WTF!

So I head out for a meeting this afternoon and the market goes bananas. I trust you people to take care of these things when I’m not watching.
Ok, let’s dissect what happened. The market had been drifting lower during the early afternoon. Then at around 2:30, all hell broke loose. At one point the Dow was down 1,000 points (or 998.5 to be exact). The market then staged a furious 650.7-point rally to close down “only” 347.80 points.
Traders had been worried about Greece, the British election and tomorrow’s jobs report. However, something truly odd was going on. Accenture (ACN), for example, dropped from around $40 a share to a penny. Procter & Gamble (PG) and Philip Morris (PM) were also down sharply without explanation. Six companies traded at $0. Someone had clearly blundered
As of now, nobody knows exactly what happened but it seems that the computers started to rise up against us. Or more specifically, someone with a fat finger hit the wrong button. There was a rumor that a guy at Citigroup dumped $16 billion worth of S&P futures, instead of the $16 million he was supposed to. Hey, these things happen. Billion…million. Tomay-to…tomah-to.
What may have happened is that one series of program sells kicked in another serious of sells and it quickly snowballed. The Nasdaq has said that it will cancel hundreds of trades made between 2:40 p.m and 3 p.m. The quote of the day belongs to the WSJ’s Evan Newmark: “Today’s market was neither orderly nor efficient nor trustworthy. It was just a bunch of computers making ugly, messy love with each other. And your money hung in the balance.”
Bear in mind that on any given day, roughly 50% to 75% of all trades are done through high-frequency trading. The hero of the day turned out to be Jim Cramer. He was on CNBC with Erin Burnett and told viewers, “That’s not a real price. Just go buy Procter & Gamble.”

Posted by Eddy Elfenbein on May 6th, 2010 at 11:30 pm

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