Revisiting 2:45pm with Art Cashin

One of the financial commentators we follow (for his trader’s eye view from the NYSE) is Art Cashin.  Art wrote today about the brief free-fall in stocks last Thursday afternoon.  To quote:

Nothing Sold For A Penny On The NYSE

There was a lot of discussion on the floor Friday about the huge air pocket that stocks hit on Thursday afternoon.

As the day wore on, skepticism began to grow about the “trader error” (fat finger) rumors that circulated late Thursday. There didn’t seem to be a telltale brief volume spike. Traders began to speculate that the trigger might have been a sudden spike in the Japanese yen which may have briefly panicked carry traders.

The other item was the finger-pointing among trading venues. Some competitors claimed the designed safety speed bumps in the NYSE hybrid system caused the air pocket. I may be a bit prejudiced but that borders on the ridiculous.

No $40 stocks traded at a penny on the NYSE. One trading venue, the Nasdaq canceled trades in 281 securities. David Kotok points out that 193 of them were ETFs. There are no ETFs listed on the NYSE floor. Therefore, they could not have been impacted by speed bumps. Further the NYSE canceled no trades.

It would appear that some trading venues may not be as deep and liquid as their marketing brochures imply.

To us this goes to show that investors must be aware of technical factors and market mechanics, since these sometimes create opportunity.  More importantly, however, understanding the mechanics of the market for our investments allows us to correctly analyse price action in a stress environment and avoid making bad decisions.