How a Market Crashes - Procter & Gamble on May 6 sends Dow 172 Points Down

It is very interesting to watch (in hindsight) how a market can go completely nuts on a regular day. It looks like the recent crash on Wallstreet was caused by a sell orders of sufficient volume, right at the time when no buyers were present.

[caption id="attachment_161" align="alignleft" width="381" caption="Proctor & Gamble Chart May 6 2010"][/caption]

As you can see from the chart above, just before the market crashed there was a huge sell order that obviously did not find a buyer. If the market would have acted rational, nothing bad would have happened. But as everybody knows, the market is not rational. In this case, this short un-rationality was enough to send the Dow on a nosedive of 172 points.

Who won this game? Well, I am not sure, but somebody must have snatched up some PG stock just above $42. Not a bad deal. Only question is whether the volume was enough to make that person rich.

Felix Salmon on the Reuters blog seems to see two orders that were causing this. Well, to me it looks like the second order was after the fact. Anyhow, he seems to at least point into the right direction.

Creditcardoutlaw.com writes: "What caused the massive, sudden drop? A number of theories are floating around right now... sounds like a technical glitch in trading of Procter & Gamble (PG) helped frighten everyone -- the glitch was responsible for a rather swift 172 point Dow "nose dive.""