Today Was Everyone Going From Port to Starboard at the Same Time

The post mortems on the 1000-pt crash are coming in. AllAboutTrends gives a tour of the fateful 11 minutes of the drop and pop, and gives this advice: "when in doubt, stay out." A number of other sites are trying to pinpoint the glitch. The irony may be that the circuit breakers put in place after 1987 may have exacerbated this crash: specifically, the NYSE may have slowed trades, pushing the 'bots over to other exchanges and overwhelming them. Rather than add to the speculation of what happened, let me review some of the better commentary on "what does this mean" for the market.

ZH's "I told you so" piece is a must read. They had warned of what could happen when market liquidity is replace by high-frequency trading (HFT) 'bots gaming each other: 

[T]he market, for all intents and purposes, broke. Liquidity disappeared. What happened today was no fat finger, it was no panic selling by one major account: it was simply the impact of everyone in the HFT community going from port to starboard on the boat, at precisely the same time. And in doing so, these very actors, who in over a year have been complaining they are unfairly targeted because all they do is "provide liquidity", did anything but what they claim is their sworn duty.

Barry Ritzholz thinks more happened than just a mistake, as the market had already fallen 3% due to worries over Europe, but he adds this:

After work, I did some digging, made some calls, and came to the conclusion that most of the worst of today’s move was a mistake. Does that mean investors should buy with both fists tomorrow? No, though I think stocks could enjoy a nice snapback rally in the coming days. 

PragCap has a perspective across the Crash, the Election (UK), and the Tragedy (Greece). While Greece can, and probably should, and likely will default, the UK still manages its own currency, and cannot default, yet "they ... are somehow attempting to drive their economy into a near equally disastrous situation." The implication is that the Euro crisis will deepen and spread, even to England. On the Crash he notes:

This is now the second market crash in less than two years and could be shaping up to be the third time small investors have been seriously burned in a decade. You have to wonder how comfortable the small investor is in this market now. The game must appear entirely rigged to an unsophisticated investor and the accusations of a system error during yesterday’s trade has to make some people wonder why they are putting their hard earned cash at risk of a massive computer glitch.

Nic Lenoir of ICAP adds perspective to his target of Sp1041 in the futures, a huge additional drop ahead:

There is the danger of walking out of today's session with a sense of relief for equity traders, because that insane move was "just" a fat finger or at least it is the word in the media and on the street. There are three things to keep in mind: 

1. the market was down 3% already when the alleged input error happened
2. we are still in the middle of a major unresolved currency crisis threatening all of Europe and that led to deadly riots already 
3. the financial industry does not need any bad press right now and detractors just got some more ammo to push tough regulation

What to expect? 

• The head of the NYSE predicts "it will be pretty ugly" at the open on Friday. 
• As I draft this I see a lot of red on the screen from Asia, but in the same range as the drop today at the close. Usually the US leads, and Asia/Europe follow, so little guidance there. 
• Today felt like the similar drop-and-reversal of April 4, 2000, where the Naz dropped 574 pts (13.5%) and came almost all of the way back, down only 1.8% at the close. It was followed by several sideways-to-up days, and then the long slide to the abyss. 

I remember that April day vividly, as I was in NYC pitching a public offering, visiting nine mutual funds. As the day wore on the fund managers looked more and more shell-shocked. They had seen their whole portfolio busted and then saved in a mere 6 hours. When we met the last one, at the top of the WTC, she was bone-tired and barely responsive. I had this flash that she and many others may have tried to jump out of the windows mid-day, but since they were all sealed, unlike in 1929, she bounced back, shrugged, and went back into the market. 

The next few days were sideways, and on Friday we went out and got a price that was twice as high as the low on Tuesday. The week after the Naz began a slide from which it never recovered. 

Comments

[Joe Dog]

Bears have been excited. I suspect the market shouldn't decline much more until the Pro's roast these excited bears with another strong rally getting them flat or net long.

Pro's setting up a Bear-B-Que? Looks like it.

[Account Deleted]

DG !

I got your point about a triangle from yesterdays low and a Contracting Triangle would really fit into the scenario as we have already retraced some 500-600 points from yesterdays bottom.so Breakout from such a Triangle would satisfy the minimum thrust requirement of a Contracting Triangle between 75-125 % of the largest leg of the triangle.so it fits the bill

Regards
VB

[Account Deleted]

DG !!

