Crash was Precipitated by Stop Loss Triggers

httpv:// Now that the roller coaster has snapped back a bit, time to root out the cause. Obviously, concerns about the sovereign debt crisis is the macro catalyst, and this morning Moody’s (MCO) warned that the crisis could spread to banks in Portugal, Spain, Italy, Ireland, and the UK.

But none of that caused a near 1000 point drop in the Dow (DIA). The immediate cause was the nosebleed quantity of stop losses waiting just below the S&P 500 (SPX) support line at 1144. When buyers couldn’t hold the line, sellers pushed prices to the stop loss triggers and … SNAP: the volume of sell orders flooded in from hedge funds and institutions with preordained safety against what everyone fears could be an international version of the Bear Stearns-Lehman Brothers film we saw in the US.

The selling was so robotic, at one point blue chip Procter & Gamble (PG) was down 30%!! Now that’s a fire sale dislocation of price and value.

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