Today was incredible. The stock market sell-off in the morning hours developed into a free fall when at one point the Dow Jones Industrial Average was off nearly 1000 points. A wild upswing followed and the Dow closed 350 points lower.
Accenture (ACN) had an order filled at only pennies. MMM and PG also saw ridiculous fills.
According to very experienced traders who have been in the business for decades, I am hearing a consensus that this was the most insane thing they ever saw. So today was distinctly different than the free fall seen in 2008.
The following is my understanding of the event today. The day began with a decidedly bearish tone with few buyers coming into the market. This may be have been a period of capitulation. Some stocks trading lower on the NYSE were halted for a minute or two, not an uncommon practice in this exchange. Other exchanges openly trading the same stocks are notified about the paused trading. The NASDAQ and others however continued trading the NYSE halted stocks, again nothing uncommon for their exchanges. Sell orders for these stocks continued to come into the the open markets, but there was a surplus of sell orders, probably partly to do with the closed trading in the NYSE, partly to do with the sentiment at the time. It appears that there was a cascade of market orders that came into the open markets which were triggered by lower and lower share prices. These may have been stop orders. The computers instructed to fill these orders are not concerned with the price they are filled at (this is what a market order is). As a result, they were being filled at any price possible. Humans are different in that they will pause and wait before placing an order in a free fall. With a clear lack of buyers (the reason why a ACN order was executed at only a few pennies), there was basically no market for the shares. What was probably a lack of orders here is much different than a traditional high volume sell-off with surplus orders. A panic ensued in the general market while this was taking place. The vacuum resulted in a soaring rally.
I do not know if primary wave [2] has completed, but right now my guess is that it has not. In my view, the sell-off seen today was not created by a market, but a lack of one. How the decline is viewed will impact future prices however.
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