Market Drop May Have Been Caused by Tech Glitch

Regulators are looking into a five-minute trading period where the market fell nearly 1,000 points.

Published on: May 7, 2010

Updated 5:50 a.m., 5/7/10

There's a saying you hear at Disney World if you ride anything at least once - "Please keep your hands and arms inside the ride at all times." They're probably thinking that trade Thursday on Wall Street was more in the amusement park class than anyone would like with the Dow falling as much as 900 points during the trading session.

In what some are pegging as a flashback to 2008 panicked trading, the computers and traders were selling faster than others were buying. Technical selling, which triggered more selling had losses piling up. While the Dow recovered some of those loses by the time trading ended; the carnage was still pretty bad. The Dow Jones Industrial Average was off 347.8 points settling at 10,520.32 for the session.

When this kind of selling happens, traders look for safe havens - and gold and the dollar both rose during the frenzy. Treasuries also rose. The continued worry over sovereign debt in Greece - and a slow response by European Union leaders - isn't bring much confidence into the market.

However, there may be more to the story. After the market closed, regulators began reviewing trades. The biggest drop occurred in a 5-minute period between 2:42 and 2:47, according to The Wall Street Journal. Other wire reports note that there may have been an erroneous trade - perhaps caused by a typo - that tripped this massive sell-off trigger. Both the NASDAQ and the New York Stock Exchange are reviewing trades during that period of time.

In addition, some high-volume trading firms stopped trading during the debacle, which might also have added to the sell-off. The market had already fallen 500 points before the 5-minute super sell-off. Some of those high-frequency automated traders had shut their systems down then. Regulators are now looking into a variety of issues in this situation.

Bad news is that Wall Street's carnage made its way to LaSalle Street with Chicago trade softer as well. Commodities slipped even with some great export news and more rumors that China is in a buying mood. Looks like the Chinese may get some bargains.

New crop corn slid 6 cents by the close of day trade to $3.83-1/4; November soybeans slid 25-1/2 cents to $9.30 by the close. Overnight trade show some continued weakness in corn, soybeans and some wheat contract, but not to the sell-off level seen Thursday.

Farm Progress Market Analyst Arlan Suderman recommends watch the Asian and European markets overnight to see how this latest panic unfolds. Also, money managers could seek out undervalued alternatives that are "relatively safe." China's return to the corn and soybean trade make those markets intriguing to money managers, Suderman notes.

The European markets dropped in a volatile session on Friday while Japan markets slipped, but ended well above the day's lows. As news of the technical glitch worries rows, this may have steadied some trader's nerves. However, there's a lot of investigation ahead.