This is just a quick note to comment on the wildly erratic gyrations on the US stockmarket overnight. It seems that speculation, fear and quite possibly a few incorrectly processed trades have resulted in the kind of near-meltdown that we have seen in the past – except that this time the actual basis of the movements is not based on excess credit or housing markets or falling production or faltering demand or reduced profits or the threat of war or the devaluation of anyone’s currency or any of the usual culprits.
It appears that there were some incorrect trades processed, which resulted in very large movements of stocks, which possibly triggered further electronic trading, which didn’t stop…
To guage the size of this hiccup, United States shares lost over $700 billion in 10 minutes!!!! At one point, the DOW had plunged over 9% – a massive daily movement. Those who were quick to act saw an opportunity to buy and by the close of the market would have raked in substantial profits. A lot of shares saw movements in excess of 60% on the day!
To compound the errors, and create a line of litigants at the nearest barristers’ office, the NASDAQ market has moved to cancel all trades involving movements greater than 60% that occured in a particular time period – the decision is final and no correspondence will be entered into. You have to ponder that for a moment to see just how horrific it will be for some people. If you saw the opportunity to snap up shares in your favourite company and sold your other holdings to do so then your buy trade has just been cancelled but there is every chance that your sells did not move as far and you therefore are simply out of pocket. Even worse, you could have the trades to sell shares cancelled while your buys go through, leaving you with a potential lack of money when settlement comes along. Oh my…
Australian markets were down 145 points (All Ordinaries) within minutes of opening. It will be interesting indeed to see where this goes.
For the opportunist accumulator, this is a long-awaited opportunity to buy back into markets at substantially reduced prices. For fearful investors this just shows why they moved to cash and missed most of the recovery in the first place. Either way, these are tumultuous days.
For the patient market observer, this is pretty much a slightly bigger version of the traditional “sell in May and go away” market adage. If this kind of event shakes your thoughts of global recoveries, just take a look at the year-on-year production and export increases of the world’s major countries and you’ll see that this kind of blip is to be expected when such strong recoveries take hold.
We in the office here will be very busy today!
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