5.07.10
Home Market Timing Weekly Updates Weekly Update Archives|
5.07.10 The best monthly jobs report in four years couldn't keep sellers from sending stocks to their fourth straight loss, which contributed to the stock market's worst weekly performance in one year. Despite persistent weakness overseas amid continued contagion concerns, stocks managed to attract some modest support as some speculated that a rebound may be in order after the stock market sank some 6% during the course of the three previous sessions. The worst of that loss came Thursday, when the Dow's intraday drop of almost 1000 points was blamed on the failure of computerized trades and electronic networks. In response, both the NYSE and Nasdaq cancelled trades from a 20 minute time block that saw prices greater than or less than 60% away from the consolidated last print price. However, stocks were unable to sustain the early bid. News that nonfarm payrolls for April surged 290,000, the largest increase since March 2006, couldn't even secure support for stocks. As an aside, the headline unemployment rate climbed to 9.9% from 9.7% as a result of workers re-entering the workforce. With sellers reaffirming control, stocks were unable to make anything more than a few upward charges, each of which proved fruitless in the face of resistance. Heavy volume to the downside made for widespread weakness. As such, nearly 90% of the names in the S&P 500 logged losses and declining share volume on represented 85% of the NYSE's total trading volume, which surpassed 2 billion shares for the second straight session. Volume on the NYSE has not broken 2 billion shares in back-to-back sessions in more than one year. What's more, neither of those two sessions have been options expirations sessions. Steep losses, amid heavy volume, has caused volatility to spike to its highest level in more than a year. The Volatility Index settled this session roughly 25% higher. The heightened volatility has given support to gold, which closed this session at $1213 per ounce, up 1.3% for the session. Gold prices actually set a new 2010 high of almost $1215 per ounce earlier in the session. Meanwhile, the stock market booked its worst closed in two months. That contributed to a weekly loss of more than 6%, which makes for the stock market's worst weekly slide in one year. Investigations after the October, 1987 crash revealed that what would have been a normal down day in a correction that had begun in August was turned into the heart-stopping, portfolio destroying 1987 crash by the uncontrolled automated waves of sell-programs that flooded in from program-trading firms and overwhelmed the market. What had happened was that in addition to their normal ‘high-frequency’ short-term trading to take advantage of each piece of news that hits the tape before normal traders and investors can react, the computers had been programmed to provide ‘portfolio insurance’ for themselves. That is, if the market dropped below certain protective stops, the computers were programmed to execute large sell orders to get out of the market. If that resulted in an even lower protective stop being hit, the computers automatically send another wave of sell orders at the lower prices. The result on October 19, 1987, was that the automated sell orders were coming so fast on top of each other that market-makers could not match them up with buyers, and very quickly there were no buyers anyway, and the decline just plunged into a dark bottomless hole and the exchanges had to be closed. After 1987 curbs were placed on program-trading to try to rein it in. The curbs called for the market to be closed for cool-off periods if the Dow fell a certain number of points in a day. But, as a result of lobbying by Wall Street, those curbs were watered down and mostly eliminated along with the uptick rule, etc., in the late 1990’s. We are on the road for Mothers Day and must get off here. We will see a good amount of reticence on the part of many traders next week and remain 100% in CASH. Till next time The MTA Staff |
