Black 3pm
 

Markets are unhappy right now.

Whoa. Figured it was going up a little too fast over the last few months but this is a quick correction.

Fortunately most members of the forum live check to check and have little to no retirement savings!

Check out PG's movement.

boom. correction.

good day for our bearish investment manager clients though. strong relative outperformance.

so it begins.

(crawls into bunker)

Interesting panic blip today, note this sort of thing is caused by the computers auto-selling I was ranting about months ago. Wall Street men throwing paper around can't cause a blip like this, it takes a machine to do it! If only I can reverse engineer it and find a way to make the money off it.

Also don't panic too much, market has been due for profit taking since DOW 11,000. I've cleaned up most of my shorts in the 10,400 range. I'm not sure whether we will fall below 10,000, probably will at some point, but I like to cash in on uncertain spikes. I'm actually hoping for it to be stable the next couple days because I picked up some stuff during the blip (auto-transactions that managed to strike at the right time). I might just liquidate my non-faves for a nice one hour 4%.

Damn this be tricky business though, any other time than the last half of April and I woulda been mighty pissed.

Is this all over Greece having to potentially default?

Is this a glitch, cause I was able to execute trades just fine? I think this is just a matter of automatic computer trading run amuck, I don't know how PG could lose 30% though, that blows my mind. That is some real dangerous shit, most were between 4 to 10% by my eyeballin.

Their Investor Relations people can't figure it out, seems like some kind of glitch that will be explained. Down 2% for the day last I saw.

Why Wall Street panicked

By David Cho
Washington Post Staff Writer
Thursday, May 6, 2010; 3:55 PM

For months, the words "financial crisis" seemed antiquated.

Wall Street profits were soaring once again. Economic growth returned. Our 401(k)s bulked back up. Massive, triple-digit losses in the Dow Jones Industrial Average seemed a thing of the past, or at least of early 2009.

For a day, at least, that optimistic sentiment evaporated. Panicked investors sold off everything they could and snapped up U.S. Treasuries, one of the safest investments on earth. The Dow Jones industrial index nearly dropped 1,000 points before recovering about half of those losses.

What happened?

In a word, Greece.

It seemed to sneak up on us, the issue of Greece indebtedness. The problem isn't complicated: the country borrowed way too much and now is struggling mightily to pay back what it owes. Now, its financiers in Germany and elsewhere in Europe are facing massive losses.

The danger had been percolating in Europe for a while. But only this week did it seem to sink in with U.S. investors how closely related Greek's problems were to our own. Some on this side of the Atlantic believed the rest of Europe would step in and provide a bailout to protect the rest of the continent. Now some believe the package that was announced by the European Union and the International Monetary Fund won't work or won't be enough, raising questions about how the European Central Bank has handled the crisis.

Greece alone can't take down the world's economy. But if the panic spreads to Spain, a very significant economy which is several times larger, the situation could become far more ominous, which is why so many investors are hitting the "sell" button on their trading desks.

Some of the dramatic fall and rise of the Dow today could have been aggravated by technical glitches and weird trading patterns.

But officials and market watchers say that the threat from Europe could significantly crimp what has been a fairly good recovery. Some economists say it is akin to the Asian financial crises that gripped the markets more than a decade ago.

The question is whether we -- now out of the fire of Wall Street's financial crisis of our country's own making -- are confronting a new peril out of Europe.

I didn't bring a change of clothes, so I'll have to wait until I get home.

Computer trades, if you trigger enough 'slide' indictators the computers which are too tightly tuned to minute changes will tend to go bonkers. This further ruins the indicators causing less tightly tuned computers to trigger, and so on and so forth.

Usually there is a sharp correction afterwards because other systems have been waiting for certain price thresholds so they can load up long. These get rapidly triggered as the price drops (as it covers more price thresholds) so you see a lot of bids come in at various levels and generally the price stabilizes near to where the majority of bids are placed at. Of course, this level is below where the market used to be at by definition (it may temporarily over correct but it usually levels to the 'average bid').

I'm currently long a lot more than a couple days ago because of this. I don't run off micro-indicators, but I often set up auto-trades to work on thresholds similar to these computers. Unfortunately, mine don't execute as fast as them (I got a few lucky hits at the right points in the blip, but probabilistically I mostly have to settle with the before and after the blip price levels, still a good 3-4% of movement in most cases).

