View Full Version : What Brought The Market Back From The "Flash Crash"

12th June 2010, 06:55 PM

Just curious what the consensus was on the "flash crash"

I find it far more curious how markets rebounded immediately than that they dropped in the first place. To me this says PPP all the way.

What say ye?

29th June 2010, 11:27 AM
definitely the PPT was busy that day.

29th June 2010, 01:27 PM
Here's my understanding of what happened.

Most of the trading volume on Wall Street is programmed, which means that shares are bought and sold automatically once certain prices are achieved, both on the upside and the downside.

The market hit a relative top on April 26, after more than a year of upside, and more than 70% gain in the general market. Everyone involved in the market had their eye on some type of correction.

The Dow peak was 11,308. If everyone's wary of a top, there are lots of stop sells in place between 5% and 10% off the top. That range represents 10177-10743. If you look at your chart, the market went off the cliff at about 10450, which is smack dab in the middle of that range, or at about 7.5% off the top. Remember, just about ALL the big players were wary of a big correction, so stop sells starting triggering like crazy at that point. And the more that triggered, the more the market sold off, which triggered even more stop sells. Evidently there were not nearly enough programmed buys at that point. Most likely, the program buys were all concentrated near 10,000, which is a logical psychological barrier, i.e. when the market is at 11,300, a lot of players looking for a pullback are very comfortable getting back in at about 10K.

Sure enough, the crash continued right down and through the 10K market, which probably triggered a massive wave of program buys, which stopped the plunge. And once the plunge was arrested, a lot more "manual" buys were entered, which helped accelerate the markets off of its lows.

Incidentally, the big banks (Goldman Sachs, JPM, etc.) are supposed to be "market makers", which means they are supposed to provide some nominal buy and sell pressure (i.e. both sides of the trade) on prices that are close to the current market price. Evidently they were not positioned to do this, or certainly not with the volume that was necessary to mitigate this type of flash move.

There's probably a PPT, but I think this action was much too fast on both sides to be attributed to that.