Saturday, May 8, 2010
Phil Flynn: Could A Big Trading Error Save The Stock Market?
Was it real or was it all just a dream? Someone might say we were living in a dream or maybe it was more of a nightmare. Fat fingers and Greece rioters set up one of the most jaw dropping and surreal days in market history.
With Europe embroiled in economic and political turmoil as riot police faced protesters assembling near the Greek Parliament after passing an austerity package, the market was already in panic mode. And then the bottom just fell out. In just in a short ten minute free fall the Dow dropped nearly 700 points bringing the Dow down close to 1000 points before rebounding very quickly. After the smoke settled there were rumors that a major trading error occurred that sparked the record drop leading many to question what was real and what was not. Those questions might have actually been a stabilizer for a market that obviously was not stable at all. In fact we may want to thank whoever made that error because that error may help restore some confidence and bring buyers back into the market!
What? Is he crazy? Well indeed I am but that has nothing to do with it. The reason why I say that is because prior to this alleged error the Dow was already having one of its worse days of the year. The fears surrounding Greece, while very real, were being exasperated by fear and emotion. The market started to react to live news reports of Greek protesters and started to sense that Europe was going to go up in flames. That caused the markets to go into flight to quality mode and because of someone probably hurrying to sell stocks as the market started to break while watching TV news at the same time probably made that monster error.
Yet later in the day news reports surfaced that told the world the drop was not that bad and that probably will bring back even more buyers back to the market. I guess you can call it artificial capitulation. The error sold off many stocks so far under their true value that the markets started to focus less on Greece and more on scouring the trading board for stocks that may had been undervalued. Proctor and Gamble was the stock that seems to have started the route and of course that company does a lot of business in Greece but not enough to justify anything near the value of the drop.
So the crash may have stock traders putting Greece on the back burner so that now all we have to worry about is the monthly jobs situation in the US. Oh Boy.
Of course for oil that now means the move down in was too much too soon and no one has to question whether yesterday's close in oil was real or an illusion. The close in oil was determined during the heat of the stock market battle which means technical traders may want to throw that close out and wait for today's close as a barometer of where we are going on the longer term charts! Do Over! Wait, there's no do overs in trading! Well unless they throw out trades.
Another risk to the upside in oil is the threat that the oil slick can slow oil imports. Bloomberg News reported yesterday that oil leaking from BP Plc’s damaged Gulf of Mexico well has drifted within 1.5 miles of the buoy marking the entrance to Southwest Pass, the main approach to the Port of New Orleans. Bloomberg says that Wayne Mumphrey, Secretary Treasurer of the Port of New Orleans said in an interview in New Orleans, “Once it passes the buoy, we have to start decontaminating every ship coming into the port.” Mumphrey said two floating decontamination stations have been set up near the buoy to scrub oil from the hulls of ships entering the Mississippi.
It will take 10 to 12 hours to decontaminate each ship, which will dramatically slow incoming port traffic and that may cause ships to begin backing up into the Gulf, he said. Mumphrey said a port study commissioned in the wake of a tanker spill that closed the Port of New Orleans for several days last year showed the economic impact of a total port closure on U.S. Midwestern communities from the mouth of the Mississippi to Minnesota is roughly $250 million a day. “All the grain from the Midwest ships out through the Port of New Orleans,” Mumphrey said. “It can’t get out any other way. Slowing oil imports may also give sellers some pause.
Phil can be reached at firstname.lastname@example.org and don't forget to catch him daily on The Fox Business Network
Who does some of the major hedge funds turn to when they need advice?