Why The Stock Market Dropped 1000 Points in 10 Minutes Conspiracy Theories
Posted in Trading on 05/12/2010 04:39 am by Barbara CohenWelcome to May…now sell all your stocks. This week, U.S. stocks plunged 772 points in heavy trading volume the first week of May. This was the worst May ever in this history of the Market. The Euro vs the Dollar dropped to 1.27. Why? Concern over Europe’s debt situation especially in Greece, questioning the pace of any economic recovery. From the April high to the May 6 low, Japanese stocks are down 4.2%, Europe dropped 9.5% and the U.S. plunged 7.6%.
“No one really wants to be long over the weekend with the Greece situation hanging out there,” said Alan Valdes, director of floor operations at the New York Stock Exchange for Kabrik Trading. “Everything is based on that concern right now.”
With last week’s trading, the Futures Market was where all the action was. On Thursday, in just a few quick moments, the Market plummeted almost 1000 points before it rebounded somewhat. At the exact same time, the S&P 500 EMini dove 50 points, with the S&P 500 EMini trading in points not ticks. Day traders were making money faster than they could count. The Chicago Mercantile Exchange traded over 5million contracts, its highest ever volume. Normally, traders are happy to make 2 or 3 ticks, not 2 or 3 points in each trade!
With such sell off, the economic news was entirely downplayed. Unemployment news release on Friday said that the US added 290,000 jobs, and even excluding temporary census jobs, the US added 224,000 nonfarm jobs. What is most important is that nearly all of the jobs happened in the private sector, showing the first real sign of economic recovery. Even the previous two month payroll data increased by 121,000 jobs. At last we started seeing some relief in the job market after waiting for 2 years.
But with Portugal downgraded by Standard and Poor’s and Greece rioting, and given the looming possibility of further downgrades by Spain and Ireland, the Market simply gave up its gains for the last 2 months. The CBOE’s Volatility Index, the VIX measured the US Stock Market’s fear by rising over 40. The VIX works in reverse, the higher the number, the more fear in the Market. For the week, the VIX went up 88%.
For EMini Futures traders, all this volatility provided excellent trading opportunities in the S&P 500 EMini. With the Market dropping without end, it is a perfect trading time to short. Want to see the opportunities? Watch the video that Shadowtraders.com put out on Shadowtraders Youtube, showing trading opportunities. Surf up Shadowtraders on Youtube and you’ll see lots of movies.
Rising fear in the Market had more fuel due to the fact that more banks failed this week, bringing the total number of failed backs in 2010 to 66. San Diego, Calif. 1st Pacific Bank, Mesa, Ariz. Towne Bank of Arizona, and the Bank of Bonifay, Champlin, Minn. Access Bank, were all closed, the Federal Deposit Insurance Corp. (FDIC) said. These failures cost the FDIC fund $213.7 million, said the FDIC.
So what created Thursday’s Market crash of 1000 points? Well for sure there is Greece’s debt problem, bank failures, etc., but Wall Street has not seen a major crash like that since Black Monday when there was the October 1987 crash. For conspiracy theorists, maybe these are the reasons there was a Market crash…
According to CNBC, sources told the network that a trader (possibly at Citigroup) caused the problem. CNBC called it a “fat finger trade”, someone entering a “b” for billion instead of an “m” for million in a trade they put on for Procter & Gamble.
Rich Adamonis, New York Stock Exchange spokesman, said that “there were a number of erroneous trades” on May 6th, These could have been caused by computer error.
Another conspiracy theory was that automated trading programs triggered stop loss orders. That pushed the stock market down even further. When the market plunges to lowest levels, there are automated trading programs that get started, acting almost as a rollercoaster. They trigger more and more stop loss orders. Hedge funds and larger institutional traders watch for Market crashes and start selling, creating their own self-fulfilling prophecy that the Market will deteriorate even further.
Fear that the Greece’s financial crisis will spread like wildfire to other nations. Portugal has already been downgraded. Will Spain be next, or Ireland? If this were true, what Citi analysts projected on Friday would happen…a correction of 20%. Citi analysts said that while even though there were financial crises in the recent past, with Northern Europe in 1992, Southeast Asia and South Korea in 1997, the Greek crisis is “graver than these were.”
Could it actually have been cyber-terrorism? Automated trading programs now account for 60% of all trading in the New York Stock Exchange. Regardless of which conspiracy theory is true, this is a Market that trades in nanoseconds. Certainly by this time we should know what caused the Market’s crash. By not informing investors what happened, the Market may not recover any time soon. Investors remember that there were just recovering from the 2008 crisis where they lost 3 trillion. Now they are facing the Greek crisis. This may permanently keep them out of the Stock Market.
Barbara Cohen has been a professional day trader for over 10 years. She has trained hundreds of day traders to trade the Futures Market with Shadowtraders online day trading strategies. As the CIO, Barbara frequently hosts Shadowtraders daily online trading chatroom. Before you purchase any trading education, make sure you attend Shadowtraders Monday Night Webinar, and hosted by Barbara Cohen