I know, “tell me something I don’t know”.
But yes, there was a flash crash on the US Dollar Index after the equities market close on Friday. The index dropped $3 in two minutes, reaching a low of $74.60. However, as illustrated in the picture above, it seems like most people don’t care. While there was some chatter about the crash, most people just went along their own business as if nothing happened.
Fat fingers, algorithms, or manipulators, it doesn’t matter. This kind of market movement is just plain silly. I can’t imagine all the possible stops that were triggered as people have started betting on a US Dollar rebound. Those who thought they were safe with a $75 stop-loss got it in their face.
As flash crashes become more common, the use of stop losses do have to be re-evaluated, but that’s something for another post.
The “good thing” about the US Dollar Index flash crash was that it happened after the market close. Otherwise, it would have likely created chaos, with markets across the board experiencing large movements. As time goes by, it becomes more evident that these crashes have to be properly addressed.
You may not be aware, but other flash crashes happened in the last two weeks. Hat tip to @SellPuts for documenting the following market breakdowns. The next two charts were posted by him in his blog HedgeAccording.ly.
First, you have the Ambac flash crash:
The stock went from $1 to less than 1 cent in no more than one minute. Truth be told, I can’t argue that anyone should care that much about movements in a bankrupt company. Or that a flash crash in this type of stock should be something worth mentioning. Agreed.
Nevertheless, that’s when I turn to the SPY ( ETF that tracks the S&P 500 Index), also known as the most liquid ETF in the market and which accounts for most of the daily trading volume.
Ta Da:
You have to admit that there is a problem here. The SPY and US Dollar index should (?) not really be flash crashing as if it doesn’t matter.
Treacherous waters out there. Be on the lookout.
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When was that in the SPY? I can’t tell from the chart.
@Linda
It happened on Monday, October 18th, during the after hours. It was before the Apple earnings release.
10% in one minute or so. 500 Million out of the 700 Million trades exchanged were cancelled, so you can’t see it on the chart anymore.
You probably won’t be able to see the crash on the DX chart in a few days.
The retail investors do not have as much of a big impact as the institutional investors. The flash crash or any kind of ups and downs in the market are mostly due to the institutional investors – the big guys with millions of share under their belt. Whether flash crashes have big impact on the index as a whole at the end of the day, they seem to be occurring more frequently.
My chart from OptionsXpress doesn’t show that spike to 106 in SPY at 4:14 on 10-14. It does show some little spikes that are about a half point each in the last few minutes that day. I wonder if it could be your broker.
@Linda
As mentioned above, 500 million of the trades were cancelled, thus the charts do not show the spike anymore.
THE SAME with AMBAC. If you go look at the chart, you won’t see the spike to 1 cent.
The exchanges would not want to leave those things in the charts.