New York Times: It's 3 PM On Wall Street, the Hungry Bear Is On The Prowl
By:
TraderMark Thursday, October 16, 2008 12:44 PM
Very
interesting story in the New York Times; we've been noting the same thing - how nothing has mattered for the day until seeing what the market does post 3 PM when it appears forced selling is at its highest level. You cannot trust anything between 9:30 AM to 3:00 PM anymore until these coffers are emptied from people who are being forced out of positions.
- It has become the scariest hour on Wall Street. On Wednesday, in what has become an almost daily occurrence, the stock market lurched at 3 p.m. — this time, down. What had been a bad day ended as one of the worst in history, with the Dow Jones industrial average plummeting 733 points, or nearly 8 percent.
- The late-day move — the Dow shed nearly 400 points in the last 45 minutes of trading — mirrored the market’s pattern over much of the last week. On Friday, the Dow plummeted more than 500 points in the last hour of trading. On Monday, it soared about 300 points.
- But given the market’s moves over the last week, the final hour of trading is coming under scrutiny on Wall Street. Many analysts are asking the same question: Why is the market moving so violently between 3 p.m. and 4 p.m.? While trading often spikes in the last hour, according to a review of stock exchange data, the pattern has been much more pronounced in recent days.
- One explanation, analysts say, is that brokers typically demand that clients pay down margin loans by the end of the day. As some of those clients begin to sell to raise money to cover those loans, prices fall further, forcing others who bought on margin investors to sell as well. “This smells like that sort of forced selling, the margin calls and liquidations, that you get in the midst of a bear market,” said Barry Ritholtz, chief executive of Fusion IQ and author of the popular blog the Big Picture.
- Evidence is mounting that some executives are being forced to sell stock to meet margin calls. (Oct 11: Chesapeake Energy CEO Forced to Sell Nearly All Shares to Meet Margin Call) Bruce A. Smith, the chief executive of the Tesoro Corporation, a oil refiner, disclosed in a securities filing late Tuesday that he had to sell 251,000 shares because of a margin call by Goldman Sachs, the investment bank. Shares of his company fell more than 18 percent after his sale was made public.
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