Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
WHY PEAK INFLATION RED HERRING - 5th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
SILVER’S BAD BREAK - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22
What it's like at a Stocks Bear Market Bottom - 29th July 22
How to lock in a Guaranteed 9.6% return from Uncle Sam With I Bonds - 29th July 22
All You Need to Know About the Increase in Building Insurance Premiums for Flats - 29th July 22
The Challenges on the Horizon for UK Landlords - 29th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Crash Connected With Yen, Ponzi Markets and Program Trading

Stock-Markets / Financial Crash May 07, 2010 - 03:49 AM GMT

By: Mike_Shedlock

Stock-Markets

Best Financial Markets Analysis ArticleInquiring minds are digging deeper into the mysteries of Thursday's stock market plunge starting with an intraday chart of the Yen.


Japanese Yen vs. US$


The Yen rose 4 cents in an hour vs. the US dollar. Wow.

Now let's invert the chart and overlay a chart of the S&P 500 on top of it.

Please consider the following chart courtesy of "OMI" who emailed me late afternoon.

S&P 500 vs. Yen


45 minutes before US equities went into a waterfall dive, the Yen went into a skyrocket rally vs. the US dollar (inverted on the above chart).

The Yen and the stock market magically stabilized at exactly the same time, right at the equity bottom.

Yen Erases 50% of Gain Against Euro on G-7 Greece Speculation

Inquiring minds are reading Yen Erases 50% of Gain Against Euro on G-7 Greece Speculation

The yen dropped versus all 16 major counterparts after the Bank of Japan said it will pump 2 trillion yen ($21.8 billion) into the banking system and the nation’s finance minister said the Group of Seven nations will discuss Greece’s fiscal woes.

“The emergency fund injection from the BOJ helped ease risk aversion, triggering selling of the yen,” said Hiroshi Maeba, deputy general manager of foreign-exchange trading in Tokyo at Nomura Securities Co., Japan’s biggest securities broker. “The action here also spurred speculation that the European Central Bank and the Federal Reserve may follow suit.”

The yen slid as much as 3 percent, the most since Feb. 24, 2009, and traded at 117.79 per euro as of 1:02 p.m. in Tokyo. The yen closed at 114.32 against the euro in New York yesterday after touching 110.70, the strongest since December 2001.

The Bank of Japan’s emergency measure represents its first same-day repurchase operations since December. The balance of current-account deposits held by financial institutions at the central bank will likely increase to 16.9 trillion yen, up 800 billion yen from yesterday, the BOJ said.

Japan’s currency still headed for a 6.1 percent weekly advance versus the euro, its largest gain since the week ended Oct. 24, 2008, as concern Europe’s debt crisis will derail the global recovery damped demand for riskier assets.

Citigroup Blamed But Not At Fault

Amazingly the equity plunge was originally blamed on Citigroup, an idea I found laughable as noted in Citigroup Trading Error Cause Market To Crash? Citigroup Says No

Regardless of what anyone finds, a trading error did not cause this collapse. The market collapsed because it was ready to collapse. A retest is likely coming up, especially if shorts covered in that dramatic rise off the bottom.

Role of Computerized Trading

Larry Leibowitz, the chief operating officer of NYSE Euronext says Electronic Trading to Blame for Plunge

Computerized trades sent to electronic networks turned an orderly stock market decline into a rout today, according to Larry Leibowitz, the chief operating officer of NYSE Euronext.

While the first half of the Dow Jones Industrial Average’s 998.5-point plunge probably reflected normal trading, the selloff snowballed because of orders sent to venues with no investors willing to match them, Leibowitz said in an interview on Bloomberg Television.

Program Trading and Ponzi Markets Don't Mix

Inquiring minds are reading a great writeup on Jesse's Café Américain called PLUNGE! 1987 Style Sudden Drop in US Stocks Driven by Program Trading and a Ponzi Market Structure

The entire stock market rally which we have seen this year off the February lows resembles a low volume Ponzi scheme, and formed a huge air pocket under prices.

This US equity rally was driven by technically oriented buying from the Banks and the hedge funds. There was and still is a lack of legitimate institutional buying at these price levels. This was machine driven speculation enabled by the lack of reform in a system riddled with corruption, from the bottom to the top.

