Wall Street has been broken again, just as happened in 2008, when stock prices swing sharply up and down like an elevator in a skyscraper during the busy morning. Just as happened on May 6, 2010 when a "flash crash" inspired by a short dive the Dow nearly 1,000 points. And as happened on Black Monday in October 1987, when the Dow suffered record one-day percentage drop 22.6%.
The signs of stock market short-evident in a remarkable change in the price of the recent sharp in the Dow Jones Industrial Average.
The Dow fell 520 points Wednesday to 10,720 - the ninth worst point loss ever. A day earlier, had jumped 430 points, after collapsing super frightening 635 points on Monday. Chaos, of course, began last Thursday, when the blue chip index fell 513 points.
Computers that make trading in milliseconds based on a mathematical model is also to blame, because of increased fears of profit-crimping double-dip recession and a banking crisis at home may be in the debt-ridden Europe. Forced selling by over-leveraged fund is also in the list.
If your guess is that megavolatility this is a very unusual behavior for the stock market, you are right.
"When you have 500 - to 600-point swing in one day, something is wrong," said Jack Ablin, chief investment officer at Harris Private Bank. "It suggests emotion plays a big factor in moving."
Investors may have to get used to it, he added. "While we may be getting closer to the bottom, the market is considered fairly valued or cheap can get much cheaper if imaginatons run wild," warned Ablin.
Statistics compiled by market research company shows just how abnormal Scanshift.com - and rare - an outsize actual steps. In the last three days, the Dow has experienced intra-day price movements of more than 5% (they are the only three times that occurred in 2011).
By contrast, last year, there was only one day as wild. And there are only 45 days with 5%-plus moves in total since 1999. The major outlier for the volatility is 2008, when the Dow has 29 daily roller-coaster ride of 5% or more.
"We're not even in the same galaxy as 2008 when it comes to volatility," said Chairman Scanshift Fane Lozman.
Damage adds up
However, it is no consolation for investors who have seen 2200000000000 $ exchange channel in the stock market fell in August alone, according to Wilshire Associates.
Damage to the Dow added. It has dropped 11 of the last 14 days, leaving the Dow 7.4% for this year and 11.7% this month. If there is a silver lining, it is only down 16.3% from the month of April 29 is high, so it is still not in a bear market, defined as a decrease of 20% or more.
"Volatility," said John Bollinger, president BollingerBands.com investment management company, "is essentially a function of uncertainty."
And uncertainty, the market hates, is a big reason investors are nervous the market trades on each title, it's good news or bad news hope, muscling prices go up and down wildly in the process.
What causes, the second-to-second, minute by minute, hour to hour daily mood swings? A fear of meeting and events, it turns out. Here are seven reasons for a wild ride:
1.Fear factor. Fear is driving many to sell, especially the fear of loss of more to come. "It's just one person's opinion, but I think the market could retest the lows in March '09, said Todd Harrison, author of The Other Side of Wall Street (Dow bottomed out at 6547.05 on March 9, 2009;. That would fall 38, another 9% to reach the depth.)
Fear of loss is self-fulfilling prophecy that makes investors more defensive, which sells more sparks. "People are getting fed up with being whipsawed," said Harrison. "They have exhausted the financial market."
Lokanath Patel, 68, an engineer metal from Dubuque, Iowa, said: "I am a little afraid, but it behaves the way the stock market." Still he hung tight, though he has 10% of portfolio in gold and silver winners like.
Others felt the same. A closely watched measure fear Wall Street jumped 23% Wednesday.
Individual investors who seem to be so disgusted that they now withdraw money from U.S. stock mutual funds for 15 consecutive weeks, including $ 10.4 billion net outflow in the week ended Aug. 3.
2.Double-dip fears. There is a tug of war took place on Wall Street among those who think the economy on the verge of falling back into recession and those who think will not. The weakening of the data at home and in Europe the crisis is a recipe for a slowdown. And the recession will put a dent in the story of positive earnings that have driven the stock higher over the past two years.
"The market has changed, and the story has changed," said Woody Dorsey, president of Market Semiotics, a financial company's forecasting behavior. "The story of the old QE2 (bond purchases by the Federal Reserve to keep interest rates low) is to produce a substantial income, and market these new QE2 OK story unsolved global sovereign debt crisis .. just masking it."
The downside is that the weak economy would cause revenues to roll over.
3.Europe uncertainty. With rumors swirling about the health of the banking system of Europe, and still no bold plans of European policy makers and central bankers to stem the contagion potential of the euro zone debt, investors are unclear about how this crisis will end. European bank stocks and stock indexes have destroyed Wednesday.
"Europe exacerbate volatility," Ablin said. "The fear is the decline in Europe could cause a global recession."
4.Lack political leadership. After the catastrophe of debt ceiling in Washington and the inability of lawmakers to come up with a solution to the problem of sovereign debt, investors have lost confidence in the ability of leaders to lead.
"The government really works," said Scott Black, president of money management firm Delphi Management. "There is a lack of leadership we have no plans to get America back on track .."
5.Policy maker out of bullets. After taking extraordinary steps to try to get the economy back on track, the Federal Reserve and the U.S. government has few options left and little ammunition to jump-start the economy. This week, Fed Chairman Ben Bernanke told investors he would leave the interest rate of about 0% to mid-2013 to help the sluggish economy was moribund rocking. But he offered few other details of how the Fed can stimulate the economy.
"What plays out is to guard the American government kept company in the financial crisis first," said Harrison, who is also the founder of Minyanville.com. "Now, the financial markets ask who will save the lifeguards."
Trade 6.Computer the destabilzing. With nearly 70% of the stock now trades executed by the so-called high-frequency traders who use computer super smart and super quick, sharp moves strengthened market, said George Feiger, CEO of Advisor contango.
Too fast computer algorithms, and can jump on the trend quicker than humans, he said.
"This is analogous to the flash accident," said Feiger. "We have created a trading market structure that is driven by short-term decisions that utilize math rapid market movement machine does not predict the future of Europe .."
7.Forced sell. Many large investors are not positioned for rapid reversal downward in stock. As a result, many hedge funds and other large investors that use borrowed money to increase the return is now being forced to sell assets to raise money to meet margin calls, said Bollinger. And the computer generated world today, this sale had to be done immediately, causing a sharp decline in asset prices.
In short, volatility rose to send a message that the market is undergoing a change in thinking, says Dorsey. "It tells us that we have started a new lower leg in a bear market. Instead of Lehman Bros., this one is Greek, Italian, French and U.S. financial assets.
Time to go shopping?
But some money managers said the steep decline in prices and the crazy up and down move offers an opportunity to buy cheap stocks. Now it's time to stake out your shopping list.
Feiger think the problem in Europe will force the money back to the United States, so he bought a large-cap stocks and resource companies. Black is to buy beaten-down stocks, such as CBS and Bekshire Hathaway's Warren Buffett.
"If I could buy good companies with low P-Es, I will," said Black. "I have three to five year time horizon, which makes buying a franchise is good" is a good bet.
Stacy Harris, 58, of Nashville, view the correction as a time to buy. The focus: defensive stock companies that produce goods people need not matter what, like the makers of toilet tissue, paper towels and food. "Must buy opportunity," he said.
However, even Black said investors should tread carefully, for now. "It is always better to buy a few days after the tsunami than getting hit by 25-foot waves," he said.
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