In NEELYs Newsletter dated MAy03,2010.He has shown the A leg from 08 ending in NOV09 at 740 odd levels.Thereafter he shows a Wierd looking triangle in formation ending somewhere between 1050 and 1100 in Sept09 followed by an X wave and then a A which will be followed by a B(curently in formation) and then C.

I really cant figure out wht kind of a triangle is this.It looks more like a Expanding triangle.Now if this is an Expanding triangle then surely we are in a FLAT formation since2008 as MEW says the Expanding triangles can only be seen in b wave positions of FLAT.

IF u could please explain what sorrt of a triangle Neely is talking about here.

Thanx
Regards
VB

[Wave Rust]

gotta be long here

yesterday is the past

this type of abberation shows up in FX all the time, and in both directions. that is why stops were invented.

still feels alot like august 2007, and we all know what happened after that.

wave rust

DG,

that is the deepest 4th I've ever seen on a daily chart! :)
(just kidding)

the Jan high to Feb low now looks better as an A wave. B to Apr ?? and C or part of C ended yesterday.

[Michael]

People need to understand how the "mechanics" of the marketplace work. It's clear that some of the biggest self-proclaimed wave "Gurus" that post here don't have a clue, and certainly have no idea about the differences between the NYSE and the Nasdaq. Perhaps it's because they don't really trade???

Yesterday, one of these "kids" couldn't understand why the powers that be didn't just let the market go out on its lows, and why it rallied back as it did.

FACT: Only 30 million shares traded on the NYSE during the "down-draft".

Just think about that for a second.

[Roger D.]

"People need to understand how the "mechanics" of the marketplace work. It's clear that some of the biggest self-proclaimed wave "Gurus" that post here don't have a clue, and certainly have no idea about the differences between the NYSE and the Nasdaq. Perhaps it's because they don't really trade???

Yesterday, one of these "kids" couldn't understand why the powers that be didn't just let the market go out on its lows, and why it rallied back as it did.

FACT: Only 30 million shares traded on the NYSE during the "down-draft".

Just think about that for a second."

Michael,

interesting tidbit, but in 5-10 years or less,people will look at the chart and say that was the "mini crash of 2010" or worse the start of the great crash. The lack of bids is the total absence of buyers or to put it bluntly, a vote of no confidence. There are many reasons for the "no confidence. Most traders can give a lengthy list instantly, even if they are bulls. The bears...well that speaks for itself.

Roger D.

[Roger D.]

Looks like were going to "crash"

[Michael]

Roger,

I'm not going to bore you with any further "tidbits" of my experience that goes back to before the 1987 Crash when I was a stock-index futures floor trader trading my own account, but suffice to say that I strongly believe that those that cling to MACRO theories or CONSPIRACY theories to rationalize (or bias) their trading will be largely unsuccessful going forward.

Volatility will rule the day, and TRADERS will have plenty of opportunity to make money, BOTH Long or Short.

Good Luck to All.
:)

[Steven_737]

.
www.zerohedge.com/article/themis-take-may-6-2010-–-day-will-change-market-structure

[Hank Wernicki]

Wait until Monday !

Hank

[vipul garg]

""As I draft this I see a lot of red on the screen from Asia, but in the same range as the drop today at the close. Usually the US leads, and Asia/Europe follow, so little guidance there.""

a non commodity based market like india is really a mirror of what is to happen. and i am not saying this out of partiotism.it is just a pointer to the fact that though india a major market but is relatively less active than US market, is controlled and cartelised by the same funds and traders who are active in say US market.

[Wave]

"Wait until Monday !" - Hank

Sorry Hank, but if you snooze, you lose. We've already rallied 34 handles off the lows!

This is a very typical pattern after a big sell-off from the previous day where prices vacuumed lower.

Tons of great moves for TRADERS who are able to react to what they "see".

[DG]

"I really cant figure out wht kind of a triangle is this.It looks more like a Expanding triangle.Now if this is an Expanding triangle then surely we are in a FLAT formation since2008 as MEW says the Expanding triangles can only be seen in b wave positions of FLAT."

VB,

That's a Neutral Triangle. It looks odd because you really need to view it in log form because the arithmetic form covers too wide a range.

[Ed]

Neely covered all shorts, roughly 1120 when he sent the alert... 67 point profit, so a great trade on his part. Not sure if he is assuming that the B wave is over and now looking for a C wave rally or he wanted to just protect the nice gain...Update later today I assume.

