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 😉
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.