Last minute deals are rich for stocks
Posted
Oct 01 2008, 10:13 AM
by
Jon Markman
Rating:
What the heck has been going on with the last-minute trading in many of the biggest stocks on the New York Stock Exchange this week? Traders have waited until literally the very last minute to make gigantic purchases or sales of key big-company stocks -- a rare and unusual practice -- altering their final prices in a huge way and changing our entire view of the real amplitude of the recent record moves.
Yesterday I mentioned on Twitter that the Dow Jones Industrials' Monday 777-point decline was really only -570 because the last 200 points came in the very last minute of trading, as stocks like JP Morgan moved 12% in 60 seconds. It's a weird deal because if you sold the stock at any point in the day except the last minute you got a much higher price than showed up in the final tables. Then on Tuesday came more of the same, as last-minute buying probably accounted for at least 150 of the Dow's record up move.
MetLife traded 9.5 million shares Tuesday, but the only trading that really mattered was the last 60 seconds, when it went from $48.60 to close at $56. Same with Prudential Financial: It was at $68 at 3:58, but then soared as high as $74 before closing at $72 in the next 120 seconds. And same with Ford: It traded around $4.40 to $4.50 all day, but climbed 15% in the last minute to close at $5.20! Imagine if you were selling that stock all day but decided to sit out the last 30 minutes, as investors often do: You missed the stock's biggest advance in a decade!
So what is happening? First of all, all these strange final prints cast a lot of doubt in my mind about the sustainability of the Tuesday rally. It was all just too cute. You can cynically put it down to "window-dressing," the practice by which fund managers gang up to make a quarter seem better than it actually was by marking stocks up at the end of the day. Or you could say that some major short sellers were facing redemption and were ordered by margin clerks or their own house rules to close out trades by buying at the end of the day.
It might be all of those things, but in my view it is mainly emblematic of what life is going to be like without short-sellers playing an active role in the market. Trade has gotten very thin, as there are just too many people on the same side of the market. I think this is going to lead to a lot more volatility and anxiety -- and a period when 600-point swings become more common, if not the norm.