This is yet another indication that the US regulatory and market oversight organizations, especially the SEC and CFTC, continue to be disconnected from and remarkably ineffective in their responsibilities in guarding the public against gross market abuse, price manipulation, and insiders playing games with cheap money supplied by the NY Fed.

And as you might expect, the anchors on financial television are trying to excuse and blame the sell off on a 'fat finger' order that caused Procter and Gamble to drop 20 points in 45 seconds. Or a typist inputting an order to sell 16 million e-mini SP futures, and typing "B" instead of "M." Oops. Crashed the free world.

Even if any of this was true, it was just the spark that caused the market to plummet because of its highly unstable and artificial technical underpinnings. There is no longer any legitimate price discovery. The US financial system is a casino, dominated by a few big Banks and hedge funds, the gangs of New York.

They'll never learn. Or is it 'we?' They may not really care.

Did Shutdowns Make Plunge Worse?

The Wall Street Journal is asking the question Did Shutdowns Make Plunge Worse?

A number of high-frequency firms stopped trading Thursday in the midst of the market plunge, possibly adding to the market's selloff.

Tradebot Systems Inc., a large high-frequency firm based in Kansas City, Mo., closed down its computer trading systems when the Dow Jones Industrial Average had dropped about 500 points, said Dave Cummings, founder and chairman of the firm.

Tradeworx Inc., a N.J. firm that operates a high-frequency fund, also stopped trading during the market turmoil, according to a person familiar with the firm.

Mr. Cummings said Tradebot's system is designed to stop trading when the market becomes too volatile, too fast. "That's what we do for safety," he said. "If the market's weird, we don't want to compound the problem."

High Frequency Trading

Let's backup for a second and consider High Frequency Trading (HFT).

In very broad terms, high-frequency trading refers to the buying and selling of stocks at extremely fast speeds with the help of powerful computers. Using complex algorithms, these computers can scan dozens of public and private marketplaces simultaneously, execute millions of orders a second, and alter strategies in a matter of milliseconds.

In the U.S., high-frequency trading firms represent 2.0% of the approximately 20,000 firms operating today, but account for 73.0% of all equity trading volume.

On 24 July 2009, Karl Denninger of The Market Ticker accused high-frequency traders of "intentionally probing the market with tiny orders [...] to gain an illegal view into the other side's willingness to pay. This pattern of offering [sell orders at different levels] was intended to do one and only one thing; manipulate the market by discovering [...] a hidden piece of information - the other side's limit price!" He went on to argue that "the presence of these programs [would] guarantee huge profits to the banks running them" and that "retail buyers would get screwed as the market [moved] much faster to the upside than it otherwise would."

One thing is for certain, a whole bunch of people with "far away" sell stops got taken to the cleaners today.

Computers vs. Computers

Here is a snip I wrote earlier today from Black Swan in Computer Trading? Nasdaq to Cancel Some Trades; Plunge Raises Alarm on Computerized Trading

In essence computers trading against computers decided at some point today to throw in the towel and not bid. Lovely, isn't it?

I have been waiting for this to happen and today it did. Supposedly, computer trading lowers volatility and bid/ask spreads for traders. Today we see that works until it doesn't.

By the way, this was not really a "black-swan" event. This was perfectly predictable although timing it was not. I have been discussing this scenario with a few friends for months.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

gAnton
07 May 10, 21:06
Deja Vu All Over Again?

For years now, (considering inflation) the US Fed has been paying banks to borrow huge sums of Fed funny money . This practice is continuing with a vengence, and now the US federal government is "injecting" large sums of gift money that it doesn't have into car sales, domestic real estate, kitchen appliance sales, etc., etc.. This county no longer can provide jobs and income for its citizens, and so the federal government has essentially become the consumer of last resort.

The causes of the recent economic crisis were many and complex, but certainly this Fed practice of super liquidity in an effort to creat "wealth" was largely (but indirectly) responsible for the crisis and the destruction of a tremendous amount of "wealth".

If the government were to stop all this transfer of funny money into the economy today, the "economy" would almost immediately free-fall into a bottomless abyss. But even if government never stops voluntarily, the situation is unstable and not sustainable, and the ride between here and the rocks below will be very rough, as exemplified by todays catastrophic stock market crash. As Frank Sinatra sings (in "My Way"), "the end is near".


vd
28 Jun 10, 11:38
great job chinese hackersawesome show

great job

chinese hackers


Post Comment

Only logged in users are allowed to post comments. Register/ Log in