Article 43

 

Bad Moon Rising Part 10 - Glimpse Of Wall Street’s Next Crash

Dow Jones Drops 500 Points

By Ellis Mnyandu
Reuters
February 27, 2007

Stocks sink on fears about CHINA and GROWTH

U.S. stocks tumbled on Tuesday, driving the Dow Jones industrial average down in its worst slide since the aftermath of the Sept. 11 attacks, as a sell-off in China’s stock market raised concerns that equity valuations may be too high.

A U.S. government report showing a bigger-than-expected drop in January’s new orders for U.S.-made durable goods added to investors’ concerns about the outlook for economic growth and corporate profits. Those worries added more fuel to the sell-off and helped contribute to a loss of about $600 billion in market value for the day.

The New York Stock Exchange’s closing bell was greeted with a chorus of “boos” from the trading floor. A surge in trading volume triggered a technical glitch in late afternoon, contributing to an abrupt swing in the Dow average, which briefly fell 500 points. A Dow Jones Indexes spokeswoman said the glitch did not affect stock prices.

Investors dumped stocks with the biggest exposure to Chinese demand, including Caterpillar Inc., whose shares slid 3.6 percent, while Tuesday’s sell-off wiped out the year’s gains for all three major U.S. stock indexes.

“There seems to be just an air of nothing is safe anymore, there’s nowhere to go and people are rotating into bonds as a safe haven,” said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey.

The Dow Jones industrial average slid 416.02 points, or 3.29 percent, to end at 12,216.24. The Standard & Poor’s 500 Index dropped 50.33 points, or 3.47 percent, to finish at 1,399.04. The Nasdaq Composite Index sank 96.65 points, or 3.86 percent, to close at 2,407.87.

GOODBYE TO THE YEAR’S GAINS

At one point, the Dow fell as much as 546.20 points, or 4.32 percent, to a session low at 12,086.06. It was its biggest one-day point decline since after the Sept. 11, 2001, attacks. Both the Dow and the S&P 500 had their worst one-day percentage drop in almost four years, while the Nasdaq had its worst day since December 2002.

For the year to date, the Dow was down about 2 percent, while the S&P 500 was down about 1.36 percent and the Nasdaq was down about 0.31 percent.

The yield on the benchmark 10-year U.S. Treasury note dropped to 4.50 percent, the lowest since late December, as investors bought bonds in a flight to quality. The 10-year note’s price, which moves in the opposite direction of its yield, rose more than a full point, or 1-1/32, to 101.

BAD NEWS BEFORE THE BELL

On Tuesday, the die for the trading day was cast when China’s Shanghai Composite Index dropped almost 9 percent on fears that the government would crack down on speculation that has driven stock prices there to record highs.

Before Wall Street’s opening bell, there was more bad news. A government report showed a much bigger-than-expected drop of 7.8 percent in January’s new orders for U.S.-made durable goods, which added to concerns about a slowdown in economic growth.  Durable goods are big-ticket items, including home appliances and computers, intended to last three years or more.

“Durable goods are a key forward-looking indicator of business activity, so the broad-based drop that we saw today means that confidence in the economy is weaker across a number of sectors and the chance of an investment-led recession is quite a bit higher,” said Andrew Bernard, professor of International Economics at the Tuck School of Business in Dartmouth, New Hampshire.

FEAR FACTOR SKYROCKETS

In one sign of how shaken investors were, the CBOE Volatility Index, known as Wall Street’s “fear gauge,” surged 70.5 percent to a session high at 19.01 and then retraced its steps a bit to end at 18.31, a gain of 64.2 percent.

Howard Silverblatt, senior index analyst at Standard & Poor’s, said the stock market’s tumble wiped out more than $430 billion in the S&P 500 stock values, almost matching the value of stock buybacks by S&P 500 companies last year.

He estimated that for the overall market, the loss was $600 billion.

All 30 stocks in the blue-chip Dow average finished in the red as investors unloaded shares of companies with big exposure to the Chinese economy.

During the session, all three major U.S. stock indexes broke below their 60-day moving averages—a sign that the momentum that has carried U.S. stocks through a record run higher from July has begun to stall.

Exxon Mobil Corp. was the biggest decliner in both the Dow and the S&P 500, with its stock falling 4.7 percent, or $3.57, to $71.83 on the New York Stock Exchange.

Caterpillar Inc., the U.S. heavy equipment maker that does extensive business in China, dropped 3.6 percent, or $2.43, to $64.83, also on the NYSE.

The Philadelphia Stock Exchange’s semiconductor index ended down 3.1 percent, its second-sharpest one-day slide this year.

Shares of technology bellwether Cisco Systems Inc. skidded 5.6 percent, or $1.53, to $25.71. The stock was among the biggest losers in both the Nasdaq 100 <.NDX> and the S&P 500.

A rare bright spot on the Big Board was RadioShack Corp., up 11.9 percent, or $2.68, at $25.13. The stock was the NYSE’s No. 1 percentage gainer after reporting higher quarterly profit, due to cutting costs and closing unprofitable stores.

Volume was heavy on the NYSE, where about 2.41 billion shares changed hands, well above last year’s estimated daily average of 1.84 billion. On the Nasdaq, about 3.02 billion shares traded, sharply exceeding last year’s daily average of 2.02 billion.

