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So did C fat finger this selloff too?

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May 07, 2010 – Comments (16)

Here is what I wrote about that matter yesterday

http://marketthoughtsandanalysis.blogspot.com/2010/05/wow.html#comment-48735014

I hear you man, what a bunch of total BS. The market was already selling off. I put up a count earlier today that showed mounting evidence for a selloff hours before this "goof": http://marketthoughtsandanalysis.blogspot.com/2...

That is just a bunch if idiot reporters trying to rationalize the fact that this market is just inherently untrustworthy at these valuations, and the smart money was leaving and the dumb money was saying "where did the smart money go". Simple herd behavior is a much more compelling explanation.

16 Comments – Post Your Own

#1) On May 07, 2010 at 10:36 AM, IIcx (< 20) wrote:

LOL - "Simple herd behavior is a much more compelling explanation."

Volume is very light so far. 

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#2) On May 07, 2010 at 10:38 AM, BlackshearCaptL (< 20) wrote:

This is pretty much expected considering the tussle this mornign between bears and bulls.  The tug of war went "red" and the prevailing sentiment overran buyers.

I might be inclined to agree that it was fear driven, or a "non-technical glitch," but the sell-off lead with Proctor and Gamble.

Sell offs don't lead with blue chips like that.  There was as glitch somewhere...

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#3) On May 07, 2010 at 10:39 AM, binve (< 20) wrote:

Hey llcx!

>>Volume is very light so far. 

SPY volume strongly disagress with that statement.

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#4) On May 07, 2010 at 10:47 AM, binve (< 20) wrote:

BlackshearCaptL ,

What I am getting at is the time line. Early yesterday morning after about an hour and a half of trading **well before** we got the crazy spike, I wrote this post:

http://marketthoughtsandanalysis.blogspot.com/2010/05/1-2-heaven.html

I was already antcipating this very bearish setup. Things were in motion long before "HAL9000" got involved.

The a few hours later, I wrote this post: http://marketthoughtsandanalysis.blogspot.com/2010/05/there-is-word-for-days-like-today.html

You can see based on the timing, this is before HAL f***s everything up. Up to this point, everything is just a very bearish setup with an extended 3rd wave.

That is what I am getting at. People were headed to the exits long before HAL messed everything up.

About 10 minutes after the second post above, *then I completely* agree with you. HAL screwed up everything.

It is exactly like an unstable control surface. It works linearly right up to a point (like the flutter speed) and at that point the response is bifurcated (or in the case of the flutter, there is no response from the controls). As this was going down, my first thought was: this is a positive feedback loop.

It was *started* by people leaving, it was *exascerbated* by HFT computers because the HFTs all got on the same side of the trade and the microsecond shorts got combined with real selling from the market (which we haven't seen in 1.5 years) and the positive feedback was borne.

So the crazy low prints in the middle of the spike was a computer error. No argument. But the selloff prior to the spike was all human based. The herd was heading for the exits and HFT trading exascerbated the situation at the momement of extreme crisis...

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#5) On May 07, 2010 at 10:50 AM, Option1307 (29.70) wrote:

SPY volume strongly disagress with that statement.

Agreed, volume is already huge and the market has only been open an hour.

Also, check out that VIX, there is no stopping it! Today could be another bvery interesting day, hold on everybody!

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#6) On May 07, 2010 at 10:53 AM, BlackshearCaptL (< 20) wrote:

Alright  I'll bite.

How long is it going to pour?

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#7) On May 07, 2010 at 10:54 AM, ChrisGraley (29.67) wrote:

all gains for the year will be erased today.

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#8) On May 07, 2010 at 10:55 AM, IIcx (< 20) wrote:

Good point : )

Apple has lost 7% so far today. Good to see some profit taking and moves out of riskier assets like Biotech.

I realize we're in an overdue correction but when everyone is convinced the sky is falling its likely to be a good time to buy. But its very early, this is likely to go on for another 6 weeks or so.

China and Emerging Markets should bottom first?

:-\ I wonder if the Fed will decide to raise rates in the middle of a correction? 

