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HUMAN ERROR: Dow Plummets Nearly 1000, Then Rebounds [UPDATED 4:18PM]

2:55PM EST: [ALL UPDATES BELOW] The Dow plunged Thursday amid buzz in the market that European banks have halted lending.

One trader, on the condition of anonymity, said he heard fixed income desks in Europe shut down early because there was no liquidity — basically European banks are halting lending right now.

“This is similar to what took place pre-Lehman Brothers,” the trader said.

The Dow was down more than 900 points at one point, or more than 8 percent, before pulling back to the 600-700 point range.

Under current, New York Stock Exchange rules, if the market falls ten percent or more between 2:30 and 3:00 pm ET, trading is halted for 30 minutes.

The S&P 500 and Nasdaq were also sharply lower. The CBOE volatility index, widely considered the best gauge of fear in the market, was above 35, or up more than 40 percent. The VIX ended last week around 22.

This comes after the Dow and the S&P 500 suffered their biggest two-day declines since Feb. 3-4, while the Nasdaq saw its biggest two-day decline since August of 2009 on Tuesday and Wednesday. Market gains for the year have been cut to about 4 percent across the board.

Market sentiment turned negative very quickly in recent session, Steve Starker, co-founder of BTIG, which specializes in institutional trading, said on CNBC this morning.

UPDATE 3:13PM EST FROM NY TIMES: As protesters took the streets in Athens and Greek lawmakers passed an austerity measure on Thursday, the indexes on Wall Street tumbled almost 9 percent.

In a matter of minutes, the Dow Jones industrial average tumbled about 565 points, losing almost 1,000 points on the day. The Standard & Poor’s 500-stock index and the Nasdaq followed suit. Computer programs intensified the selloff as market fell through some limits.

And then, almost as quickly, the markets recovered most the sudden decline.

As the last hour of trading began, the Dow was down 369.24 or 3.4 percent. The S.&P. dropped 40.11 points or 3.44 percent, and the Nasdaq was down 83.53 points or 3.4 percent.

UPDATE 4:00PM EST FROM CNBC: In one of the most dizzying half-hours in stock market history, the Dow plunged nearly 1,000 points before paring those losses in what possibly could have been a trader error.

According to multiple sources, a trader entered a “b” for billion instead of an “m” for million in a trade possibly involving Procter & Gamble, a component in the Dow.

The massive selloff, which began shortly after 2 pm ET, amplified concerns about the spreading European debt crisis as the approval of austerity measures by the Greek Parliament sparked renewed rioting in Athens.

“There is simply a growing recognition that Greece has got to default,” banking analyst Dick Bove told “The riots in the streets showed the decision to repay the debt was not going to be made by the people in Germany, France and Switzerland—it’s going to be made by people in Greece and they’re not going to repay it.”

There also is a growing sense that any collapse of Greece could trigger a wave of defaults across Europe and even the world.

UPDATE 4:18PM EST: The Dow closes down about 350 points.

(Source: CNBC / NY Times)

7 Responses

  1. anonymrs,

    “One trader, on the condition of anonymity, said he heard fixed income desks in Europe shut down early because there was no liquidity — basically European banks are halting lending right now.”

    — This is a reflection of the European economy more than the U.S.

  2. Palosi and Reid are preparing new regulations to restrict fat fingers near trader’s keyboards in the name of National Security.

  3. The problem with the theory that a single trading mistake “spooked” the indexes is that the Dow Jones (the “big cap”) index was totally in synch with the Russel 2000 (the “small cap” index). If a single purchase of one majorstock affected the indicies, it wouldn’t have affect the small cap at the exact same time. I compared the daily results plotted by minute, and they match.

    A better theory is that the world wide crash grew until enough people thought “now is a great time to buy”.

    The reluctance of people in many countries (including the US) to live within their means is finally coming home to roost (see the articles on politicians blaming others for deficits, rather than trying to cut expenditures to match income).

  4. the lesson i learned here, no one knows what they’re talking about!! lol
    the Dow goes down and all the “professionals” have an opinion, then they find out it was down due to human error, and goes back up. what happened to all the “professional” analysis??

  5. chesedname,

    It may be unknown for certain as to the reason for the wild, rollercoaster ride tumble and recovery. However, the fact is that even without that, the market was down by 350 points. I believe that the reason for that 350 point loss is due to conecrns over the European economy (and the affects from Greece), as I wrote above.

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