Flash Crash – It is What it is!

QUESTION: Good evening Mr. Armstrong,

When it comes to the precious metals I have found you to act as a much needed fulcrum between the “gold bugs” and the main straem media – thank you!

In your most recent bid you say, “All Crash events take place because of the LACK of BIDS. It does not matter what time of day, they just do.”

Your statement is of course correct but does it tell the whole story?

These paper silver sales are specifically targeting thin markets, where there is less participation and hence bids.

The “gold bugs” state that if hundreds of contracts are being sold all at once in thin markets then there can be no other objective then to drive the price lower. When I sell something, I try to get the best price possible.

Am I and or the “gold bugs” missing something?

Your thoughts would be greatly appreciated.

2010FLAS

ANSWER: The validity of any Flash Crash is determined by the aftermath. You simply cannot manipulate any market defined as changing the trend. So any attempt to impact prices is a short-term manipulation is short-lived. Take the May 6, 2010 Flash Crash in the US share market also known as The Crash of 2:45. The US stock market crash came on Thursday May 6, 2010 in which the Dow Jones Industrial Average plunged about 1000 points (about 9%). Regardless if it was an error or a deliberate attempt to push the market down, it takes place because there is a lack of bid. However, if the move is false, the the market will rapidly recover those losses within minutes or a couple of days. In that case, it was the second largest point swing in history, 1,010.14 points, and the biggest one-day point decline, 998.5 points, on an intraday basis in Dow Jones Industrial Average history. It is the LACK OF BIDS in the market that allows that downdraft to take place. Everyone made excuses from sticky fingers to it wasn’t real. The market failed to generate any sustainable rally. It rebounded rapidly closing at 10520.32 that day, but the next day it closed lower 10380.43. The market then rallied ONLY for 3 days (3 day reaction rule) reaching the highest closing at 10896.91 failing to even close above the high of the day of the crash 10925.86. The 3 day reaction rule worked and the market fell to new lows bottoming at .9596.04 on July 1, 2010.

The market is NEVER wrong. It does not matter if it was thin or robust trading. All the excuses in the world are still excuses. It is what it is. The Dow elected a Daily Bearish 04/27 1 day after the high. The trend was headed lower.

During a Flash Crash, (1) there is a lack of bids underlying the market, and (2) typically what happens is market-makers withdraw out of UNCERTAINTY. The very day of the low in the 1987 Crash, I looked at the screen and saw a 240 call option was $300 in the S&P when it fell to 180. I picked up the phone and tried to buy. The market-makers withdrew. ONLY my experienced saved me. I would have said buy at the market. I hesitated and put in a limit order. The next trade was 3000. With no market makers I would have been filled on that limit offer.

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It is what it is. Excuses are simply the way to say you were not wrong, it was fake. But the truth is always revealed by the price. It is what it is.