Overloaded trading systems with badly lagging prices during today’s 700-point intraday plunge gave traders erroneous prices. We might know how big the problem was tomorrow.
But for tonight we do know that the New York Stock Exchange and NASDAQ are both unwinding erroneous trades.
What’s an erroneous trade?
The New York Stock Exchange and NASDAQ are defining it as any trade between 2:40 and 3:00 p.m. where the price was off by 60% or more.
Frankly, I do not believe the meltdown was computer or system failure. I take the conspiracy belief, whereby a group of traders controlling millions of shares, adhering to a well laid out plan, forced the start of this debacle, then the trading programs kicked in , and voila! Meltdown. Uh Jim; I almost bought TSM yesterday, but chickened out.
TO ALL: A WORD OF CAUTION
If any of you, like me, use short/inverse ETFs as “protection” against downward market moves – like the 900 point drop yesterday – a word of caution.
I had a position in the ProShares Ultra Short QQQ (QID), among other inverse ETFs. This security is marketed as trading 2x the inverse of the QQQ (NASDAQ) and it did trade that way. Until the meltdown when it, predictably, shot up in value. However, when the sharp 500 point upward correction in the market occurred, the value of the QID and many other ProShare inverse ETFs I investigated yesterday, shot way down in value – in fact, many traded to below $0.20 per share! As a result of my having a stop-loss on QID (in place in case the market went up, of course), I was SOLD OUT of my position despite that fact the the market was never in positive territory yesterday! So for every 100 shares, I was left without the $300 gain (protection) I would have had.
BEWARE THE BEHAVIOUR OF INVERSE ETFs (as I said, the ProShares domestic inverse ETFs seem to have behave the worst.)
So, what do you all say — interesting market action – or manipulation? A lot of money was forced out of the market yesterday, most of it from individual investors. Anybody wanna argue that the market is nothing more than an organized gambliing system?
I tried to buy 3 stocks after the Dow was down about 900 points and I only managed to get one trade completed. The other two just hung for the remainder of the trading session and then got cancelled. What a screwed up mess.
Can you imagine if you had stop losses on every stock you would have been killed yesterday!
Stop losses serve a purpose, but in this case it would have been a disaster!
So we got ourselves a Wall Street version of an exploding nuclear bomb! There is some serious questioning about the integrity of the market and the only thing that people are saying is oops! First the financial melt down and now this. I don’t think I can trust Wall Street any more. It is time for a reset!
Jim, as always, thank you for your great insights and posts.
I suspect quite a few margin calls are being issued by brokerages after today’s drop. This could result in more downward pressure on stocks in a few days if traders can’t come up with the funds needed and brokers are thus forced to sell some of the traders’ positions.
Citigroup = Too big fail, now too big to trade!!!!
And i am guessing that if there really is a market crashing, wouldn’t an ‘error’ be a convienient method of explaining it rather then alert people to the truth of the ‘debt’ crisis before us.
This is what fear looks like:
http://static.seekingalpha.com/uploads/2010/5/6/saupload_vix1.png
Btw Jim if you have time, please feel free to update us your take on the current state of the global carry trade.
Im guessing if theres more solid news into this issue as a system error, psychologically people would go on a buying spree tomorrow morning.