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Now that the roller coaster has snapped back a bit, time to root out the cause. Obviously, concerns about the sovereign debt crisis is the macro catalyst, and this morning Moody’s (NYSE:MCO) warned that the crisis could spread to banks in Portugal, Spain, Italy, Ireland, and the UK.

But none of that caused a near 1000 point drop in the Dow. The immediate cause was the nosebleed quantity of stop losses waiting just below the S&P 500 support line at 1144. When buyers couldn’t hold the line, sellers pushed prices to the stop loss triggers and … SNAP: the volume of sell orders flooded in from hedge funds and institutions with preordained safety against what everyone fears could be an international version of the Bear Stearns-Lehman Brothers (OTC:LEHMQ) film we saw in the US.

The selling was so robotic, at one point blue chip Procter & Gamble (NYSE:PG) was down 30%! Now Now that’s a fire sale dislocation of price and value.

Disclosure: No positions

Source: Was Crash Precipitated by Stop Loss Triggers?