A Flash Crash, Fat Fingers, and Positioning for a Correction
Speculation is running rampant about what really happened to the markets last week.
In case you missed it, as Fed Chairman Ben Bernanke was chatting up Congressional clowns last Wednesday morning, Treasury bond prices collapsed in one minute flat, and gold dropped 3.73% in less than an hour, ending $90 an ounce (or 6%) lower.
Was it a "ghost in the machine" flash crash?
Was it a "fat finger" error?
Starting at 10:40 a.m. on Wednesday morning, sell orders began cascading into the 10-year Treasury bond pit at the Chicago Merc. The heaviest selling occurred between 10:43 and 10:44, but continued until 10:54.
A massive 80,000 contracts for June delivery were dumped in the pit, followed by another 47,000 contracts. While another 52,000 contracts of five-year note futures were simultaneously dumped.
The price action was so heavy, the 10-year yield rose from 1.94% to 2.01% in a flash.
Over at the gold pit, some 31 tons of gold was sold, rather quickly.
Turns out, it wasn't a fat finger. You know, a fat finger - when someone accidentally types a mistake into a trading computer. Like, maybe they were supposed to type in a sell order for 8,000 contracts, and they hit the zero key one time too many, and they sell 80,000 contracts.
Well, according the Merc, it wasn't a fat finger error. They were all proper trades.
So if it wasn't a fat finger, was it a flash crash caused by some computer programs doing their algo thing and unloading both barrels?
No, that's not likely, either.
The truth is, we still don't know exactly why it happened.
But I'm going to tell you what I think it was...
To continue reading, please click here...