Stock Market Fragility Fast Approaching "Flash Crash" Levels

Tyler Durden's picture

This past Friday, on the 25th anniversary of Black Monday, Bill Gross warned that in the current centrally-planned market "central bank puts" are the modern day equivalent of "portfolio insurance", and he is right. By sending complacency to record levels, and essentially forcing investors to no longer worry, hedge and generally ignore tail risk, the central planners, in their futile attempts to reflate stocks at all costs, are guaranteeing that the market will experience just the type of fat tail event they promise will never occur. As for the catalyst that will make sure of it is none other than our old friend: high frequency trading. Because while central planning is the mechanism by which investing is dragged away from mean reversion, price clearing and fair value discovery, it is HFT that is Bernanke's analogue in the millisecond trading world (as all those who had stop limit orders (that did not get DKed) on May 6, 2010 very well remember). Because when the next Black ___day does happen, it will be due to central planning, but it will be enacted courtesy of HFT (which will never go away until the next and probably final market crash: too much exchange revenue depends on the perpetuation of this parasitic liquidity drain).

Which is why it is only appropriate to warn readers that when it comes to system market fragility, at least according to Nanex, whose work ZH first presented nearly two years ago and has since gone mainstream now that HFT is the universal scapegoat of even such legacy media venues as CNBC (it is always better to bash the vacuum tubes than the people who profit, or those who have made a mockery of the stock market - it is not like anything will change anyway), the frequency and magnitude of "wild price spike" events (to put it simply) are now both rising at an exponential rate, and fast approaching Flash Crash levels.

From Nanex:

Below is a chart showing the daily counts for all NMS stocks of prices that exceeding NxCore filter level 6. Filter levels range from 2 (lowest) to 7 (highest). Stock prices flagged at these levels are almost always canceled or corrected by the exchange later in the trading session.  The chart below indicates that wild price spikes are happening with greater frequency and magnitude. The highest peak on the right side of the chart is from the October 9, 2012 "Mini-Knight" event.


1. Daily Count of NMS Stocks with Prices Exceeding NxCore Filter Level 6 Since the Flash Crash.
The  Flash Crash had 1,361 of these events, which would skew the scale.

Remember: with just two months left until the Fiscal Cliff deadline, and Congress not one picometer closer to a compromise resolution, there are just two catalysts which can get the House to cross the aisle and do what is in this nation's interest: i) a "rally behind the flag" war (which is certainly an option), or ii) a massive market crash that wakes everyone from their "the Chairman will get to work and fix everything" stupor and forces the cliff to be resolved or else everyone's political career will be cut short.

So keep a close eye on the Nanex core feed and abnormal market activity. At this rate, the next wholesale stock market flash crash can not be too far away...

P.S. for those curious about macroeconomic implications of systemic instability and macro stress tresholds, we urge re-reading ""Trade-Off": A Study In Global Systemic Collapse" - because in today's 'just in time' world, an "equilibrium phase shift" is always just at most minutes away, and no, you cant hedge 'after' the event.

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The Shootist's picture

I'm hoping for a bloodbath tomorrow...


There will be blood -for the NasdApple, and the Goog. Gold and silver will be an illusionary crash.

HelluvaEngineer's picture

I'm looking for an opportunity to convert my VIX calls into bricks of silver.

Jason T's picture

farmland is getting interesting too..

LawsofPhysics's picture

Farmland has been getting interesting for quite some time now. Fresh water will be next.

nmewn's picture

(Hijacking top of the thread for a moment)

Just gotta say, nice catch almost let it get away...butter fingers ;-)

fonzannoon's picture

hope for the status quo still reigns

nmewn's picture

Print & carrion...I mean carry on ;-)

Super Marco's picture

Homeland season 2 is becoming interesting too... oh right markets.

LongSoupLine's picture

I'm looking for an opportunity to sell my 1st born for some more silver.

(Wait, did I say that outloud)

CJHames's picture

You did, and I respect the hell out of you for it.

You can always have more kids.  As long as you stay out of China.

franzpick's picture

The recent, and surprising, top-line revenue misses, along with Friday's 12 month chart-uptrend breaks led by NDX, tell me we're facing a possible Oct. 1987 repeat collapse, in which AU may well be also taken out behind the barn, but TD's July 2011 best-chart-ever tells me that gold is really tracking the 12 year old, probably-never-ending upward spiral in the u.s. debt limit, and, inversely, the evaporating value of sovereign debt worldwide, but waduino:

Captain America's picture

Its all about the $SPX 50 and 200 Month Moving Average crossing.  The spread is 4 points.  One year ago . . . 60 S&P points.  Time to let loose the hounds.

samcontrol's picture

you are gonna lose big with vix calls , are you a kamikazee?

