Wall St.: Surviving the Plunge

Last Thursday was a scary ride for traders and investors alike. The 1000 point drop in the DOW amounted to over 9%, representing nearly a trillion dollars wiped out of the market in less than an hour. To put it in perspective, this was the steepest loss ever in the course of a trading day. Imagine the global message the deep plunge must have sent to those who watched in horror. Once sentiment spread of an erroneous trade or a computer glitch, the market was quick to recover all but 347 points. Meanwhile, as the world looked on, the SEC and federal officials were left to ponder whether this was a result of the mayhem unfolding in Greece, or the technical glitch theory. It was plausible that a combination of the two caused the savage meltdown, given that the financial and political unrest in Greece was already reflected in the market - which had declined roughly 500 points by early afternoon. However, the abrupt and swift decline of an additional 500 points only took a matter of minutes. What a rollercoaster ride it must have been for traders on the exchange floor. We can’t even fathom what it felt like at 11 Wall Street, that afternoon on the floor of the exchange.

That following Friday morning was undoubtedly filled with trepidation for traders. There was heightened uncertainly concerning the cause of Thursday’s down swing, which was made even worse by the troubles in Greece. The SEC and the CFTC* issued a joint statement that they are continuing to review the issues. The Wall Street Journal reported that the SEC and federal official were focusing more on the different trading rules of the various Exchanges. As the weekend progressed, there seemed to be movement away from the “trading error” theory, which the media ran with for provocative headlines.

As it turns out, the investigation of the historic 9 percent drop revealed that trading was halted on certain Exchanges, while others continued trading activity on the same stocks. This explains why Federal officials hinted at their belief that differences in trading rules on the Exchanges may have also contributed to the problem.

What a Difference a Weekend Makes:

Amid news of the EU bailout of Greece, the DOW got a much needed boost, amounting to a 4% gain of $404.71 on Monday. The DOW's net loss for the week of May 3rd was 629 points, but yesterday’s euphoria wiped out much of the losses of last week. Nevertheless, all is not forgiven, as the SEC summoned a meeting of the Exchange CEOs to Washington.

Continued on next page

___________
* Commodity Futures Trading Commission


K. Reilly
Cohn-Reilly Report

_________Comments

Erin Thak said.....
The deep plunge should be a sign to al of us that the market is still not stable for individual investors

Anonymous said.....I think the market was influenced more by the Greece debt issues than we may realize. The televised exchanges between the Police and the protestors were violent and more dramatic than we have seen in the US since the civil rights movement. Also, having experienced fiscal discord ourselves, perhaps investors are more readily shaken by what’s going on globally than in the past. The protests in Greece have a visceral impact on our psyche, and leave us feeling uncertain about our own future.

Katherine said.....
You make a strong argument for how the volitality remains an issue for the market. I do beleive that Greece's fiscal problems ultimately have an impact on the European Union and eventually impact the US. Hopefully the measures taken to bail out Greece, will buy time for the country to restructure and rebuild their financial house.