Thursday, 6 May 2010

Special Update - May 6th 2010

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Mid-afternoon Eastern time the US stock market plunged dramatically and with little warning, before recovering a good portion of its losses into the close.  The Dow Jones index lost almost 1000 points - nearly 10% of its value - before a substantial bounce took place in the final hour of trading.  The Dow ended down 3.3%.

News reports are suggesting that this is not a genuinely broad-based sell-off, but is the result of a single fat-fingered trader at Citigroup accidentally putting an extra '0' on the end of one of his trades.  Hmmm.  This, it's said, began something of a chain reaction among the other large institutional trading desks, which have computerized systems making automated buys and sells - and it appears they all screamed sell at exactly the same time.  

Investigations continue as I write this, but I would tread very carefully over the next few days.  There is huge event-risk in terms of news coming out of the US and Europe which will very likely whip the markets up and down and make any knee-jerk decisions - buy or sell - instantly look extremely foolish. 

Events in Greece, the EU, the bond markets, the UK election (exit polls suggest a hung parliament at time of writing), China... all these are working to undermine confidence and create uncertainty, yet traders now believe that this sell-off might have been 'an accident' and, with prices now substantially lower, there is eagerly-awaited US economic news on Friday that could spark a big bounceback.

I'll be watching events carefully and will issue another post immediately if conditions deteriorate into genuine crash territory.

Otherwise, I'll return late Sunday 9th, with an update on the latest dramas, in my scheduled post.

PS.  If you want to know what a real market crash sounds like in the mayhem of the futures exchanges listen to this: it's one of the guys taking orders in the pits as panic strikes.