As the Dow, S&P 500 and Nasdaq slammed down on the open Monday, we got a firsthand look at what indiscriminate selling looks like.
The initial trigger was a likely a combination of spillover from Asian and European markets. As these closed at their lows, traders who provided exits (were buyers) had to hedge that long exposure as best they could and that meant selling in U.S. pre-market as well as on the open. This pressure took futures down triple digits which, I imagine, panicked some investors and they entered orders to sell their long positions and cut the pain.
Some were likely prudent enough to offer these trades at a limit price, but a host of others and a clear majority must have entered market orders, meaning they would sell at ANY price. It's this indiscriminate selling, from these individuals and from brokers selling to satisfy margin calls that put the turbo on the market selloff.
In virtually every case we examined using our Heat Seeker technology, the opening price of securities was 3 percent to 7 percent above the lowest traded price, which came within mere moments of the 9:30 am open. Apple for instance opened at $94.87 but immediately traded to $92 (down 3 percent). Facebook opened at $77.03, but traded to $72 (down 6 percent) in minutes. It was this second leg down that took market losses to a paper loss of $1.2 trillion just after the open.