Non Passaran's picture

Why not, bring it on!
I am "armed" with short positions of all kinds.

fonzannoon's picture

i am too although i think when the shit really hits the casino is not going to pay

DoChenRollingBearing's picture

Sell short, get your money first!  Then let the casino wonder if YOU will pay THEM when you cover...

DoChenRollingBearing's picture

@ The Shootist  

Barron's would be taken much by surprise if so...

I agree with you re Au and Ag.  "Review of Barron's -- Dated 22 October 2012":

Cursive's picture


 i) a "rally behind the flag" war (which is certainly an option), or ii) a massive market crash 


If the DOW dropped 1000 points in one day again, me thinks CNBS et al would consider it a Pearl Harbor-like event.

HelluvaEngineer's picture

Nah, the Germans would never bomb us again.

Schmuck Raker's picture

"Fat, drunk, and stupid is no way to go through life, Mr. Summers."

Dead Canary's picture

Yea, CaddyShack was a great movie.


ArrestBobRubin's picture

Enough is enough. Time to Take Out the trash...

Must-read latest essay from JB Campbell: Extremism Online

Civil War

Campbell was interviewed earlier today on RBN by Dr. Rebecca Carley, hear it commerical-free here:



HegelianDialectic's picture

I could not agree more emphatically. In fact, it sounds like JB and Vidrebel maybe brothers from another mother as their strategies are nearly identical.

toomanyfakeconservatives's picture

The fear bots always call me out when I mention the coming MASS ARRESTS. However I believe in a Constitutionally-legitimate civilian coup, not a military one...

Henry Hub's picture

Hey what a great way to solve America's problems...a military coup. What a great idea. Why didn't I think of that? What could go wrong?

ZeroAvatar's picture

Awesome, ABR.....made hard copy.

Bear's picture

You can get your money down right now ES at 1422 (-2.00)

markar's picture

Why do I get the feeling there is a fat finger out there that doesn't want Obama re elected?

Overfed's picture

I sure as hell don't want O'bomb-a to be re-elected. Trouble is, I don't want Ro-money either.

XtraBullish's picture

What a great post. Thank you Tyler.

That really did sum it up.

I went XtraBullish on the VIX on October 5th at 14.

HungryPorkChop's picture

XtraBullish: I've seen the VIX data before and didn't realize this was a possible stock.  So dumb question, even if stocks fall in a crash which creates volatility does the VIX price go up? 

Pure Evil's picture



How the VIX works


Google, its not just a pretty face.

Jake88's picture

Yeah it's called Google and its on the internet. It is amazing.

a growing concern's picture

The internet: more than just a series of tubes.

willwork4food's picture

Nice article Tyler.

Once upon a time, when I had more money than brains, I traded commodities & day traded stocks. It was really, really funny how a stop I had would get hit exactly then go the other way 2 seconds later.

If you need the market to live you better know what the f*ck you're doing or have the luck of the Irish with you. O, wait...

samcontrol's picture

so now you have less money and more brains , how usefull.

klockwerks's picture

For a long time now I have been expecting a planned crisis, an October surprise if you will,  that would shake the worlds financial centers. The HFT could easily manage that and by the time you would get up in the morning a "crisis" would already be declared by "O".  Hope I am very wrong but it would be so easy to pull off, not to defeat but retain the current administration.  As many ZH readers have stated many times, the whole worlds finances are on the edge and would take but a small nudge to go over the cliff. When something effects the econmy that large it would effect every single individual. Very sad when the whole of our economy is hanging by a thread which an individual or group could cut and it would fall in mere seconds thus satisfying their agenda in full. It's all about timing so think back to Oct of 08, SURPRISE!

grid-b-gone's picture

Catch 'em leaning. If it can topple a fishing boat, it can topple any system that does something to excess.

Analyse failures in history. Too much debt, too little food, too much expansion or domination, too much debased currency, too little water, too close to volcano, too trusting of presumed allies, armies too far from home, too far below sea level, too far behind technological developments, too trusting of engineering worst case scenarios (actually politically-based worst case calculations), or enemies too willing to dig in and wait it out.

