The volatility in the financial markets today was breathtaking. The Dow Jones Industrial Average came within a few points of triggering the 1000 point circuit breaker before snapping back. Within a few minutes of trading, fortunes were made and lost. I expect we’ll eventually find out who was on what side of which trade. Then again, we may not.
Today’s financial market movement hurt people
ZeroHedge covers the day’s events here.
My personal theory is that this was a designed program trade designed to wipe out a bunch of people. Among the victims was anyone with large short portions on Apple (AAPL) or long positions on Accenture (ACN). Apple allegedly traded at $100,000 per share today — it closed at $246.
Accenture allegedly traded at $0.01 — it closed at $41.09.
At one point even P&G’s stock was down more than 30% intra-day. That is ridiculous. P&G is a buy-and-hold, amply liquid, and classically defensive stock. It got roller-coastered today.
In a casino, you at least know the theoretical odds. If there is unrestricted rogue program trading, and you happen to have a stop-loss, you get stopped out at some nonsense price point. Ironically, today was a day, that it paid NOT to be wearing a seatbelt! Are you kidding me? This is getting positively surreal.
Personally, I own no equities other than the equity in privately held companies where I know the management team. The public equity exchanges have become a turkey shoot for program traders. When even quality companies like P&G can be flogged, things have clearly gotten out of hand.
As I posited on April 28, the VIX volatility index was artificially low. Here is what happened over the last 10 days:
Share volume exploded today
And in case you did not notice, the volume of shares traded today was enormous. Total shares traded on the US exchanges was more than 18 billion shares. That’s a lot of trading. For calibration, the day Lehman imploded way back in 2008 was around 19 billion shares traded. Here is an interesting chart for NYSE volume: https://online.wsj.com/mdc/public/page/2_3047-nyse_volume.html . The NYSE traded 11.8 billion shares today. The previous RECORD was 11.1 billion shares. A normal day is like 4-6 billion shares. Go figure.
Own something real — like domain names!
Elsewhere in today’s enormous trading day, gold has been rocketing higher — making all time highs in Euros, and approaching all-time highs in USD. To be clear, I am not a gold-bug. However, I believe that investors are looking for something real that can be owned and traded as medium of exchange and as a basis for wealth preservation. Physical land is hard to take with you and there are plenty of risk factors that can change the value of physical land — just ask homeowners in Las Vegas, or beachfront property owners on the Gulf coast.
It’s ironic that the cause of today’s plunge at NYSE was …a typo:
From https://blogs.forbes.com/streettalk/2010/05/06/greek-woes-or-traders-mistake-take-your-pick/
“… a trader at a major dealer accidentally entered an order to sell 16 BILLION worth of stock market futures contracts instead of the intended 16 MILLION. Chaos ensued. Procter & Gamble shares plunged $20, or 33%. The company said it didn’t know why. ”
Typos have been making domainers money for years, it’s the turn of Wall Street, apparently.
Uh-huh. Typo. Got it.
I attribute most of yesterday’s movements to computer trading.
Although fat-finger trades do happen, it is very unlikely that a typo deal in the billions of dollars would have gone through. If you enter a deal as a trader, you go through several screens to actually verify it, so the mistake would quickly have been identified and corrected. It is still possible, just unlikely. The NYC, btw, denied that any such deal took place.
Maybe it was also a combination of different things: Riots in Greece, possibly a typo that triggered the events in the stock market and, most importantly I guess, algorithm-driven trading that quickly started when stop-loss limits were hit. Computer algorithms can cause such downward spirals within seconds and before any human trader could react to it.
Rob is right, and all traders know it.
The market is 70% institutional trading. Every day-trader follows the ebb-and-flow of the market gyrations. They piggy-back on the movement of the overall market. The overall market is controlled by the institutions. Traders love volatility because it is going one way & easy to mimic – “follow the trend until it bends, and that’s the end”.
It’s not John Smith and his 1,000 shares of PG that is moving the market. Goldman, Paulson, offshore hedge funds that put in sizable orders and create the movement – that’s who is profiting.
I’m not aware of any trader who would think anything else.