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.