On the Nasdaq, the number of advancing issues totaled just 281 stocks—the smallest number in about 10 years. In contrast, a total of 2,832 stocks fell on the Nasdaq—with the decliners outnumbering the advancers by a ratio of slightly more than 10 to 1.

On the NYSE, more than six stocks fell for every one that rose. A total of 2,949 NYSE stocks declined, while only 451 shares rose and 104 issues were unchanged. (Additional reporting by Caroline Valetkevitch, Emily Chasan and Bill Rigby)

SOURCE

Bad Moon Rising
Part 1 - Part 2 - Part 3 - Part 4 - Part 5
Part 6 - Part 7 - Part 8 - Part 9 - Part 10
Part 11 - Part 12 - Part 13 - Part 14 - Part 15
Part 16 - Part 17 - Part 18 - Part 19 - Part 20
Part 21 - Part 22 - Part 23 - Part 24 - Part 25
Part 26 - Part 27 - Part 28 - Part 29 - Part 30
Part 31 - Part 32 - Part 33 - Part 34 - Part 35
Part 36 - Part 37 - Part 38 - Part 39 - Part 40
Part 41 - Part 42 - Part 43 - Part 44 - Part 45
Part 46 - Part 47 - Part 48 - Part 49 - Part 50
Part 51 - Part 52 - Part 53 - Part 54

Posted by Elvis on 02/27/07 •
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  1. Computer glitch triggered Dow Jones plunge
    KSTP
    February 27, 2007

    Expert puts stock plunge into perspective

    A computer glitch triggered a sudden plunge in the Dow Jones industrial average at mid-afternoon Tuesday, turning an already bad day in stocks into a head-turning spectacle.

    Dow Jones & Co., the media company that manages the well-known index of 30 blue chip stocks, said it discovered shortly before 2 p.m. that its computers weren’t properly handling the day’s huge volume in trades at the New York Stock Exchange.

    It switched to a backup computer, and the result was a massive swoon in the index as the secondary system took over processing shortly before 3 p.m.

    The Dow plunged about 200 points almost instantly, and was down as much as 546 points - its worst single-session decline in more than five years, and one that sent the blue chips into negative territory for the year.

    “I’ve never seen a collapse like that, and I’ve only been doing this for 47 years,” said Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons Inc.

    The heavy volume of some 4.5 billion trades, almost double the average, came on a day in which investors worldwide were rattled by a nearly 9 percent drop in Chinese stocks overnight. Investors, draped in concerns that stocks were overvalued and that economic weakness was at hand, began crying “sell” from the outset.

    “The market’s extraordinary trading volume caused a delay in the Dow Jones data systems,” said Dow Jones spokeswoman Sybille Reitz. “We decided to switch over to the backup system, and the result was a rapid catch-up in the published value of the Dow Jones industrial average.”

    The sheer number of sell orders caused a bottleneck, where some traders reported that systems were slow to respond.

    Despite the delays, the closing prices on Tuesday were accurate, the exchanges said.

    The NYSE said none of the delays were related to its hybrid trading system, which combines trades executed by floor brokers with those that are fully automated. The Big Board suspended its electronic platform to bring about an orderly close, and reverted trading to floor brokers.

    A spokesman said the exchange expects an orderly opening on Wednesday.

    The Dow closed down 416.02, or 3.29 percent, at 12,216.24; the Standard & Poor’s 500 index fell 50.33, or 3.47 percent, to 1,399.04; and the tech-dominated Nasdaq composite index was off 96.66, or 3.86 percent, at 2,407.86.

    “It was literally seconds. I had never seen anything like that before,” said Ryan Larson, senior equity trader at Voyager Asset Management, a subsidiary of RBC Dain Rauscher. “The nature of a trader is you’re very skeptical of everything. I just needed to find to find out that it was real.”

    To the chagrin of many investors, the drop was indeed real.

    Todd Leone, managing director of equity trading at Cowen & Co., said trading became difficult.

    “Some of the books froze up,” he said, referring to the systems in which traders place their orders. “You couldn’t really trade. You couldn’t really make sales.” He said orders appeared to become backed up. “Once they unfroze the Dow fell.”

    There are safeguards to keep such pullbacks from getting out of hand.

    One measure, known as trading collars, kicked into effect Tuesday shortly after 1 p.m. when the New York Stock Exchange Composite index lost more than 180 points. That index ended the day down 342.03 points, or 3.6 percent.

    The collars put a chokehold on certain orders, forbidding transactions that capitalize on discrepancies in prices.

    There are also more draconian measures that weren’t invoked Tuesday. Known as “circuit breakers,” these safeguards force traders to take a time-out. The Big Board developed these measures following the October 1987 crash and a mini-crash in October 1989.

    The drop Tuesday, however unnerving, wasn’t the 1,250 point decline in the Dow industrials that would’ve been required to suspend trading. While the rules vary depending on the time of day and the severity of the drop, the exchange can halt trading for as little as a half hour to two hours, or in some cases, end the day’s session early.

    SOURCE

    Posted by Burned Out Baby Boomer  on  02/28/07

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