This from Bloomberg tonight (May 6):
“Computerized trades sent to electronic networks turned an orderly decline into a rout, according to Larry Leibowitz, the chief operating officer of NYSE Euronext. While the first half of the Dow’s plunge probably reflected normal trading, the selloff snowballed because of orders sent to venues with no investors willing to match them, Leibowitz said in an interview on Bloomberg Television. ”
“If you look at the charts you can see fairly clearly where the trades came in,” he said from New York. “It’s that V-shaped drop where it came down and snapped right back up. You had some very high-cap stocks trading down 50 percent or large percentages in a split instant because there really was no liquidity in electronic markets.”
“The SEC (Securities & Exchange Commission) and Commodity Futures Trading Commission said in a statement that they were “working closely” with regulators and exchanges to study the “unusual trading activity.”
I went for VALE yesterday when I saw $26 . . . they “held” my order because of “the glitch” and executed it at $27+. Rats!
Ed – absolutely, as intelligent investors who do the requisite homework identifying and buying “good” securities we anticipate having an edge to allow us to do better than the averages (hubris, of course). Nonetheless, Wall Street right now can ill afford to lose more faith from individual investors who. again, see the odds heavily against them.
Lots of people got “stop-lossed” out of positions when they should not have been (see my warning about inverse ETFs, particularly those from ProShares, in Jim’s previous post.)
drevil,
Glad I could help.
With the situation in Europe, I wouldn’t touch SPXU, only because you could see a flight from European equities to American equities.
I always disfavored stop loss orders. Why would I be willing to sell a stock for less than it is currently trading? (After obligatory fundamental research) I place a “limit sell” higher than were I think a stock will go and a “limit buy” lower than were I think a stock can go… then sit back a wait till I am proven wrong. The most surprising thing is that the market never ceases to surprise me.
I suppose that at some point the market will become rational and this strategy won’t work for me anymore.
I understand stop loss orders serve a function. But I figure that unless a misrepresentation has occured in the fundamentals (eg SPWRA) then in the long term I should be ok.
rolfer1,
Don’t get me wrong. I’m not averse to gambling. Poker is one of my favorite games.
And I agree the odds are with the big traders. What we have going for us is the big traders aren’t any smarter than anyone else, they just have more funds to bet with, so they can move markets in ways we can’t.
Ed – yes, the market is organized gambling. BUT, don’t we all want to believe that the odds aren’t intentionally stacked against us little individual investors? No matter, the odds are with the big trading houses and institutions.
hmmmm, i wasn’t clear when i said affects buys more than sales – clearly there are both sides in any transaction. what i should have said is that it appears the majority of canceled transaction will be when the market was roaring back. this would in effect leave in place the trades at low values and remove some/all of those that occurred at higher values. this is why i am wondering if the market will have to gap lower at open.
how in the world does this NASDAQ move to “cancel all trades between 2:40 and 2:50” play out? presumably, those trades affected the ongoing stock prices so how are those stock values figured out? do they just go with the prices at close even though those would certainly have been different had those trades never occurred? looking at the daily chart it seems like this will cancel buys much more than sells. does this mean we will open with a huge gap down this morning to reflect what those prices would have been without the sales (that are being canceled).
can anybody explain this to me – i am apparently missing something here.
Some body once told me that only suckers do open orders. Always use limit orders. I happened to have a low buy limit on an old Jim stock, HW (remember that?). I caught it right at the bottom and and before the day was done, made 15%. Lucky me.
EdMcGon,
Like the EUO play. Did not know there was such a short. Have been playing SPXU and getting hammered until now. Thanks for the info.
Let’s be honest folks: Investing IS gambling. You can dress it up in all the pretty language you want, but when you get right down to it, the person putting his/her money into an investment is gambling. It may be more long term than the instant gratification of rolling dice, but it is no less of a risk of money. Your odds may be better with the stock market, but you can still crap out on ANY stock, even a “blue chip” stock.
As for me, I made money yesterday. I’m out of stocks, and carrying a large position in EUO. As long as the euro drops, I win. I’m also carrying balancing positions in GLD, PALL, and PPLT, so I’m covered if the dollar should happen to drop, or if we get inflation. PALL and PPLT are also nice covers for increased industrial productivity, which seems to be happening in spite of what is going on in the world.
Jim, would love to know what your thoughts are on this:
http://www.iimahd.ernet.in/~jrvarma/blog/index.cgi/Y2010/market-panics-and-bailout-manias.html
The truth is your odds are better in Vegas…at least there you know to grab your ankles on every roll of the dice…
Per my last message — the value of those companies I own did not change today. The value of those companies I want to own did not change today.
Today’s drop presents a great opportunity to look for price dislocations and new “fat pitches”. Alas, I was consumed in the details of my job all day, so I missed the golden opportunities available (P&G) when the Dow was down 1000. It’s okay – I love my job. But the opportunities are now so great that it appears that I will not be getting much sleep tonight as I sift through the remains of today’s carnage. I’m glad I have a full position in my portfolio still in cash.
That’s why the only way to control this myriad of computer orders is through a Tobin tax raised on each and every one of them.
Off course, I forgot to say the most important…. Guess WHO is ALWAYS winning from these kind of market excessive movements…
THE BANKS & BROKERS.. AGAIN!!
Imagine, in one day how much they won during this one day massive sell off (first) & “buy in”…
YES, HERE THEY WIN AGAIN…
If there was NO liquidity for large caps, and if everybody fears the mounting debts of some countries (such as Greece, Spain, … Korea?…), and still in fresh memories the market meltdown of 2008… then, we’re bound for “the crash of the century”… but US Economic data shows totally other pictures (under perfusion)… so, SIDELINE or DEPLOY CASH.. mmmh, what a strange beast this market… (should need some better regulation to avoid this “gambling”.. Market should be there “TO INVEST” in a COMPANY, in a PRODUCT…” Not, to play like fools…
One would expect the large cap stocks to have the most liquidity!!