The dramatic sell-off in the Dow Jones Industrial Average yesterday at 1:59 p.m. CST was not as dramatic as previously thought. The huge downward spike did reflect actual prices but, according to Dow Jones, a glitch in the system responsible for feeding market data into the index calculation system led to a delay in updating the average. Dow Jones has recalculated the performance of the index for that period reflecting the real price movement (see chart below).
The problem spanned 70 minutes and once recognized, Dow Jones switched to a redundant system that immediately calculated all of the component prices and brought the index in line with the underlying stocks creating the appearance of an immediate 200-point drop.
An analysis of the differential between the Cash Dow and the March Dow futures chart shows that the futures contract better reflected the actual movement in the index (see below). While the glitch caused a delay in calculating the actual index, futures prices reflected the actual downward movement in the market as indicated by the differential of the two.
