OK, maybe this will be the last time I trot this graph out, but I feel I've earned some bragging rights on this, and I've got something to say about it. So here was my "bold prediction" about eight days ago:
And here's what happened:
So………considering the fact that, in broad terms, this prediction nailed reality to the Spooky degree, one might ask: how did I do it? Elliott Waves? Technical indicators? Voodoo?
Well, I'll tell you. Here's the truth: I fired up the /ES chart. I stood up out of my chair. I stepped back about eight feet. And I stood there, head resting on my chin, and I stared at the chart. And my brain plotted out what was going to happen next.
Honest.
So……..what now? In the immediate future, I'm not sure. In fact, I'm kind of unhappy about the whole situation. This really isn't the kind of market I like to play. Crashes aren't my bag. I make a lot more money with steady drips downward, not fireworks. And we're in a real no-man's land right now, so it's totally possible we could puke 40 points higher tomorrow without missing a beat. So I've got to profess a high degree of discomfort where with today has put us.
I'd like to add this interesting email – – one of many I've received today, as you might imagine – – from a reader. As always, I've asked permission before reprinting it.
I read your blog every night and enjoy it very much. I just wanted to give your readers a simple technical reason for the less than 5 minute crash and recovery. If any of this is worthy of a post, please use it.
Simply put, there were so many sell orders from stops being run and other market orders (both buy and sell) triggered by market levels, that the buy queue was eaten up. Remember that a buyer using a market order gets the ask price and a seller using a market order gets the bid price and the order cannot be cancelled. Market orders are the only orders that "move" the market. If all orders were limit orders, nothing would happen! Most stops are market orders. If you ever look at level 2 quotes pre and post market, you will see the bottom most bid at 0.01 and the highest ask at some ridiculous number like 9999. Those are there, of course, in case someone completely screws up their limit order.
Well, those limit orders are always there during the day as well. Just in case the buy queue goes to the bottom. Today, I happened to be watching QID during the event. QID, the 2x bear of the Nasdaq 100, hit a high of $20.43 during the crash. But thenduring the rise back up, trailing stops were hit like crazy and market sell orders caused the buy queue to go all the way to $2.50! Imagine the person who sold thinking they were getting around $19-20 and ending up with $2.50! Or the jubilation of the buyer! The same with TYP, the 3x bear of tech, went from a high of 9.50 to 0.15!!!
BTW, Stockcharts is showing the low for QID but not TYP. google finance http://www.google.com/finance shows both as did my broker. Google also shows ACN(whose symbol my spellchecker keeps changing to CAN!) with a low of 0.01. I'm sure there are many other cases like this.
Most of what happened occurred to people who are not traders. They are the average Joe who are told to use stops to protect their money. But stop market orders can also be killers in cases where freakish events occur like today's. There were fortunes made by savvy people, mostly traders, and there were some average Joes who were taken to the cleaners!
So, anyway, you might expect me to be giddy right now, but I'm not. I'm bugged because my trading system was hung worse than John Holmes today, preventing me from a propitious exit, and I'm bugged even more that we've lurched into this weird twilight zone all of a sudden. Friday's going to be odd. And I'll leave it at that.