I call bullshit, it wasn't a day, it was closer to an afternoon, and the precipitious drop itself was all of 20 minutes at most. Thats not investors, that is machines. No amount of group psychology explains that DOW line. And the average investor could give a crap about Greece.

To me it looks like this. People in the know had a clue that is was about time for profit taking (look at the DOW, its at a peak and also all the news is about BP and GS being FUBAR). They come in this morning, overnight trading lopped a good 150 points to start the day, so everyone is in a bad mood to start, and the ones in the know are like, yep time to secure a chunk of that peak that has run its course.

A point hits where more people are pulling out than looking to buy and somehow some indicator in the computers goes south and they decide to sell (it probably was programmed earlier in the week to be ready to exit at a moment's notice). Boom goes the financial dynamite and we all have an interesting phenonmenon to try and figure out.

CNBC says it may have been caused by someone putting a b for billion instead of m for million in a trade involving them.

Yep.

I wonder (idle speculation) what the effect on the market would be if we got rid of all of the computerized trading algorithims like that.

It is sounding more and more like this than the aforementioned computer trading trigger issues.

Edit to add: But who the hell knows, guess we'll have to wait for Michael Lewis to explain it next year.

I thought this thread was about JaMarcus Russell getting released...

BREAKING NEWS:

These two men are considered persons of interest:

this is all overblown. i mean, how bad could it- OH SHIT!

Attachment 1551

I don't believe someone can put in a 'b' instead of an 'm' and actually have the transaction hit the market. I need a source on this, CNBC regularly fights with Fox News for most bullshit media organization on my list.

I would like to see the trade they are supposedly making that can jump from million to billion and not explode every electronic safeguard in the system as a bogus transaction.

At around 2:45 p.m. ET, P&G's (PG, Fortune 500) stock had fallen 10% to $56, triggering a "circuit breaker." At that point, other stock exchanges were allowed to report P&G's stock price on their own, instead of getting the price from NYSE.
According to the company and NYSE, the Nasdaq stock exchange misprinted a quote of $39.37 a share, even though the stock was really trading at $56.

YEah, I tend to believe "market glitch" is code for "motherfucking crooks stole billions of dollars".

The market would be just fine. The automated computer trading algorithm is basically a penny shaving method. You want to get something out of the arbitrage between information hitting in one location and the effect hitting in another. Its a zero sum game, every bit of money the computer extracts comes from inefficiencies in other traders, or pure volatility based luck. They do not contribute any real value to the world, other than making big banks somewhat richer.

This makes no sense. Either the reporter is confused as to what happened, or someone found a way to manipulate the computer system to make an absolute fortune in a few minutes.

None of this adds up, a trader can't enter a 'b' instead of a 'm' and change the market price of a company. Even if it did, unless there actually is trade volume to SELL the shares at that price you can't buy at that price. Unless the entire stock market system is so heavilly broken that this is possible, in which case we need to shut that shit down ASAP.

Even if we do think for a minute that PG's price could somehow have gotten through everything... by itself it doesn't count for the entire DOW dropping by 1,000 points. It is a single component, it doesn't represent 1/11th of the DOW... so regardless of what happened with PG, that spike involves spot price gaming computers firing off a lot of sales to create the real volume.

So anyway, my explanation works and is the best one I've seen until I see something that comes even close to plausibility. You can believe the talking heads on frickin CNBC if you want to, I'm just some nutter I guess, I'll go buy a straightjacket with my multiple percentage points on my speculation portfolio.

EDIT: My insane comments are not directed at DT, but at the mainstream media (that doesn't read these boards) that always gets things so damn wrong.

Exactly my point. If we got rid of them there'd be no negative effect.

My money is on the second option.

+1 b(m)illion

If someone can do a hack like this, we need the system locked up and torn down to the 1's and 0's to figure it out and put some death penalty on some people, because anyone who can cause a 10% change in the entire stock market in an hour is one hell of a badass.

You would have to get Bill Gates, Warren Buffet, and a half dozen of their richest friends together in a room, have all of them go 'to hell with the world' and put all their money into one single mass short of the entire market, and you might be able to get a similar dent through normal market forces and panics (assuming no quick trading computers).

I agree with you that this doesn't explain it all of course.

