What Happened Today?

May 6th, 2010 seemed like it would be just another ordinary spring day on Wall Street.

The DJIA, which has been retreating as of late, gapped down an insignificant 6 points (from its close of 10,868.12 the day before).

As the day rolled on, the Dow Jones Industrial Average (DJIA) slowly traded lower. First it was down 100 points, and then it was down 200 points. A bad day, but nothing out of the ordinary, especially given the performance of the markets over the past few weeks.

Then, at about 2:45 pm EST, all hell broke loose.

The bottom seemingly dropped out of the market as the major indexes suddenly plunged.

I don't mean plunged - I mean PLUNGED.

The DJIA traded from 10,600 to less than 10,000 in just a few short minutes.

The NASDAQ traded from 2,300 to less than 2,200 in just a few short minutes.

The S&P 500 fell from 1,120 to just over 1,060 in just a few short minutes.

In addition, the US Dollar (against pretty much every major currency), gold and oil all made crazy moves as people ran for cover.

What happened? Were the problems in the European Union going to poison the economic recovery in North America? Were investors in the US just starting to come to the conclusion that the problems overseas might derail a recovery in the States? Or were investors simply panic-selling?

According to CNBC, the answer might be something entirely different.

According to the network, a "human trading error" at a "major firm" may have caused the sudden plunge today.

According to CNBC, "multiple sources" indicate that a trader entered the letter B instead of M when completing his/her order. Other reports have the trader entering an order to sell 16 BILLION e-minis, when they in fact meant to sell 16 million.

I'm not sure how much truth there is to these rumors, but I'm hearing this a number of different sources.

According to CNBC's sources, the trading error occurred at Citigroup. Citigroup said that it has "no evidence" of a bad trade, but is investigating the situation.

The New York Stock Exchange and NASDAQ are both investigating the market activity that took place between 2 pm and 3 pm EST as well.

If these rumors are true - can you imagine being the trader who caused this kind of pandemonium on Wall Street? This drop will be the lead story on every major news program this evening. Needless to say, it would be a bit of an uncomfortable walk from your desk to your car at the end of the day if you were the person who typed "B" instead of "M".

All in all, one of the most interesting days in the history of Wall Street. Days like these are certainly not for the faint of heart.

It will be interesting to see how the markets perform tomorrow after what took place earlier today. Did this drop jolt people back into reality and remind them of March, 2009? Will people move to the sidelines and back into investments such as gold and US Treasuries?

We're about to find out..

ps - here are the five biggest one-day point drops in the history of the DJIA. Thanks to the recovery in the last hour of trading today, we weren't even close to making this list today..

1. 2008-09-29 -777.68 points
2. 2008-10-15 -733.08 points
3. 2001-09-17 -684.81 points
4. 2008-12-01 -679.95 points
5. 2008-10-09 -678.91 points

Source: CNBC - Trading Error at Major Firm Blamed for Selloff

Source: Davemanuel.com - Dow Jones Historical Data

Filed under: General Market News