Maybe technical levels of stock indexes did turn a bad day for stocks into a heart-in-your-mouth plunge, but stocks prices aren’t the only thing that might have triggered today’s 700-point drop in the Dow Jones Industrial Average from 2:30 to 2:46 p.m. ET.
There’s a good chance that the plunging euro played a part. The euro was down 1.5% against the dollar by 3:00 p.m. (roughly). That’s a drop of a full 2 cents and a bit more. That’s a big move since this market usually marks its gains and losses in the hundredths of a cent.
The euro’s plunge against the yen was even bigger, a huge 5.3% drop.
A 5% move in the currency market is almost a sure sign that somebody big has started to unwind, probably in hurry, a big, a big bet on the direction of currencies—and that other big players have followed suit.
One possibility that comes to mind is that someone was betting on the direction of the euro and using stocks or yen to hedge the risk.
And when the euro went down to $1.2612 today that someone decided to unwind that hedge.
And it was the unwinding of that hedge that set the panic in motion.
A few minutes ago CNBC reported a trading floor rumor that the drop was a result of someone entering a trade in billions instead of millions. Could be.
But while the error may have started the ball rolling, it wouldn’t have turned into an avalanche without lots and lots of money blindly following price moves rather than paying attention to anything fundamental in the market.
If you think of stocks as interchangeable lottery tickets—and much of Wall Street does—this is the kind of trading day that results.
Jim,
Could you please give us your thoughts on TC? It is crashing, Deutsche Bank has downgraded and lowered it’s target price to $15 from $21. The CEO sold 90% of his holdings off in March.
These are just my thoughts for what it’s worth. If you’re a stock trader, which I am, you may have noticed the down trend for the last week, or more, especially starting on last Thursday. As the market deteriorated, the short sellers took over, large and small, creating panic selling. Thing move so fast you have to sell first and ask question later, no time to look for facts. If you’ll look at today’s chart, you will see where the Biggies shorted the market down and then immediately bought the market back up. Tomorrow may be a very good day to buy for traders, but maybe not so much for investors. Investor can get a cheaper buying opportunity after the Euro devaluation is complete and the Euro Union has stablized. It could go down a lot more, so it would be wise to stay in CASH!!!
WoodMoney
I was going to say “Soro”!
Boy is this deja vu all over again. I remember thinking there were lots of relatively cheap stocks in late September, 2008. And in October. And November and December too. And January and February 2009. In fact, they were a whole lot cheaper in February 2009 than in late September 2008.
None of the structural problems that caused the tankage from Sept. to Feb have been resolved. Banks hold trillions of toxic doo-doo, Americans have that much less equity in their homes (a problem that is starting to appear in Europe), China is building bridges to nowhere, the unemployed are still unemployed (though spending their mortgage payments at Saks).
I don’t see the market as having great bargains and relative to the risks of a repeat of the fall 2008 nightmare, anyone who is buying at the moment has bigger brass ones than me. Kudos and best of luck.
interesting theory, who knows what the real reason it is, as long as there hasnt been any fundamental changes, theres a lot of relatively cheap stocks out there right now
Sorry boys, this big drop in stocks today was all my fault. I was trying to buy 2 shares of SIRI at a dollar a share, and hit the “m” button for maybe instead of the “b” button for buy. I guess when everyone saw I hit the “m” maybe button, it kind of panicked everybody. I will try to be more careful next time.
i cannot imagine who can be that big, and not afraid of keeping tracks behind.
i mean i know who is soros and all the other big investors but frankly i did not imagine that they are capable of effecting the NYSE by that much. i am still not convinced (and hoping i am right) that they have the means to effect it that much
Personally, I like this sort crazy volatility. It gives us the opportunity to buy companies with good fundamentals on the cheap. Unfortunately, I am already invested in companies that I intend to hold for some time so I was out of cash to invest today. Today’s stock market valuation does not worry me because I own my companies based on my evaluation and they are just as good today as last week.
China? George Soros? Those are the first two that come to my mind.
Regardless, you can tell the market has a severe case of the jitters, and darned near anything will set it off.
I can’t wait for the Jim Cramer pep talk to the bulls tonight. It should be good…