Thursday, March 01, 2007
DOWN Jones Industrials
DOWN Jones Industrials
Today brought another large sell off in the history of the US markets. The Dow shed 416 points, the S&P500 had only two stocks that advanced, and experts suggest some hedge funds may have gone belly up in the onslaught that occured on February 27. This wasn’t good news to the ears of relatively new investors who haven’t yet seen some of the impressive returns of 2002 or more recently the Fall of 2006.
This dropped seemed out of the blue to some. People thought he market to be in a perfect equilibrium of balanced interest rates and investor confidence. While I don’t think much confidence was lost due to the drop I do think that there was some loss in investor confidence.
It has yet to be determined the reason for the drop but its evident to me that this was just an example of what happens when anyone can trade the markets via online brokers. Liquidity is at an all time high but so is margin. The ability to buy shares of stock with other people’s money causes a more volitile market. After a consistant slide downward yesterday it seemed like thousands of stop losses and sell orders were made all at one time. This may have been the repercussions of a hedge fund protecting its worth or a large institution selling out of a bad trade. The source has yet to be decided but it is sure that a surge of orders was created, backing up the system.
The slide of 200 points was made greater by thousands of sell orders hitting at the same time. No one was buying so no ask prices could be set. The slip went from a gradual trend to a 300 point wild ride.
I think technicals may have had their foot in the door of this fall. The below chart may explain some of the losses yesterday.
In the end, this isnt the end. The markets aren’t doomed, and you will be able to eat. Don’t panic, this was only a long overdue correction.