Thursday, May 06, 2010

Glitch Day 2010 or How The Dow Tanks 1,000

Welcome to glitch day 2010, did anyone see a black cygnet swim by? No one seems to be able to nail down one single reason for today's historic market calamity but was it really all that surprising and unprecedented? Back in 2008 the market would drop 10% in a day once every few months. After this ridiculous rally we've had who out there really expects us to just keep going up even as global economic news is awful. I heard one trader say that today he was watching the Greece riots live and as soon as the police advanced on the crowd the market tanked. Others are watching the euro collapse to multi year lows. Yet others are following the financial reform debates in Washington or anticipating the next class action lawsuit against market master Goldman Sachs. Myself?, as you know, I try to remain focused on the charts so here they are. Mostly, things seem unusual on short term time scales but not so much as you zoom out. First, here's my updated six month QQQQ chart from Wednesday morning:

Many strange things seemed to happen simultaneously today just before 3pm, one of them was the plunge in the shares of blue chip and dow component Procter & Gamble, PG:

Undoubtedly fortunes were made and lost in the action...

Apparently some stocks dropped to zero today before rebounding, literally. In fact, so many stocks did this that the Nasdaq had to release a long list of stocks which have canceled trades. PG does not appear to be on this list, here are a few stocks that had severe drops today from this source:

To keep some perspective, many stock charts seem to be reasonably unaffected. BIDU's long and shorter terms are still up, if any thing this gap fill for BIDU was healthy:

To be fair, the "glitch moment" in the day only lasted about 30 min. As you can see by this 5 min XLF chart, the market was already tanking pretty bad before we broadly crashed. XLF took a bigger dip just before 3pm but it seems pretty orderly and healthy:

We'll just have to wait and see what happens tomorrow with the unemployment report and any hangover from today. I am moderately bullish at the moment in the short term, becoming increasingly bearish on the long term.

Disclosure: I currently have only bullish positions, including but not limited to QQQQ, ISSI and CRUS.


chintan said...

Markets were extremely overbought before recent this is sign of trend reversal...there is 70% chances of major decline.

chintan shah said...

I would like name such a kind of events:blue swan events! ;)
This kind of extreme moves in equities occurs due to lack of liquidity when lots of pple want to take exit from their positions.This events r more deadly than black swan as black swan like 9/11 just reverses trends but these blue swan events trigger margin calls which in my opinion r more deadly.
The most deadly one was that volks wagon short squeeze which was so catastrophic that one german billionaire committed suicide as he was short on VW and sudden rise of stock wiped out his billions :(

so its very deadly to invest ur money in equities as you dont get enough diversification.

pythagoruz said...

Well I don't think you can compare any of this to 9/11. Obviously, 9/11 was for more catastrophic to both equities and human life.

chintan shah said...

9/11 was real black to change human sentiment...but this panics due to liquidity squeeze are more frustrating .
I am using 9/11 just metaphorically.