financiers in Germany and elsewhere in Europe are facing massive losses.

The danger had been percolating in Europe for a while. But only this week did it seem to sink in with U.S. investors how closely related Greek’s problems were to our own. Some on this side of the Atlantic believed the rest of Europe would step in and provide a bailout to protect the rest of the continent. Now some believe the package that was announced by the European Union and the International Monetary Fund won’t work or won’t be enough, raising questions about how the European Central Bank has handled the crisis.

And all of this hullabaloo has sent Asian stocks tumbling…

Investors continued to exit riskier assets—with many Asian markets now down heavily for the week—on escalating concerns that Greece’s debt problems could engulf the weaker European countries.

Regional currencies were sharply lower, including the Korean won, which fell to a three-month low against the U.S. dollar of 1,169.50 won. The euro, which plumbed 14-month lows of $1.2510 against the U.S. dollar Thursday, was steadier in Asian trade although analysts expect more pain ahead for the common currency.

Japan’s Nikkei 225 was down 3.8%, after a 3.3% fall Thursday, with Australia’s S&P/ASX 200 down 2.3% at 4468.70, briefly touching a low of 4427.30, South Korea’s Kospi off 3% and New Zealand’s NZX-50 lower by 1.9%. Taiwan’s Taiex index was off 2.4% and in China the Shanghai Composite Index lost 2.2%.

One thing’s for sure…if Wall Street was looking to minimize government intervention and thwart new regulations…the timing of this glitch couldn’t have been worse.

More as it develops…