Monday, April 29, 2013

Mini-Flash Crash of April 23, 2013

MetaStock SPRS Series - Week 116 - TechniTrader® Stock Discussion for MetaStock Users - Mini-Flash Crash of April 23, 2013 - April 29, 2013
By: Martha Stokes C.M.T.

The “Mini-Flash Crash” of April 23, 2013 was it real or contrived?

The retail side of the market was chattering about a "Mini-Flash Crash" that occurred because some traders saw a false report on Twitter about the White House being hit with a bomb. Nobody in the retail side apparently decided to check first before reacting to that news.

The Dow 30, SP-500 and NASDAQ composite indexes show no abnormal patterns for these indexes on daily charts, if anything they are quite normal. The upside action after component stocks dropped in the quiet accumulation and HFT buy zones was not unexpected. The sell side has been weak for the most part as this has been a retracement that rebounded off of moderate support levels built on the March platform sideways pattern.

Chart 1

Chart 2

Chart 3

Also daily volumes do not confirm that High Frequency Trading action was heavy on that day. Volume for the most part is below average for these indexes. You can see on the charts the huge surge volume days when HFTs are very active.

If you study intraday charts, a down or up move of the magnitude of the one on April 23rd are fairly common either at the end of the day or within the first few minutes of the trading day. So why was this intraday action called a “mini flash crash?” What made it so special?

It didn’t alter the overall price direction for that day, the market quickly resumed its original direction. And the size or percentage of the move is not remarkable when compared to other open and close price action.
What made this a retail news hot spot was that it occurred not at the beginning of the trading day where HFTs dominate nor at the end of the trading day where Dark Pools tend to enter, but just after lunchtime.
The downside lasted 2 minutes and the upside returned stocks to their original levels in less than 3 minutes. Volumes are high but not remarkably high intraday. In fact on the daily volume, the volume shares traded is very average.

The lesson to be learned here is that often the retail news creates a big buzz and reaction by smaller lot and retail trading crowds. Volumes imply retail started the downside and large lots brought it back up.

If you were in the selling spree the risk of a loss was substantial, especially if even one HFT started triggering automated orders on the millisecond scale against you.

Most Swing and Position traders missed the whole thing as they were not hovering over their computers all day long and in the end, it didn’t affect their trades at all.

So was it a real "Mini-Flash Crash" or just an intraday burp, created by emotional retail traders?

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock Partner
©2013 Decisions Unlimited, Inc.

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