The stock market went into overload on Monday morning and within 10 minutes after opening, the Dow was down more than 5%, the Nasdaq down more than 6%, and the S&P down more than 4.5%.
For about a 20 minute period from the opening bell at 9:30 Eastern Time to about 9:50 Eastern time, it was very hard for me or any other investor to make a trade. In my broker account my screen froze, didn’t load, didn’t respond, or didn’t open correctly as I tried to buy stocks. I watched as the major averages plummeted so fast it was beyond belief. Every stock I looked at dropped to levels that were unbelievable and I would have liked to buy everything if I could.
I think I know what happened to cause this frenzied sell off that over the next hours stabilized and saw most stocks gain back some or all of what they lost.
1) Shanghai’s stock index crashed on Monday more than 8%. This of course followed Thursday and Friday last week that saw our markets sell off and added to the fear that American investors had/have. Shanghai investors are now in the red for the year after being up more than 60% at one time.
2) This Shanghai sell off caused the futures in American markets to point to a much lower open by anywhere from 3% to 5%. Investors over here woke up to realize that our stock markets were going to have another big down day.
3) Many investors just threw in the towel and decided to sell everything they owned at the market’s open. This is what happens when you reach the full panic stage: you just give up and want to get out because this is real money everyone is losing.
4) The sheer number of buy and sell orders that were in the system at the open was enough to slow everything to a halt and make trading very difficult. I assume no major American exchange has ever seen this amount of backlog of orders to process at anytime in its past history.
5) As the orders were processed, the major averages started dropping further from their opening numbers. It was quite incredible to watch. This meant almost every stock was dropping and dropping fast.
6) As stocks tumbled and their prices went down, it triggered a whole new set of sell orders that were placed by investors as stop-loss orders. This is the kind of order where you tell the computer to sell your stock if it reaches a specified amount. The falling prices kept going lower and triggering more stop-loss orders which in turn made prices go down even more.
7) There was a 5 to 15 minute period where stocks went so low that it was a bonafide fire sale. It was like a store opening for business with all their prices mis-marked too low. The problem for me and many others who would have like to have bought A LOT of stock at those prices, was that it was hard to get an order through due to the high volume.
8) Meanwhile, stock prices started to go back up quickly as people rushed in to buy. I placed and got two orders but one order went unfilled for more than 10 minutes and I was able to cancel it after the stock’s price continued higher and higher.
9) I am writing this mid-day on 8/24 and the stock market is still having an AWFUL day and most everyone is losing money. Who knows, things may get worse from here and start going down again. But for right now, anyone that was able to buy a stock at the market’s open probably has a nice gain.