The chart below is the Dow ETF, DIA, in the first week of May, 2010. It is no ordinary week. It is the worst first week of May in history. The year's gains were gone. It all happened in a flash. In about ten minutes on Thursday afternoon, the Dow fell some one thousand points. To complete the picture, the Dow then rose some six-hundred points in less than an hour. What the heck is going on?
The huge drop was blamed on a lot of things including an error entered by a trader. Supposedly, somebody pushed the 'B' on the keyboard rather than an 'M' for a sale order of P&G. Of course, Greece's debt troubles continued to weigh on the minds of traders throughout the world. When all investors realize at the same time that no one has the money to pay for the goods and services purchased, the crap hits the fan. The markets cave in. But then something curious happens.
It was a mistake. The market needed a mulligan. Surely the Dow could not fall a thousand points in a matter of minutes. The fact that the Dow could fall in the Fed intervention era is startling enough. But a thousand points? It had to be a mistake. But does any trader actually press the letter keys for sales? Maybe the Dow fell because a lot of people wanted to sell at any price and there weren't any buyers. Maybe Bernanke had to go to the bathroom and got detained from his job of boosting the stock market. Maybe a lot of things happened. Regardless, this was the biggest intraday drop on record. Gee, right in the middle of a economic recovery with a string of Commerce Department statistical ebullience. Yes, the drop was scary but there is one thing that no one is addressing.
As the Dow fell below 10,000, it suddenly rallied some 600 points. Presto! The Dow recovered two-thirds of it drop and it did so without a powerful volume spike. It seems that the market controllers simply 'adjusted' the index, stopped the selling for an hour, and juiced the markets back up. It was one of those crazy days but debt is the cancer that is eating the worlds' financial heart. Maybe the selling was the first warning that a total collapse could be around the corner.
Friday, the market's continued selling in spite of an increase of 290,000 new jobs in the US. Of course no one with any intelligence actually believed that number. The birth/death ratio supplied almost 200,000 of those new 'jobs'. Whatever. The market is the ultimate barometer. And it's going down. The only thing that can save the market now is Bernanke. Are you coming to work Monday morning, Ben?
Chart courtesy StockCharts.com