Thursday’s Drop: Manipulation

There is a lot of nervousness over both the bullish market recovery of recent months and credit issues in the eurozone.    Due to this lack of confidence, the market is easily manipulated on the downside.   That is not to say that the market does not require correction (I think it does), but yesterday’s drop appears to be more of a manufactured event.

I was watching a number of stocks (such as AAPL) yesterday.    Saw a 16% drop on the back of no additional news.   It appears that multiple 1 cent sell orders for 100 shares in a basket of popular stocks was put in.    Naturally this knocked over many algos, prompting dramatic selling for a short period.

The claim is that was a fat-finger exercise, but I think it could just as easily be an extreme case of the sort of manipulation that occurs everyday in enticing algorithms and traders to react to small price shocks, revealing their hand or pushing the stock in a given direction.

The timing during one of the least liquid periods of the day made the orders all the more effective.    Algos beware 😉

Addendum
It appears that there were greater than 30 sell orders for 0.0001 on at least 1 stock and probably a similar pattern on the others.   This would clean out the order book and as separate orders push the orderbook lower with each order.   See this link.    The author speculates that dramatic yen buying was the trigger.   It is possible that an algo reacted to strong yen buying and put in limit orders to liquidate a basket of equities (though a very poorly thought out exit strategy).

Errant algo or manipulation for a buying opportunity.  Hard to say, either is equally likely.

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4 Comments

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4 responses to “Thursday’s Drop: Manipulation

  1. jb

    Just putting in sell orders at low prices isn’t enough… is it? Those prices apparently got traded at. Don’t know if SEC will get anywhere with their investigation.

    What’s more – the trades in particular stocks from 2:40 to 3:00 PM will be canceled by Nasdaq. Wow, talk about manipulation with no trades, effectively!

    • tr8dr

      To be honest don’t know the details. It would make more sense for the size to be larger than say 100 shares, unless the algos just reacted to seeing a sell at a price that would take out the whole orderbook (with enough size). If one did a much larger size at a price < the lowest price in the order book then the whole buy side of the book would be taken out and market makers and algorithms would act accordingly.

      Whether or not purposeful or not, at a smaller scale this happens often. In the lower-liquidity periods especially, it is easy to push the market in a direction and see what falls out.

      • jb

        yeah, interestingly large cap stocks like PG also were not spared (they should have had decent liquidity). Maybe looking at if the deviations/shocks were inversely proportional to market cap and hence liquidity (or just order book size as you have mentioned) might indicate if there was systematic manipulation. I’m eager to see what SEC comes up with if they do their job.

      • tr8dr

        Actually what I heard was that there were repeated 1 cent 100 share sells on a basket of equities. Repeated is worse than one single orderbook sweep of larger size because there is a reaction after each order.

        Not only would the orders have eventually swept the book but would also look like rapid selling at distressed levels.

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