All a planned crisis gets one is relected into a bad economy with a new crisis - not the best possible action. Alternatively, a $9 million book deal, benefits for life, and hitting the lecture circuit are not altogether undesirable elements of a plan B. 

klockwerks's picture

Grid, good response and I have thought about that same thing. The assumption here would be that one would consider the "good life" over absolute control and power. I don't think it's about one idividual but rather a "group" attaining that total agenda controling all things. Maybe the "one" moves on but the group maintains the power and control over all things. The good lfe would appeal to almost everyone but everyone is not looking for complete control. Penetta has twice given speeches in the last 2 weeks about how vulnerable we are as a nation to computer hacking and included banking, water, stock market etc. These terrible people in wherever, could do great harm. Is it a warning of things to come or "don't look at me I warned you". I'm not paranoid just listen closely and use 68 years of common sense. Something seems to be rotten in Denmark!

Dr. Engali's picture

It's almost as if a civilization comes along with a deathwish hard wired into them.

grid-b-gone's picture

Precisely why ZH references to Fight Club are so relevant. I wouldn't call it a deathwish, but we do seem to be hard-wired with the same base instincts our ancesters had 10,000 years ago and we just can't seem to shake them.

As a human race, we have tamed this earth to the point that all six billion of us could live pretty safe, free, and well-fed.

Part of us can get along in the workaday world, but that unconscious part always seeks more. More money, more prestige, or simply the need to affect our surroundings beyond just choosing new kitchen cabinetry and paint colors.

We can try to live within our public ego structure, but our unconscious id will eventually make us want to test ourselves, for celebration and camaraderie, if nothing else. 

This often dormant drive is wonderful when it results in mapping an entire genome or remotely probing an uninhabitable planet millions of miles away.

Those base human drives and urges can be much less supportive of the greater good when they result in central bankers with an unyielding need to be proven correct, or a leader moving toward socialism while at the same time reserving for themself the power to suspend core rights of citizenship. 

On a long enough scale, none of us makes it, but we all want to make it as far as we can on our own terms, which is about all we can hope for within the constraints of a few simple rules.  


Cabreado's picture

"Very sad when the whole of our economy is hanging by a thread"

yes, but

"it would fall in mere seconds thus satisfying their agenda in full."

they have a distaste for chaos, are certainly not ready to induce it, and the backstops are in place for now.

Keep in mind, "they" is a loosely connected, symbiotic mess of the self-absorbed -- they suck at planning anything.

But they are, appropriately, quaking in their boots.
What they fear most -- and naturally recognize first -- is that their Self-Propelled illusion is finally exposed to the world as a farce.

They are in self-protection mode -- there is no planned crash.

LMAOLORI's picture



+1 I could see that happening. What a white wash that investigation was and wasn't it convenient that the banks backed obama at that time and none of them have been prosecuted. I still believe that creepy evil soros had something to do with that he's a convicted felon who has manipulated the markets.  He paid a record fine for doing so in Hungary.  I wouldn't put it past the bailed out buffet either.


Aug. 14, 2012


Hedge fund Soros Funds has filed his quarter 13-F report with the SEC.

According to the report, Soros completely dumped his stakes in Citigroup (420,000 shares),JP Morgan (701,400 shares) and Goldman Sachs (120,000 shares), leaving him with no position in any major financials at all.


Soros Gold Action Speaks Louder Than Trumpeted 'Bubble' Words




ekm's picture

When you see Mutual Funds selling stocks due to redemptions requests for 30 something months in row, ask the question:

Who is buying?

The answer is: The ones who have access to infinite money

Who are they?

The answer is: Primary Dealers


A Pyramid Scheme relies on NEWCOMERS. Not only there are no newcomers (suckers), but the supposed newcomers are selling and selling and selling for 30+ months in a row. Hence Primary Dealers are the suckers.

Same as in 2008 when the decision was made that Lehman will be the sucker amongst primary dealers, I am thinking right now CEOs of the WEAKEST primary dealers are playing poker. The loser will take the blame for the inevitable market crater. However, the way I see it, they will always try to blame it on China.


I bet that MS is going down, but C could be the one.


fonzannoon's picture

cnbshit was laughing their ass off on Friday as they all admitted they had no clue who was actually in this market...