Posted on 05/07/2010 5:58:44 PM PDT by Kaslin
Markets: We've often talked about the risks of extreme volatility inherent in our new fragmented electronic markets and possible dangers invited by not reinstating a potent uptick rule. Thursday was another case in point.
The wild gyrations in both individual stocks and market indexes confirmed our worst expectations. After the close, we heard that some of the most damaging trades, perhaps due to an erroneous keystroke, would be canceled. This is not a solution and could even makes things worse.
We've surrendered control of our markets to the premise that fast is always better. Thursday's action spoke otherwise. Our overbought market had been correcting for two weeks because of fears over the debt crisis in the euro zone, wild currency fluctuations and the unwinding of the carry trade. These kinds of factors have roiled markets forever. More important, investors large and small can understand them to a degree.
On Thursday, however, something far more dangerous took place. Sometime after 2:40 p.m. New York time, the markets were slammed by a wave of electronic selling that sent the Dow Jones industrial average to a record 1,010-point intraday decline.
Most of the damage was done in a 15-minute span during which the Dow plummeted 700 points only to bounce back 600 to close with a more modest 348-point loss. Big Board volume was the second-heaviest on record, and Nasdaq trade was the busiest ever.
More inexplicable was the action of certain individual stocks. The sell-offs and run-ups in blue chips such as Procter & Gamble, Apple, Microsoft and 3M were so sharp and sudden, they took even seasoned traders' breath away.
(Excerpt) Read more at investors.com ...
Well it finally took me out of the market. I finally liquidated my treasured shares of VISA(V)Card, an IPO that doubled for me until this past week. I even have traded puts and calls and realize this is an ideal time to trade those with the VIX where it is, but yesterday was just too much!!!
Those who argue against the need for re-instatement of the uptick rule say that an uptick rule is not needed in today’s markets. After all the key to a bear raid is naked short selling not the lack of an uptick rule and naked short selling is already illegal. Uhhhhh, are they really suggesting that the short positions that sent the prices of stocks like P&G to ZERO in around a minute where covered ????
Oh, wait that is where the 800 pound gorilla must be. He must be in the vault along with all those shares borrowed by the program trading hedge funds. That is why we didn’t see him in the article.
Everyone is hyperventilating about mere opportunity here. It's nuts.
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