[DG]

"Yesterday, one of these "kids" couldn't understand why the powers that be didn't just let the market go out on its lows, and why it rallied back as it did."

That comment clearly went over your head. I wasn't talking about "powers that be", I was asking why the shift in mass psychology. It doesn't matter if the amount of shares trade on the way down was 30 million or 30. You just don't seem to be able to grasp that concept.

You trade your way and I'll trade mine. So far, let's just say I'm very impressed with your knowledge of institutional dynamics in the markets and less than impressed with your ability to call market direction.

Guess which one I consider more important.

[DG]

DG,

that is the deepest 4th I've ever seen on a daily chart! :)
(just kidding)

Well, if it ends at a MUCH higher low... :)

[forPPP]

Neely covered all shorts, roughly 1120 when he sent the alert... 67 point profit, so a great trade on his part.

You are kidding right ? The entry point was medicore and exit was abismal. This was a very bad trade, look carefully.

[Account Deleted]

DG !!

The current Intraday movement looks like an Extracting Triangle in the 4th Wave.I just cant differentiate between a Neutral and Extracting Triangle but this one looks like a traditional Head and Shoulders Pattern.A breakof 10400 would again lead to a massive fall.

Regards
VB

[Ed]

PPP,

Friday 4/16 he told subs to sell with a sell limit of 1182, stop 1211, which was never triggered...he covered today...For a guy who sends out an email to subs, not a bad trade...I guess you are telling me you went long or covered at 1050 after selling at the high a week ago? I will give credit where its due...60 some points is a good trade if you ask me. Glad to hear you did much better. Congrats

[Mamma Boom Boom]

JT, I want to make sure you didn't miss my response to your ignorant post.

-------------------

JT, you must have found a crack between the footer and the floor joists. That's about the only way you could have gotten in.

Posted by: Mamma Boom Boom | Friday, May 07, 2010 at 07:07 AM

[forPPP]

I will give credit where its due...60 some points is a good trade if you ask me. Glad to hear you did much better. Congrats

No, not better. Exactly I sold at 1187 and exit at 1119 - Neely trade ;) If you are 20 years experienced trader (as Neely proclaim) and set max correction target at 1100, then what he should do after seeing 1060 ? Send emergency update when the correction from 1060 was faster and larger than (his key rule)... So about 1080. That's why it was the worst trade. He didn't follow his plan, he plays with emotions. He earned 2% with this trade, while previosuly loosing 15% during whole year (90% losing/winning ratio). Be objective...

[Ed]

PPP,

Got it...Although to his defense, at 1060 we were all trying to figure out just exactly what happened (perhaps emotions yes)....But I get your point.

[vipul garg]

crude is looking good for a substantial decline .

[DG]

"Send emergency update when the correction from 1060 was faster and larger than (his key rule)... So about 1080."

I agree, but it would probably be the case that 90% of his subscribers would not have gotten that message in time to act, since the market was moving so quickly.

If he has some short-term wave count indicating that low will hold, no point in holding on for a few more points.

[Hockthefarm]

Yelnick:

It appears that in the short term, Bill Gross, Dent and the STU have missed the direction of interest rates.

http://finance.yahoo.com/bonds

By my estimate, the 10 year is down about 11% in a month.

European bank issues appear to be just starting to bloom. Do you think the rush to safety means low rates here for an extended period, say years.

Hock

[TraderQ]

Neely stopped using the term "extracting triangle" back in the 90's...

http://www.neowave.com/qow/qow-archive-923.asp

He replaced "extracting" with more descriptive terms such as "diametric, reverse alternating, 3rd extension triangles"

New discoveries....
http://www.neowave.com/qow-archive.asp

[Mamma Boom Boom]

I'm a little gun-shy about making predictions, at the moment. But, odds certainly say a big rally next week.

Cough..cough

[TraderQ]

Raj is looking for BIG LOW on May 11th...

http://timeandcycles.blogspot.com

[Mamma Boom Boom]

Is that the same Raj that owns the gas station down the street?

[cloudslicer]

"
People need to understand how the "mechanics" of the marketplace work. It's clear that some of the biggest self-proclaimed wave "Gurus" that post here don't have a clue, and certainly have no idea about the differences between the NYSE and the Nasdaq. Perhaps it's because they don't really trade???

