THE DAY THE MARKETS BROKE

THE DAY THE MARKETS BROKE

Tuesday morning at the trading desk – it is twelve minutes to eight, and twelve minutes to the open.

“This is not looking good mate, not looking good at all …”

That's Mike, one of my team on the UK equities desk.

I have my eyes fixed on the Dax futures quotes, since the Dax opens for trade at seven am London time, and the market is selling off, hard.

71 04… 7100.. 7096..7092… the numbers are all red, and they keep on getting lower, on heavy volume.

The selling seems to be getting more intense as we approach the London market open.

I turn to look at Mike, who has his ‘phone to his ear, and is staring at one of his screens.

“OK, here’s the plan – we wait for an early bounce before we sell the position.”

Mike nods, and speaks quietly into the ‘phone.

I turn to Jim, sitting at his desk to my right.

“Jim, you hear that ? We wait before closing our position.”

“Whatever you say, boss.”

We have a bit of a problem. We are holding a rather large long position on a basket of bank stocks. And late last night, the news from the US markets wasn’t good – both Moodys and S&P had downgraded the financial sector, and of course, financial stocks in the US have sold off sharply. 

This all happened after the London market closed at four thirty, so it looks like the slide will start as soon as the market opens at eight, in a little over ten minutes from now.

I pull up the position spreadsheet on one of my monitors. What a day to be long banks ! But then everything had looked OK at four thirty yesterday, in fact the position was already starting to show a small profit. Oh well, my job is to manage this as best as I can, and preserve capital.

Don’t try to be a hero !

“Two minutes chaps.”

It’s Jim.

All three of us sit at our desks now, watching the screens and waiting for the prices to start moving.

First to speak is Mike.

“Bloody hell, HSBC is getting clobbered…”

I glance at the quote, it says 572.50, having closed last night at 622. All the banks are already between six and ten percent down. On the position we are holding, that’s quite a chunk of cash.

“Yeah Mike, watching for some buying here, and on BARC too.”

I am looking at the level II screen, which shows the electronic order book on BARC. Now it was two minutes past eight, and there are a few buyers appearing on the stock. 

I click on the ask price and am immediately filled at 1.72. Now we have an even bigger position on BARC. My plan is to sell the lot on the first bounce. I scribble the entry price, time and size on my desk blotter in front of me..

“Jim, if you see any buying on HSBC, then you know what to do.”

“Sure Chief.”

“OK chaps, lets focus.”

I contine to watch the BARC orders hit the book, it is now trading just above the lows, at 1.74, and I think it looks ready to break above 1.75. I buy some at 1.76, get filled instantly and write the numbers down on the blotter.

Thirty seconds later and BARC is trading at 1.825, I close out the entire position.

“BARC all gone chaps.”

There is no time to calculate the total damage, we still have a lot of stock on the book and I think prices will break the lows, given how far the US futures have fallen overnight.