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No title needed for this post. We all know the insanity that happened yesterday. Just when you think you've seen it all! As I'm sure even your grandmother has heard by now, they are blaming yesterday's 5 minute meltdown on a bad trade but let's call it what it is.... yesterday was a mini crash. Although some of the whacky trades were cancelled there are still a great deal that won't be.

Just prior to the meltdown I was eating some lunch. I flipped on the TV and noticed the market had tanked quite quickly with the NASDAQ at -70 and so I went to my computer to see if something was up. Then the words "holy shit!" came out of my mouth a few times as the meltdown took place. Flashes of late September 2008 no doubt. I figured there had to have been some really bad news that came out which triggered forced selling but I couldn't find any news or rumors that suggested such. Fortunately for me, the small/micro cap positions I still have were down only marginally as the meltdown took hold. I took the opportunity to reduce my exposure even further which now brings me to about 85% cash which is too low for my liking but because I had no idea at the time what the hell was going on...I obeyed the fail safe rule I have... "When in doubt get the fuck out" and because my stocks weren't in free fall like the rest of the market it's not like I was selling into a panic getting shitty fills.

The ironic thing about yesterday is that if it was indeed a bad trade that triggered this, it may have very well caused a major blow up of some big funds to take place which is what I originally suspected. Since only the trades that were 60% higher or lower than the prices registered at 2:40 yesterday got cancelled on the NASDAQ and NYSE, a lot of people still got screwed or were very fortunate depending on what side of the trade they were on. This is why you should never use market stop orders. Put a damn limit price on those stops.

Yesterday's action has pretty much solidified the beliefs of the conspiracy theorists and permabears. There's pretty much a zero chance now that these people will ever be converted to bulls after what happened yesterday. But to be honest, yesterday action does indeed give some justification to be skeptical about what goes on behind the scenes and the stability of the system. There was some whacky trades that took place which although will be cancelled, were mind boggling to have occurred in the first place. This is what happens when you use market sell orders and there's nothing but the stinkiest of stink bids on the board. 1 cent bids were hit on a few stocks yesterday taking them down essentially 100% in 5 minutes! Take a look at QID which is the double short NDX ETF. You would think that there would have been some whacky trades to the upside but it actually dropped some 70% during the chaos!

I'm not surprised to see the weakness in the market today after yesterday's drubbing even though the market rebounded quite a bit late in the day yesterday. With the PIIGs crisis escalating and memories of 2008 still fresh, you can't blame traders and investors for being skeptical about yesterday's "fat finger" explanation and as I said previously the mini-crash may have actually resulted in blowups and perhaps margin calls which spilled over today.

Here's the good news for the bulls. Any complacency that we saw prior to this correction has turned 180 degrees to outright fear. The market is extremely ST oversold...pretty much as severe as it gets if you exclude the 2008 meltdown (whereby such oversold readings never happened prior to it). The put/call ratio closed today at 1.21 which matches the extreme readings registered at correction bottoms in November 2009 and February 2010. The VIX also closed above 40 which is a far greater level of fear compared to what we saw at any prior low in the past 12 months. The flight to the safety of government bonds is also off the charts. All of this stuff points to an imminent bottom.

Offsetting these bullish factors however is the unique uncertainty that the market now face. First it was escalation of the PIIGS situation and now the shaken confidence in the market system to provide orderly liquidity.
Was this indeed a bad trade which coupled with a fragile market already on its way down, exacerbated the downside or is there something more sinister going on i.e. the market senses something really bad is happening or is about to happen like another Lehman. We’ll find out soon enough.One thing's for sure....this market is far from boring! I have a lot of planning and thinking to do over the weekend. I hope everyone has been holding up OK.