Yesterday, one of these "kids" couldn't understand why the powers that be didn't just let the market go out on its lows, and why it rallied back as it did.

FACT: Only 30 million shares traded on the NYSE during the "down-draft".

Just think about that for a second.
" - Micheal

Excellent points. But, there is the psychological aspect of this. In order for a bear market to happen the bears must break the trust that investor has in the markets.

I think that probably your 99% that it was fluke. But its in the heads of the investors now, its in their imaginations.

Especially if the market were to breach those 'artificial' lows on Monday and the illusion becomes real.

[DG]

cloudslicer,

The funny thing about that comment about "30 million shares" is that this is the same guy who's been yammering all the way up that low volume didn't matter because volume "isn't predictive". I guess now volume is predictive. You know, since it suits his case now that it be so.

Now, I've never been on the "low volume" bandwagon because I just go by the funny shapes on the charts and how long they take to form, so I don't have to answer to any volume-related issues, but at least I'm consistent in not caring about volume.

[nspolar]

The news is slowing down a bit on the rig blow out. I have repeatedly stated I could not understand why they removed the mud column from the riser and upper well bore, when they did.

Now this. I am not the only one wondering. Lawyers are also wondering.

http://www.marketwatch.com/story/safety-barrier-removed-before-rig-exploded-report-2010-05-07

The cementing they are talking about is that the production liner they ran to the bottom of the wheel (~ 7 inch OD I think) has to be 'cemented' to the walls of the drilled hole, to seal it off. They do this by pumping cement to the bottom of the hole (through a check valve I think) and let the downhole pressure then force the cement up along the sides of the production liner. There appears to be quite a bit of conjecture that this failed, i.e. it is an outside to inside failure. That could be why this statement is in the article "If all of the mud was still present, it would have helped push back against the gas burping up toward the rig, though it might not have held it back indefinitely, the paper said." The mud would not prevented the cement failure, but would have allowed them to see what was coming and give them time to do something about it.

And here is your graphic. Best yet.

http://media.nola.com/news_impact/other/oil-cause-050710.pdf

ns

[nspolar]

In edit ... the full article with the pdf:

http://www.nola.com/news/gulf-oil-spill/index.ssf/2010/05/safety_fluid_was_removed_befor.html

Note the size of the man w/r to the well head.

ns

[Steven_737]

Thank you nspolar

Excellent graphic.

I appreciate your effort to find it.

:)

[Michael]

Cloudslicer,

I understand what you mean when you speak about the marketplace having to lose CONFIDENCE in order to break the bull psychology and begin a bear market atmosphere. But let's be honest here, the retail investor got crushed in the Dot-Com bust and then got torched once again during the Fall of 2008 when every BofA, Citicorp, Ford, and "Widow & Orphan" stock went deep into single-digits. The RETAIL investor has not participated in this recent stock market rally, and my guess is that he/she won't be back anytime soon.

The average investor did not need to observe what happened yesterday to FEEL that the markets are "rigged" against them. Trust me, they've felt like this for years now.

[yelnick]

the count is pretty clear, will post shortly

[Michael]

The funny thing about that comment about "30 million shares" is that this is the same guy who's been yammering all the way up that low volume didn't matter because volume "isn't predictive". I guess now volume is predictive. You know, since it suits his case now that it be so.--- DG

Wrong again.

And because you don't understand what happened yesterday, it's fairly likely that my comment about market-mechanics went clear OVER your head. Remember, you are the one that claims to need a "sophisticated" wave theory to apply to trading the markets because you feel a need to compete with all of the "quants" that are employed from MIT and Wharton by the Investment Banks to develop trading algos... the very same ones that allowed shares to be sold in Proctor & Gamble at $39.37 when it never traded lower than $56.00 on the NYSE, let alone shares of Accenture that plunged to 0.01 cents when the stock was trading $41.00 Obviously, those trades got "busted" which then made those shorts have to scramble to cover, which lead to the ensuing rally. Take PG and MMM out of the equation and you just generated 400 points back in the DJIA.

Do you even know what an "LRP" is on the NYSE?
I wouldn't expect you to, because you obviously don't trade equities and have no clue in that regard.

Your problem is that you are so thoroughly convinced that you need to embrace an esoteric and "sophisticated" wave theory in order to successfully and consistently make money TRADING the market that you are unable to see the forest through the trees. Perhaps if you actually understood the mechanics of the marketplace you'd actually realize just how ignorant your "premise" is regarding competing with the Quants of Wall Street.

