A Perfectly Stable Market? 18,209 "Mini Crashes" In The Past 5 Years Claim Otherwise

There was a time when the SEC at least tried to pretend the market is safe and efficient for investors. That was before Reg NMS, ATS and who knows what other mandated changes to market structure made a once stable marketplace into a labyrinth of fragmented sub-markets, exchanges, ATS, OTC venues and dark pools, where flash crashes, sub-pennying, HFT scalper algos, feedback loop generating synthetic CDOs aka ETFs, bank internalization and rampant outright fraud made the market into a sad and pale imitation of what it used to be. Of all this, May 6 was merely the culminating point. It is no wonder that since the first of many Flash Crashes investors have pulled money in 29 consecutive weeks: the message is all too clear - the retail participant has left the building...and the market. And to put the final nail in the coffin of investor confidence, we present the following detailed analysis from Nanex, which proves that in the past 5 years trading is nothing short of a travesty. The market analysis firm has conducted the definitive exchaustive analysis of "mini crashes" and has found a whopping 18,209 events of either mini melt downs ot melt ups. We hope Mary Schapiro reads this report and provides us with a refutation of either the analysis or the conclusion. We will gladly provide her the venue she so desperately needs to address an infinitely skeptical public that she has anything under control at this point.

From Nanex:

We have analyzed all listed equities for 2006, 2007, 2008, 2009 and 2010 for potential "mini crashes" in individual stocks. We were surprised at the number of incidents we found.

Parameters used:

  1. To qualify as a down-draft candidate, the stock had to tick down at least 10 times before ticking up -- all within 1.5 seconds and the price change had to exceed 0.8%.

  2. To qualify as a up-draft candidate, the stock had to tick up at least 10 times before ticking down -- all within 1.5 seconds and the price change had to exceed 0.8%.

Because there are so many of these instances, showing all the individual charts on a page would simply be to unwieldy. Instead, we are providing ZIP archives for each year analyzed. Simply download the files, unzip and start viewing. We also made 10 pages with 10 sample images from each year (both down drafts and up drafts) for you to view now.


Down Drafts

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Up Drafts

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2010 909 Download View   672 Download View
2009 1,462 Download View   1,253 Download View
2008 4,065 Download View   4,354 Download View
2007 2,576 Download View   2,456 Download View
2006 254 Download View   208 Download View

An explanation of the chart components can be found by Clicking Here

The chart that in any other country would send Schapiro and her cronies packing is presented below: it shows the daily occurrence of these mini crash events between January 1, 2006 and Noember 3, 2010.

The chart above is probably far more important than any stock chart one can conjure. After all why bother: it is clear that mark to market is currently fatally flawed, courtesy of lack of regulation, FASB co-option, and governmental and Fed involvement.

In short - stocks are noise.

And for the forensic detectives, here is the one event that probably sealed the fate of the market:

Reg NMS:

Regulation NMS was implemented in 2007. For an exact timeline of the implementation phases, please see:

SIFMA Regulation NMS Implementation Timeline.

Many exchanges had completed implementation prior to the required dates. Consider the NYSE Hybrid Market rollout:

Hybrid Phase III - COMPLETED rollout January 24, 2007
Hybrid Phase IV - COMPLETED rollout February 27, 2007

Note that prior to Feb 2007, the NYSE had never been a reporting exchange in any incident.

Now, all the NYSE cares about is how to get the latest Chinese IPO scam off on its exchange as promptly as possible to collect a few dollars and postpone its inevitable implosion now that in its stupidity it made itself (and the SEC) obsolete.