How did the market rally back so quickly on May 6?

Discussion in 'Wall St. News' started by gastropod, May 9, 2010.

  1. Everybody seems to be asking how could the market drop so quickly. My question is: How could it rally back so quickly? The market shaved off like $1 trillion...where did the money come from to buy back the $1 trillion? Was it algos that traded the market back up? I want to know about the rally back: Who, what, where, when, why!

    Your thoughts?

  2. zdreg


    the fed called goldman like in 10/87.
  3. I literally dropped my head after reading your post. You are probably right. I had thought about that...but, reading somebody else post it...well, it just drives the point home more. It does SCARE me to think that the gov't would have GS go and "print" a rally!.

    Thanks for the reply!

  4. 1 trillion did not really need to be taken out or "put back in" for the market to fluctuate 1 trillion in market value. Price is determined by the marginal buyer/marginal seller. If there are no buyers in a security, even a relatively small dollar value of orders can drive market values way down.

    The best way for a small account trader to understand this is if you put in a market order for a few thousand shares for a thin penny stock. Your small order can for a few moments add hundreds thousands, or even millions, to the market "value" of the company. I don't suggest you do this, but conceptually this is what happens in the broad market, only on a larger scale.
  5. kxvid


    I've never worked in a brokerage house, but:

    The selloff panic only lasted for about 20 minutes. Before then, it was looking like a hard but not all that abnormal selloff considering what the markets have done not too long ago. In the 20 minutes the dow dropped 600 points.

    It seems to me, that there wasn't alot of trader conviction in the ability of the markets sustain these levels (11k ish). So once a chain of big stops got hit, it was on. Its anybody's guess how many funds and retail accounts got liquidated on the way down.

    The real question is what would've happened if the market closed -1000 for the day. Prime brokerages do not have the same auto-liquidation procedures as retail brokerages. One reason is while you can auto liquidate 50k of GE stock in joe schmoe's account, its hard to liquidate 400M of GE at stock quickly without crashing the stock. It something you can't automate, it generally has to be done manually. In 20 minutes you can only manually liquidate so many margin accounts, and make so many margin calls. Especially when perhaps 50% or more of your clients have overused their margin. I suspect many if not most prime brokers were temporarily insolvent during the crash.

    If stocks stayed -1000 for an extended period, say an hour, brokers would've gotten around to liquidating alot more institutional accounts. There was a temporary and severe liquidity shortage due to the collapse in asset values. But in a short time share prices "recovered".

    Where did all this money come from to cause the dramatic rebound? Retail traders were out with their stops hit, plus they really aren't fast enough to get in on something like that. Institutional players were facing collapsed asset values precipitating a severe cash crunch and imminent margin calls.

    The most likely cause was that a bank(s) stepped in and bought everything. Everybody else was out of cash. The banks are the only ones with deep enough liquidity to match orders into severe market auto liquidation and panic selling. Thats the best explanation I can come up with.
  6. big funds that have missed this runup are looking for ways back in. While back in 2008 every pop in the market was used as a selling opportunity to get out of positions that had run against funds and retail investors, the exact opposite is now taking place. Every sell off is turning into an opportunity to initiate positions.
  7. Surdo


    The dimwit that oversold a BILLION dollar basket instead of a MILLION with three extra zeros had to cover his bad short when his boss got back from the shitter.

    Markets don't go down/up 750 points in 10 minutes without a black swan event.

    You people really need to wake the fuck up or read an occasional newspaper.
  8. bkveen3


    Yeah, Yeah fat finger...... please, I'd hope you're not really that dumb.
  9. Surdo


    Why did it rally back in less than 15 minutes?
    Can you explain that one, wait it was the Obama PPT?

    Dumb, that is the best you can do, your mother is calling you for Sunday night dinner. Hurry, maybe you'll get another helping of mac n cheese for Mother's Day.
    #10     May 9, 2010