A strange thing happened fifteen minutes after stock markets opened for regular trading on Friday, August 21, 2015. At least some people on the nationally prominent MarketWatch website were privileged to see in advance what would prove to be the full-day losses for both the Dow Jones Industrial Average (INDU) and the Standard & Poors 500 (SPX) indices. This harbinger or revelation of what was to come occurred six hours and fifteen minutes before the market's close. The uncanny trend projections, or perhaps target prices, were made available while the Dow was down about 180 points -- more than 350 points above its astonishing Friday close.
Here is the way the index price change harbinger developed. On Thursday, August 20, the Dow closed at 16,991, down from an intraday high over 17,500 earlier in the week. The Thursday close of the S&P 500 was approximately 2036, down from an intraday high above 2100 earlier in the week. The following day, Friday, August 21, both indices dropped significantly at the opening: the DJIA to slightly over 16,800 within five minutes and the S&P 500 to several points below 2020. Fifteen minutes into the trading day both indices were holding in the same general area: the Dow at 16,812 and the S&P at 2,016.
What happened next is difficult to comprehend. At approximately 9:45 a.m. EST with the Dow at 16,812, MarketWatch's front page showed the Dow at minus 533 points. In reality, the Dow was down only 179 points. Amazingly, the 533 point projected decline was just two points off the 531 point actual loss that would be booked at day's end when the Dow closed at 16,469.75. Now that's bulls-eye accuracy! Something similar happened with the S&P 500, which showed a price of 2016 at approximately 9:45 a.m. EST, the price reflecting a 20 point drop from the previous day's close. Yet, the point decline for the S&P 500 on MarketWatch's front page showed as 63, just two points off the index's day end loss of 65 points. In a 2,000 point S&P index, that's accuracy within 1%. How could a stunning one-day decline in a 2,000 point index be projected within 2 points of the 1971.89 close? How could the Dow's ninth largest point decline ever, and largest point decline since August 8, 2011, be projected within one percent? Why did a price change target show up on the data feed for the market's real time pricing? This is a bizarre occurrence!
Alternative Explanations
A couple clues as to what was happening should be noted. In the case of the S&P 500 as well as the Dow, Marketwatch's front page showed an accurate price level at 9:45 a.m. This means the electronic information feed was correct. The error -- or harbinger of the day's close -- showed in the point change and percentage change columns. This may suggest that MarketWatch's security was breached from the outside, or perhaps it was fed errant price change data. An algorithm-based price target entered secretly might cause this. Conversely, this front page fiasco might suggest a comedy-of-errors originating on the inside: perhaps an analyst's projection of where a bad trading day might end was mistakenly inserted into the point change ticker display. No accusations are leveled here. This is simply a matter of raising questions and seeking answers: the type of investigative work that should be performed concerning a day when stock market capitalization in the U.S. declined by a very considerable $562 billion.
To project figures within 1 percent of the closing price on a normal trading day is no small challenge. But to make such a projection on a day of extraordinary declines suggests an uncanny extrapolation at the minimum. Disconcertingly, the projection or target could also hint at an attempt to manipulate market outcomes. It might suggest the existence of a behind-the-scenes money-power group that is able to orchestrate particular outcomes by sharing a coded index price target for powerful traders. Such an effort might be bolstered by inserting worries or fear into the marketplace, thus causing weak hands to capitulate and sell shares as a means of managing risk exposure. If so, this would add to downward momentum, thus easing the work of realizing certain price targets at the market's Friday close.
What are the Odds of a Benign Explanation?
An analysis of the possibilities should begin with an explanation proposing the least culpable causes. Assume a thousand market analysts are doing index price movement extrapolations during the first five minutes of Friday's trading day. Based on odds alone, someone is likely to craft a projection that comes close to how the day will end. Cynically speaking, there are only 777 point possibilities for a index decline between 1 point and the record 777 point Dow decline booked on the panic day of September 29, 2008. That said, several important considerations warrant attention. First, most analysts will project a bounce before the day is over, as the established pattern is that short-term traders are buying the intraday dips and interday dips on the theory that central banks have our backs (the central bank put). Second, in projecting a bad day almost all analysts will project something under a 2.5% decline, as larger declines have been rare in the last 30 years, apart from 2008. The odds of projecting a 500 point decline on the morning of its occurrence are remote. Third, if an analyst's happenstance projection turns out right, the odds are that he slipped the fringe projection into his desk drawer and only showed it to his drinking pals after a perchance favorable outcome makes his dumb luck look smart. Finally, assuming a rare guru-analyst correctly extrapolates the day's massive decline on two separate major indexes, what is the chance that he or she will be the very person who has access to tamper with a price change feed, inside or outside MarketWatch?
Sufficient Influence to Evolve a Reality?
Why would someone go to the trouble of planting the price targets into the data feed unless he or she had confidence that there was an intelligentsia movement that would be watching and ready for the coded trading plan -- an ad hoc group with the financial power, access, information advantage and technical wizardry to bring about the targeted index close, assuming the majority of individual participants in the movement marshal their trading activities to maximize their profits within the parameters of the market close price targets? Indeed, brazenness in leveraged trading is facilitated by a confidence that one can stretch further because other team players are guarding one's back. (It is worth remembering that the achievement of certain technical price goals in market indices aids in the generation and maintenance of macro-price trends that can be efficiently gamed by computer-based trading systems.) Viewed in this light, faith in the least culpable explanation demands considerable incredulity. Consequently, there is good reason to probe deeper.