Wednesday was likely Wall Street’s most notorious stop-loss takedown. And the biggest heart attack for the financial industry since the mortgage meltdown.
For those not familiar with stock trading, savvy stock market investors/traders almost always set “stop-limits” on their investments to lock in gains or prevent unacceptable losses. In simple terms, one sets a standing automatic sell trigger to be pulled if the stock price moves below a certain level. No matter what. So when there is a precipitous drop in the market, the standing stop orders to sell kick in, pushing the stock price down, with a cascade effect as other stop orders are activated. Crafty deep-pocketed hedge funds typically use this technique on thinly traded single stocks to fleece the inattentive little guys. It’s a sleazy way to gather shares at a fraction of their true value. But taking out an entire market is unprecedented. Wall Street has taken a major hit to its essential market credibility.
A planned assault on the inattentive investor to force them to sell at well below market value? Imagine that? “Taking out the stops” has always been a legit strategy on the Street. But this is uncharacteristically blatant, however, and threatens the essential core credibility of the US stock market.
All’s fair in love, war and the pursuit of filthy lucre. Does anyone have any doubts anymore the markets are rigged?
Some have posited some brilliant hedge fund Ivy League intern misheard “billion” for “million” when keying in a trade. No big whoop. It’s not like somebody lost a prototype iPhone 4G at a bar.