[DG]

Your problem is that you are so thoroughly convinced that you need to embrace an esoteric and "sophisticated" wave theory in order to successfully and consistently make money TRADING the market that you are unable to see the forest through the trees. Perhaps if you actually understood the mechanics of the marketplace you'd actually realize just how ignorant your "premise" is regarding competing with the Quants of Wall Street.

Eh, whatever. I only wish you could understand just how LITTLE I value your opinion. Maybe then you'd learn to keep it to yourself.

[DG]

I wouldn't expect you to, because you obviously don't trade equities and have no clue in that regard.

Whatever, again, dude. This whole line of discussion is so utterly predictable and boring.

Perhaps if you actually understood the mechanics of the marketplace you'd actually realize just how ignorant your "premise" is regarding competing with the Quants of Wall Street.

Again, whatever. You've made this claim a dozen different times, but you've never explained why it's true. In logic, that's called "begging the question". Just because a quant makes a mistake doesn't mean that he still isn't a smarter person than the person who takes advantage of that mistake that one time. That's why the best quants can get jobs even after they blow up, because people know that over time they'll outperform the Joe Schmoes of the world. That you want to fixate on a single episode shows, once again, how short-sighted and narrow-minded you are.

Again, you trade your way and I'll trade mine. I don't find anything you say compelling or insightful or interesting in any way, shape or form. I actually thought this site was a lot better before you started posting here, frankly.

[betterdays]

Roger,

I'm not going to bore you with any further "tidbits" of my experience that goes back to before the 1987 Crash when I was a stock-index futures floor trader trading my own account, but suffice to say that I strongly believe that those that cling to MACRO theories or CONSPIRACY theories to rationalize (or bias) their trading will be largely unsuccessful going forward
ONCE AGAIN INVESTORS GOT SCAMMED BY BLACK BOX TRADING DURING THURSDAY's DECLINE WHY ??? NOT ONLY WERE STOPS hit going down but on the way up was so fast I couldn't get orders filled that were several dollars up stream. I saw AAPL stock price change like a slot machine spinning
These fast traders account for 70-80 % of stock volume each day

[DG]

And because you don't understand what happened yesterday, it's fairly likely that my comment about market-mechanics went clear OVER your head.

The only thing I NEED to understand is price and time. Clearly, my repeated comments stating just that have gone over your head. Price. Time. Price. Time. Price. Time.

Do you see anything about "market-mechanics" in there? No.

Man, you are dense.

[Zendo]

Michael, no need to get upset in lecturing DG on market mechanics? DG don't even have a clue what quants really do in an ibank, he thought knowing how to count wave means he will be considered as the same league as a quant, like he think he's Socrates, can you tell the way he speak is very childish?

Its obviously no point to speak with someone who have no relevant industry experience yet keep on arguing about every topic and try to He's too pround to learn anything else, let him keep day trading his SPY with few hundred shares at a time, what a classy operation he had.

BTW, farming is my other business, selling fertilizer as well, it makes way more money than counting wave if talking about making money is the priority.

[yelnick]

Hock, I haven't kept y'all posted. The STU hit their target in Treasuries and expected a drop in yields over a week ago, which has occurred with a vengeance

[DG]

DG don't even have a clue what quants really do in an ibank, he thought knowing how to count wave means he will be considered as the same league as a quant, like he think he's Socrates, can you tell the way he speak is very childish?

Zendo, the funny thing is that I never really thought that this message board was an appropriate place to discuss personal resumes. Still don't, but I would LOVE to see the look on your face if you got a chance to see mine and then compared it to what you seem to think it is.

So, please keep on posting what you post because it is a guaranteed laugh every time you do.

P.S. It's so typical of you to take my point about Socrates (that he was argumentative, so if being argumentative is a sign of a mental disorder, are you saying Socrates had a mental disorder) and twist it into something completely untrue (that I think I am Socrates). Yep, typical Zendo BS right there.

So, I guess now is where I will ask my usual question: Do you have any thoughts on the market or anything unrelated to my mental state? Surely my mental state can't be the only thing you come to this site to discuss, is it? Do you have the slightest idea of how pathetic that is? What would you do if I were to stop posting? Man, you're whole reason for living would disappear. You pathetic loser.