The Dow drops off a cliff, thanks to a snafu

Sometimes sellers sell too fast.

MarketWatch: In-depth global business coverage The eyes of all stock-market followers were glued to their computer screens Tuesday to see just how far the Dow Jones Industrials Average could fall. It was end-to-end action, with the blue-chip barometer tumbling 416 points, the biggest one-day point drop since September 2001. At one point during the session, the point loss reached 546 points. But if you blinked at around 3 p.m. Eastern time, you would have missed the knockout punch, as the blue-chip barometer plunged nearly 200 points in an instant. The move was so severe that many believed it was just a computer glitch. "It happened, but it didn't really happen," said Steve Goldman, chief market strategist at Weeden &Co. He said the move was "right" in the fact that the market was down about 500 points, but it was wrong in the size of the index's move at that moment. A look at an intraday chart of the Dow shows a sudden move from around 12,343 - a 289-point loss on the day - at 2:58 p.m. Eastern to about 12,165 - a 467-point loss - within the next minute. "I believe that stock data was just not being updated in a timely fashion," Goldman said. "When it was, right around 3 p.m., the index just fell." At that point, the drop in the Dow accelerated and in a few moments was down 546.20 points because of a price tabulation error at Dow Jones, which calculates the average in real-time and transmits the figure to market-data providers. According to Dow Jones, there was a temporary lag in its calculation and when a backup computer came on line, the displayed average instantly spiked lower to catch up with the current level. Dow Jones is the owner of MarketWatch, the publisher of this report. "What happened was, at about 2 p.m., we had extraordinary trading volume coming in and the calculation of the Dow Jones Industrial Average lagged," said Sybille Reitz, a spokeswoman for Dow Jones Indexes. The move in the "Diamonds," the tracking stock for the Dow, and the futures on the Dow made their big moves a little earlier, and a little more gradual, however, and had actually bounced slightly prior to the cash Dow's blinding move. For instance, the Diamonds ended 2:58 p.m. Eastern at $122.39 and were at $122.20 at 2:59 p.m. The big move happened at 2:55 p.m., when the Diamonds fell from $122.75 to $121.63. The Dow futures also made their big move at 2:55 p.m., dropping from about 12,230 to about 12,177 in a minute. At 2:59 p.m., the futures fell from about 12,200 to about 12,180. When the market is really moving, it's a lot easier for one price to be updated than the 30 stocks that make up the Dow. The Japanese like to say that fear never rides a tortoise out of town. Right or not, there were a lot of scared people on Wall Street at 3 p.m. on Tuesday. MarketWatch: In-depth global business coverage