But if the drop in PG&E (however the fuck that happened, and i agree it doesn't make any sense) was enough to drop the DOW 142 points that could easily trigger a lot of those automated sells.

I'm not disagreeing with you - I just cut n pasted the first explanation i found. I'm still in the office workin away.

Ya i edited my post, wasn't blowing up at you dude, just gettin over aggressive about my point.

EDIT: To be fair, Jim Cramer on CNBC told people that price can't make sense and told people to limit buy... the first good advice I've seen out of him in years!!!

I'm no stock market expert but 1,000 points on "Greek fears" just sounds ridiculous. What if that didn't happen to be in the news recently? The headlines might read, "Dow drops 1,000 on Lawrence Taylor rape fears"

There are two different stories here and everyone is treating them as one.

Story 1: Market was significantly down today. Sell off in general can reasonably be attributed to Greece, potential Euro domino effect or recession double dip.

Story 2: The wacky big time sell off and recovery around 2:30 eastern. The general sell off likely caused by the global economic fears may have started the ball rolling and then you hit auto sell triggers, trade errors, what have you for a really wild ride.

The two aren't mutually exclusive.

No worries man. I figured it wasn't really aggressive directed at me.

I don't think you really understand the global economy. I will give you the Greek thing has been going on for months and it sounds very sketchy as an explanation for today's mess but to equate what is happening in Greece to LT is absent of any economic insight whatsoever. The Greek/EU thing is a BIG deal that could still have a major impact on the United States. If you don't think the US is a big player via the federal reserve/IMF in international finance (especailly in Europe)...

It was mostly a joke, but no, I still don't think the Greek bailout alone can have a greater impact in 10 minutes on the DJ than the all of the bailouts here combined. It just seems odd that all the news organizations are pointing to that as the obvious reason for this otherwise seemingly random Thursday 3PM collapse.

I'm pretty sure I've routinely disagreed with you in the past (in political threads), but I'm in 100% agreement here, on both points.

This is just another example of what Warren Buffet calls "financial engineering" run amok. We've allowed a the stock market to be changed from an exchange that facilitates investment in corporations, to some sort of crazed casino game, where money is created (and occasionally disappears back into) thin air.

We've gotten to the point where Gordon Gekko now looks like a reasonably responsible investor, with at least a casual interest in the real-world financials of the companies he was gutting, in comparison to the guys who run the market these days. That simply can't be a good thing.

yep!

Did you mean to quote me there flere?

On other points, the electronic trading really does facilitate a lot more volume and activity than any kind of human-only system could really handle. The short term vol is wacky, but there's too much going on in the market these days, and it's too global really, to try to turn back the clock on some of this stuff. Human beings are still setting the parameters on these systems, and I'd rather they be doing so in the relative sobreity of non-market hours than forced to sit with their finger on the button all day long waiting for movement. It's a good trade off I think in the end, and one that does add a lot of value to markets.

It sounds like some kind of glitch hit here, whether it was the absurd sounding b or m thing or something equally as bizarre and unpredictable. It also wouldn't shock me to find out somebody made some money in all this. I'll definitely be following along.

Er, yes?


To me, there's a difference between using computers to facilitate the trading process, and using complex algorithms in those computer systems that essentially decide whether or not to trade on the behalf of their owners.

The former rightly makes the market more fluid and streamlined, the latter has been shown to be prone to cause cascading problems.

For me, it's tough to know what the real levers are in something like this. While there was a huge dip, glitch or otherwise, automated systems I am sure played a significant role in the market activity that restored some relative order. If we're in a human-only system of some kind, I'm not sure what happens if a glitch knocks things down like that. Do we stew down there for a longer period of time? Does this stretch out for a few days as people try to figure out what happened, and some people get skittish with more selling? It's tough to say.

As others were mentioning earlier in the thread, a sell off made a lot of sense given the current state of the markets. Things kind of worked yesterday, even if there was a really weird half hour or so.

Two different computers here:

One computer operates similar to how I do, you have people in off time doing research, and they set up a program to run if certain conditions hit to make a specific transaction. Basically a human makes a guess, and they just tell a computer to most efficiently implement the transactions necessary for that guess.

The other computer is also built by humans based on a guess, but it is an open ended concept that if some variables tilt that other variables (namely stock prices) will go in a certain direction. These I generally oppose because they are not based on any sort of plan, but just a snap judgment based on some statistical correlations... executed at the speed of light.

