That was some Sell Off.
This is what happens when Skynet is running the markets. The Algo traders were gunning this market, gunning it directly into the face of what was really happening in Europe and China.
I wrote a few days ago about EUR/SPX correlation.
http://tradersutra.blogspot.com/2010/05/speechless-datapoint-of-day.html
This had to decouple and it did today. The Euro was far to weak for the SP Algo Gunners to ignore.
That entire drop down was some sort of forced margin selling or a hedge fund/PD that was caught on the wrong side of the trade.
I have also spoken about the dangers of HFT/Algo Trading.
http://tradersutra.blogspot.com/2009/07/whats-scary-about-hft-program-trading.html
http://tradersutra.blogspot.com/2009/07/real-hft-issue.html
http://tradersutra.blogspot.com/2009/08/pondering-hft-marketplace-system.html
There could be many things that can explain this.
Was it an error? Unlikely.
Was it the free falling Euro? What do you think?
Was it that European Bond Markets closed early? Huge possibility.
Was it that Euro Lending Markets froze up? Bigger possibility.
Was it the Rising Yen? Interesting Theory.
Was it the USD rallying killing the risk trade? Most Definitely.
Did all of the Algo's suddenly act in the same way? Haha! Yes.
Has Skynet become self aware? You make that assumption.
Was it that the fact that 5 PD's control the casino stock market and all of them needed to liquidate in a zero liquidity market? Highly likely.
The market has recovered from that scary Algo induced drop right in time for tomorrow's NFP Data.
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