So what happen at around noon on Thursday that caused the Nasdaq to fall 140 points in the next hour?
I would venture that a box with a smile was turned upside down in a number of large, in-the-know trading firms, but more of that in a second.
The VIX shot up to over 11, which it has not hit for the last three months and the charts show that liquidity dried up very quickly. The FAANG stocks took the brunt of the hit, which makes some sense since they are widely held and have been on a tear.
The move was quick and abrupt, which indicates to me the black box algo trading platforms started the selling and then it intensified through the echo chamber to spur more selling. Not out of the question on light trading day in late July.
What does give pause, however, is the liquidity or lack thereof, on the downside. As the algos and tech-focuses ETF were selling, the chart shows little action to stem the selling on the way down.
While this was little more than a blip on the screen, it could foreshadow a more dire and desperate move perhaps in August when most trading desks are operating on autopilot until Labor.
That said I would not want to suggest that major market participants had an inkling that Amazon was going to tank after reporting a huge miss on the bottom line after the bell.
However, if you look at Amazon’s trading over the day, then a strong case could be made that it led to the Nasdaq sell off.