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Dr. Kris has two degrees from MIT because one just wasn't enough. Her life goal was to figure out the universe and having done that (at least to her satisfaction), she decided to tackle something even more difficult—the stock market. Applying the scientific method along with an insatiably... More
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  • Market Notes: Surviving & Even Profiting From A Flash Crash -- April 23 2 comments
    Apr 23, 2013 6:28 PM | about stocks: AAPL

    4:00 pm ET: It's after hours and Apple stock (NASDAQ:AAPL) has been halted pending their earnings release. As mentioned yesterday, this report could make or break the stock, at least in the short term. After hours trading is typically non-eventful but today's earnings release could easily cause some fireworks.

    ...Okay, Apple shares just re-opened, trading up $20 on news that the numbers weren't as bad as expected--whew! This move will likely cause the tech-related tracking stocks--the SPY and the QQQ's--to jump on tomorrow's open. Today's less-than-bad news should boost the spirits of Apple-heads everywhere, at least until the next earnings release. Keep your fingers crossed that Tim Cook can pull a rabbit (via a new product besides the iPhone5) out of his hat by then...or even darker clouds could gather over the next earnings announcement. Commenting on today's report, a Jeffries analyst on CNBC predicts that the upcoming release of the Samsung Galaxy S4 phone will take significant market share away from the iPhone. Apple had better not rest on its laurels!

    In overall market action, the major averages extended their recent move back up. The jump today in both the Nasdaq and the small-cap Russell 2000 (RUT) was impressive but the fact that the market-leading Dow Transports (DTX) turned around was a bit of a downer. It hasn't been able to break through its downward trending channel and until it does, I won't be taking on any new positions (except for today's Stock of the Day). Also, the VIX is now trading back under 14 which is getting close to being in contrarian territory (typically under 13). The next few days should tell us if the "Sell in May" scenario will come into play this year--right on cue!

    Trade Note: Beware of Jumpin' Jack Flash Crash!
    Today's flash-crash arose because of an erroneous tweet that was hacked onto the Associated Press' Twitter stream. This one tweet caused an instant destabilization in both the equity and currency markets, amplifying just how fragile this market really is. The crash lasted only a few minutes but that was long enough to take out a lot of stop-losses resulting in undeserved investment losses. This event is an unfortunate and (I hope!) unintended result of computerized trading, but it is now part of the "new normal" of the trading environment. This should be a cautionary tale to those of you who have hard stop-losses (i.e., good-until-cancelled sell orders) on your stocks. I understand that many people simply do not have the time to constantly monitor their positions but this is one good reason to set mental rather than physical stops. A better approach might be to set up email alerts with your broker to notify you when your stop-loss level is reached. This way you'll still have the peace of mind knowing that you have some protection while also being in the position of deciding whether or not existing circumstances merit taking action.

    On the other side of the coin, if you have a short position, a good-until-cancelled buy order set at a low price could work in your favor during a flash crash, provided there's time for it to get executed. Some things to consider...

    Subscriber Notes: There is one new Stock of the Day that I strongly urge you to take a hard look at. This company is forging partnerships left and right and is poised for explosive growth.

    Themes: flash crashes Stocks: AAPL
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Comments (2)
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  • Dinoman
    , contributor
    Comments (3) | Send Message
    Greed is good...umm class pay no attention to the man behind the green curtain okay who is ready to cash in on any tragedy with rapid divestment/investment okay
    23 Apr 2013, 09:25 PM Reply Like
  • Dr. Kris
    , contributor
    Comments (361) | Send Message
    Author’s reply » Dino,


    I'm not sure what you're implying but my focus here was to warn people about one danger of setting hard stop/losses on long positions.


    Other people have posted here on Stock Talks about setting extremely low buy orders (on stocks you'd like to own) just in case another flash crash happens. Because of the fleeting nature of these events, the likelihood of getting filled is probably remote.


    Maybe you can clarify what you're trying to say.


    Dr. K
    24 Apr 2013, 01:22 AM Reply Like
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