Stock Market & Dow Jones Today: Trading Error?

Did a trading error cause the stock market and Dow Jones plunge today May 6, 2010?
The Dow took a free fall this afternoon, plunging nearly 1,000 points.

Fears that Greece won't be able to dig itself out of its debt problems -- and that the troubles will spread throughout Europe -- are a probable cause.

But now on TV they say today's market crash was cause by a trading error. Is it true?
CNBC and other sources are reporting a trading error at a major firm. What firm is that?

Earlier today, the Dow Jones Industrial Average gave Wall Street — and a healthy chunk of the Internet — quite a scare when it fell more than 1,000 points before healthily bouncing back later in the afternoon. Early reports tied the plunge to the hot-button finance story of the day — the turmoil in Greece over debt concerns — but as new details emerge, it appears that technical or math errors may have been to blame for the severity of the Dow’s plunge.

The Dow, which was being celebrated just weeks ago for its return to the 11,000 level, was down between 500 points and 900 points in wild Thursday afternoon selling.

All the major market indexes were bleeding, with percentage declines over 3% in both the Dow and Standard & Poor's 500 Index on Thursday.

Within five minutes, the Dow dropped 997 points shortly after 2 p.m., and then by 3 p.m. had recovered more than 600 points of that decline. The S & P 500 index and Nasdaq followed suit, with the Nasdaq at one point down more than nine percent.
A the close of trading on Thursday, the Dow was down 348 points, or three percent.

Some market commentators are viewing a huge drop in Proctor & Gamble shares as sign that the sudden dip in the markets was no more than a trading error that was reminiscent of the stock market crash of 1987. A trading program error, or even human error, could have been behind the sudden and precipitous dip.

Christopher Ruth, chief investment officer for Comerica Asset Management, said that he was skeptical of how the market was trading. Some activity just didn't make sense -- making his group question if some sort of technical, mechanical computer error took place.

"It doesn't look and feel like your typical market sell off," Ruth said. "My advice would be 'Don't be panicked into selling something.'"

The rumor is the whole market plunge was a trading error. A trader at a major firm typed in a "B," as in billion instead of a "M," as in million in a Procter and Gamble trade, causing that stock to drop very quickly, dragging the rest of the market down in a domino effect.

Machine-driven trading was being blamed for at least some of the selling with another anonymous trader commenting that the computer had gone ahead and processed an error that a person would have caught.

The markets rebounded in the last hour of trading, however, and while the Dow still finished the day down more than 300 points, that's a lot better than the plus 1,000-point drop it faced earlier in the session. At the same time, although the depth of the drop may have been exacerbated by a trading error, the forces behind the selling were very real, market observers said.

Computer program trading was being widely discussed as a contributing factor in the market's swoon, but it was still unclear to what role such programs, which automatically trigger buy and sell orders when stocks and other trading instruments pass through predetermined levels, played in the action.

That was scary when this happened. It scared a lot of people and it makes you think about a possible catastrophe caused by a computer error in the Stock Market.