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#9) On May 07, 2010 at 10:56 AM, binve (< 20) wrote:

BlackshearCaptL ,

I have theories on that. But my point is, there has been a lot of argument over whether the sell off yesterday was "real". I was calling a selloff hours before the spike, just based on simple pattern and volume analysis. Was I predicting the move down to 1070? Not a chance. That 9% selloff spike was totally HFT generated. But this selloff prior to that was not..

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#10) On May 07, 2010 at 10:56 AM, TMFRhino (98.25) wrote:

Having to go with Binve on this one. 

IMO- There was some kind of erroneous order, whether it was the C thing (probably not likely) or another decent basket that went through, HFT started putting in sell orders, things accelerated, and then when some of the HFT systems started shutting down people started buying on these crazy values and the market shot back pretty quickly.

 Buuuuuuuut, we're still all going with conjecture at this point ;).

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#11) On May 07, 2010 at 11:00 AM, BlackshearCaptL (< 20) wrote:

For some reason I keep having flashbacks of being at my Grandfather's ranch and watching him work with the horse.

"Steady... steady.."

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#12) On May 07, 2010 at 11:01 AM, binve (< 20) wrote:

ChrisGraley ,

Wouldn't surprised me at all. But this wave down was clearly impulsive before the spike. We have further to do down before we see the nature of the bounce back up. That will tell us a lot about the larger trend and if there is a trend change (and I lean toward yes)

IIcx,

Thanks man :)

>>I realize we're in an overdue correction but when everyone is convinced the sky is falling its likely to be a good time to buy. But its very early, this is likely to go on for another 6 weeks or so.

I agree, there will be a bounce, and the bulls can play that one long when it comes. But trying to time it now is in the middle of knife catching territory.

TMFRhino ,

Thanks!

>> Buuuuuuuut, we're still all going with conjecture at this point ;).

I agree. I am very dubious about the validity of that 1070 print. But it was a genuine selloff hours before HFT started messing everything up...

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#13) On May 07, 2010 at 11:12 AM, IIcx (< 20) wrote:

The Kudlow Report was interesting last night. They were discussing the drop as a consequence of the interconnected systems and the way the automated trading algorithms look at the spread.

Apparently, as the spread widens, some of the algorithms see it as normal and widen the bid range driving wider swings.

The markets need to put in some triggers to halt or slow trading which I think we had in 2000 or eliminate the interconnections and force all the systems to independently link to a single market platform? 

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#14) On May 07, 2010 at 11:56 PM, zCreator (94.80) wrote:

Does it bother anyone that the institutions can actually do a roll back after the trades have gone through? When it's THEIR computers that made the mistake (not to mention so called computers make money off of the masses through HFT all the time).

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#15) On May 08, 2010 at 3:58 AM, ralphmachio (24.41) wrote:

zCreator- good points, amazing how nobody asks the right questions, like who had the buy orders set at the ridiculous prices, from all the shares that had stops set at fire sale prices that the owners never imagined they would get to?

I told my father the market looked ready to drop, to set his stops tight. He did not set them tight enough, and because of the irrational exuberance as of late, he was of the mindset to buy back those shares immediately, at a higher price! 

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#16) On May 08, 2010 at 11:21 AM, binve (< 20) wrote:

IIcx ,

>>Apparently, as the spread widens, some of the algorithms see it as normal and widen the bid range driving wider swings.

Exactly. Just like an unstable control surface like I was describing above in comment #4

>>The markets need to put in some triggers to halt or slow trading which I think we had in 2000 or eliminate the interconnections and force all the systems to independently link to a single market platform?

That is an interesting idea. I would sort of like the concept of a governor. But instead of restricting flow, the adoption of HFTs have increased the rate so that it is uncontrollable.

zCreator ,

>>Does it bother anyone that the institutions can actually do a roll back after the trades have gone through? When it's THEIR computers that made the mistake (not to mention so called computers make money off of the masses through HFT all the time).

*excellent* point.

ralphmachio,

>> amazing how nobody asks the right questions, like who had the buy orders set at the ridiculous prices,

I KNOW!! The whole things smells rotten and nobody is doing any hard questioning here.

>>I told my father the market looked ready to drop, to set his stops tight. He did not set them tight enough, and because of the irrational exuberance as of late, he was of the mindset to buy back those shares immediately, at a higher price!

Yeah, that is what I never have stops. I rarely do for my trades and I *never* do for my investments.

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