The computer is designed by a daytrader or a physicist posing as one, but in my opinion its just as faulty as the daytrader with a rapid fire buy/sell button. Most people don't understand the math, so they think its a magic money printer, but if you take it apart it pretty much is a probability and timing based betting game. And if you think about the models en masse and big picture, you can see situations where they all manage to fool each other into a one way bet going down.

You may go 'bravo for the first machine to short', meanwhile the other divisions at the company running the machine now have to deal with their much larger portfolio focused on long investments swimming in red ink. The market usually corrects, but often the net is hard to dissect, usually after one of these downticks I'd bet its completely random, the thing these machines were supposedly built to avoid.

Its a bad design, just like most of our bubbles, it may make money for a while, but eventually it bursts. We need less casino investing and more financing companies to make things that improve the standard of living. For every google/microsoft/future megacompany we got ten overpaid bankers, and thats a bad ratio.

The humans were seeing the incredibly stupid prices and buying as rapidly as they could. And no auto-algorithm would randomly buy during a downturn, only computers with preprogrammed buy orders would fire under those conditions. No one builds a computer to be the lone wolf betting against all the computers betting for failure.

Heh...I thought it was some sort of pro-African-American moment of silence or something that I had not heard of (like the Earth hour where we're all supposed to shut off our lights for an hour but never do).

Trading systems mishap suspected in wild Wall Street ride - JSOnline

I have a feeling the cancelled trades are the ones that need to be investigated. It would be very nice to have your buddies who manage the exchange to wipe out insane transactions you entered in order to cause an auto-selloff you profit from after 2 PM. Reeks of an inside scam to me so much, but what do I know.

It should be very easy to find and punish who caused this, if only they didn't own the wall of silence that is going to be put up around all of the data that could be used to prove what happened. Every trade runs through the exchange and is logged (its how it works), find the ones that magically moved first and determine whether to penalize them.

EDIT:
GLITCH: Something unexpected and broken about a piece of code or human input that causes an error.
AUTOMATIC SELL-OFF: A system designed to sell when certain indicators drop, this is not a glitch, its the DESIGNED behavior of the system.

I get testy when people call it 'just a glitch', they think a bit got flipped somewhere, or someone pushed the wrong button, and the economy falls to its knees. It doesn't work that way. The giant blip is a systematic software engineering flaw in multiple designs that make faulty fundamental assumptions (namely historical data proves future trends, something everyone forgets is NOT TRUE from their finance 101 class).

Interesting. I thought most of these systems were essentially volume-based plays with a lot of stop order triggers that would definitely fire at good buying points if other indicators seemed fine. Learn something new every day.

That was an good movie.

And what indicators look fine in that situation? What machine would be the first to bet against a storm like that?

Yes, these systems work both ways if that is what you are trying to say, but I'm doubtful they are designed to bet against a panic. If they are then those machines will end up losing a lot of money for their owners. This isn't conditions of normal operation, you need to have a machine that can recognize that even though every variable is sliding, that the 'real price' of the company is higher than the current bid. Which means its breaking out of the short term calculation these systems are based on.

I'm sure they have cutoffs and what not, but they are usually designed from the perspective of an individual machine. The problem is everyone has a machine, they react pretty close to the same time, so to make a market you get insane prices (see Accenture maybe... 4 cents on a $40 dollar stock???). Its a terrible design in my opinion, I'd be happy to discuss it in more detail of course. I'd be the first to admit many of the theoretical advantages such systems have and the math they are based on, but would be the last to admit they are healthy for the overall economy or are designed with all the macro-implications accounted for. My background is creating systems with lots of artificial agents and seeing the insane (and sometimes beautiful) behavior you can create with well intentioned and simple code on each single agent. The first thing I learned is the more complex the code on each individual gets, the harder it gets to predict the results.

Maybe if all the trade data was public and transparent we can do some data mining and see who won from that mess. To create that 'volume' someone had to sell a lot of shares at a low low price in the first place... that person probably lost. Unless of course they had their trade nullified by the Nasdaq exchange in their favor...

Yeah, I don't know. After doing some reading it looks like a lot of the high frequency systems shut themselves off, and fewer buyers in the market sharpened that spike downward at first.

I agree that it looks really suspicious. I hope they figure this out.