You Were Warned About State Street

We put up a post yesterday afternoon that focused on the chaotic drop we were witnessing in shares of State Street ( STT).

In that post, we warned investors that were thinking about chasing the move down on the short side. I have seen those moves happen in my many years of being a trader. It was a classic "bear trap" that was being set up. Unfortunately, the "disappearing bids" hurt the long investors that were looking to get out when the first signs of the free-fall occurred. Here's the scenario:

Joe Trader needs to move a decent-sized block of shares upon getting a whiff of the rumors that were out there yesterday -- money market safety, exposure to Lehman, etc. Joe Trader calls up his broker to try and move a big block, and that's when the pain starts.

Instead of dumping all the shares on the first drop from $66 to $60, the Joe Trader peels off some, thinking he doesn't want to sell at the bottom. He stays on the line with a constant ebb and flow of "Where's the bid now?" His palms start to sweat, thinking it's only a State Street issue. He then starts peeling off the rest of his shares at any price he can get, $55, $50, $45, $40, $35, and yes even down to $30.

What Joe Trader may failed to realize is that Northern Trust ( NTRS), Bank of New York Mellon ( BK), and Federated Investors ( FII) were also getting tagged at the same time. This is the type of trade that makes people quit the business, as the result completely decimates the investor and his confidence in the markets.