Thursday, May 6, 2010

A Perspective on The Black Swan, Free-Falling and Apple

Black swans erupt with force, swooping, harming and sometimes departing equally abruptly. There was a Black Swan today in the stock market, malicious, powerful, swift and when the bell rang, One Trillion Dollars had disappeared. At its very apex, the most loved stock in the world, Apple, plunged under 200.00 where it was caught by traders clever enough to have not frozen during this dramatic, unneeded event. Apple recovered to an uneasy 240.00ish range before the bell rang. Dropping almost 9.2% and 1000 points to break old painful records, the market closed off its lows down over 3%. Waves of computerized trades, hedge funds blowing up, margin calls: desperate panic.

Droll facts that fail to convey the picture of sudden terror - had there been a terrorist attack or even something more unspeakable, the absolute elation of traders that have gone to the dark side of selling the market and stocks short, frustration and anger as orders to buy or sell went unfilled in a system overwhelmed at moments by pulsing volume. Memories of the last few years and the plunder of bank accounts playing against a Greek drama that may be spreading to Portugal and Spain, something about the dollar and the Euro which would make a trip to those troubled countries much easier.

Confidence shaken, dollars missing and you know some people were convinced that they should be all in and on margin. Leverage which is such a good thing on the way up but oh so hard when that stops working.

Madoff's and gurus and fortune cookies come and they go, leaving trails of broken promises and bruised bank accounts.  Maybe this will never happen again and the market will go vertical for years. That would be really, really nice. But just in case there's another black swan, it's probably a good idea to learn about risk management, placing stops on your stocks. On a free-falling day, getting out before the bottom is a good thing.

I watched in disbelief, unable to either sell the moment the ravaging began and frozen at the bottom, not sure that was the bottom.  Logic and machine selling and now the rest of the world's markets are open and spitting out a sea of red.

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