Stock Market News Update
Thursday, May 6th, 2010

What can we say? ………………..Is the answer really based on “human error”, or something more nefarious?

DOW May 6

This huge plunge in the US stock market is believed to be caused by a mistaken trade or technical error as well as fears over the Greek debt crisis. The trading error, known as the “fat finger problem”, occurred at a major investment bank.

The crash began shortly before 2.25pm local time, when in a white-knuckle 20 minutes America's top 30 firms saw their share prices dive 998.5 points, almost nine per cent, wiping out billions in market value. The drop eclipsed even the crashes seen when markets reopened after September 11, 2001 and in the wake of the Lehman Brothers collapse.

Rumours swirled around the market that a trader had reportedly entered a "b" for billion instead of an "m" for million in a trade involving Procter and Gamble, reports said.

This set off a chain of trades that led to the largest intra-day plunge in the history of the Dow Jones Industrials average. Shares in Procter and Gamble (PG) fell from $US61.56 ($69.50) a share to $US39.37 a share and then quickly bounced back again. Procter and Gamble later confirmed the sudden drop in its share price was an error.

Therefore, Thursday will go down in history as “Black Thursday”, which we hope will never be repeated! The escalating debt crisis also helped to contribute to today’s massive fall. The attitude of the European Central Bank (ECB) has not helped quench any fires and calm the investors.

Also, on the day, new claims for US unemployment benefits fell for the third straight week last week, the Labor Department said on Thursday. Due to the other problems already in place this had very little effect on the market.

Initial jobless claims fell by 7,000 in the week ending May 1, heading toward the lowest levels in a year. The total number of Americans starting to claim benefits fell to 444,000, down from a revised figure of 451,000 from the week before.

The figure was slightly higher than analysts' expectations, but the Labor Department said continuing claims also fell by 59,000 to 4.594 million.

Ian Sheperdson

"With the Easter distortions now out of the numbers, it is becoming increasingly clear that the downward trend in jobless claims has stalled, at least for now," said Ian Shepherdson, chief US economist at High Frequency Economics.

"We now think it likely claims will remain close to their current level through the summer at least. That does not mean payrolls cannot rise, but it does suggests that sustained big increases are unlikely."

The claims figures come ahead of Friday's all-important monthly jobs report, tracking employment for April.

VIXmay6 Graph

The CBOE Volatility Index (VIX) is up 8.43 to 33.34 with the VIX May 27.5 calls and the VIX May 25 calls being the most active index contracts. VIX is now at levels last seen in May 26, 2009 (intraday high of 34.57), up a massive 65 percent since Monday.

Though the major market indexes pared their losses, to some degree, by the close, the CBOE Market Volatility Index's (VIX) spike reflects the incredible fear still plaguing investors and traders, with stocks topping off their worst session since February 2009.

The Dow Jones Industrial Average (DJIA – 10,520.32) had another bad earnings day, to end with a deficit of 347.8 points, or 3.2%. Not one of the Dow’s 30 components finished the day in the black. The S&P 500 Index (SPX – 1,128.15) also ended on a similar backwards note of 37.8 points, or 3.2%. whilst the Nasdaq Composite (COMP – 2,319.64) once again suffered the worst of the three major indexes to finish with a loss of 82.7 points, or 3.4%.

There has been some positive notes today particularly from the earnings arena. Several companies have presented earnings reports that exceeded the analysts’ expectations. These are:-

• Career Education Corp. (CEC0)

• Prudential Financial (PRU)

• Transocean Ltd. (RIG)

• DirecTV (DTV)

MGM Mirage (MGM) and Plains Exploration & Production (PXP) presented negative quarterly earnings reports on the day, which surprised analysts.

Notes of Interest…

• The Dow Jones Industrial Average (DJIA) breached several layers of support, but could find a foothold atop its 32-week trend line, which has acted as a technical backstop on several occasions since April 2009.

• The Energy Information Administration (EIA) noted unexpectedly large increases in crude and gasoline supplies during the recently concluded week.

• The U.S. dollar continues to strengthen against the euro which has helped send crude oil for June delivery backwards by $2.86, or 3.6%, to finish at $77.10 per barrel. This is the lowest crude has been in eleven weeks.

• June-dated gold futures are back as a safe-haven for investors adding $22.30, or 1.9%, to end at a five-month high of $1,197.30 an ounce.

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