On trading floors, fear of what tomorrow will bring

On trading floors, fear of what tomorrow will bring

By Angela Moon and Edward Krudy

NEW YORK (Reuters) - At the end of the worst day for U.S. stocks since December 2008, traders at Knight Capital huddled in groups, staring at their computer screens, wondering whether tomorrow would bring more pain.

"It's scary, it really is," said Joseph Mazzella, senior equity trader at Knight, who had been watching the market's intraday lows, hoping stocks would stem their selling.

"I hate it when the market closes below its low, as it sets the stocks up for a follow-through tomorrow."

The atmosphere at Knight Capital in Jersey City, one of the biggest trading venues in the United States, was tense, and grew more heated into the close.

U.S. stocks plunged on Monday in the busiest session since the "flash crash" of May 2010. The S&P 500 lost 6.66 percent to close at 1,119.46, just a few ticks shy of the day's low -- a sign that the selling may have not exhausted itself.

Selling picked up after President Barack Obama's speech regarding Standard & Poor's unprecedented downgrade on Friday of the triple-A credit rating of the United States. His words did not appear to relieve the worries investors have about the political process, which has offered few solutions to the nation's habit of spending beyond its means.

William Suplee, a certified financial planner at Structured Asset Management in Paoli, Pennsylvania, said he had received several calls on Monday from worried clients.

"This sell-off is uniformly blamed by my clients on the government's inability to act rationally," he said.

NO PANIC ON THE FLOOR

If there was one place where relative calm prevailed, it was on the trading floor of the New York Stock Exchange, where volume spiked and traders watched the three major U.S. stock indexes slide -- but in a seemingly orderly fashion.

"It was a busy day, but there was no panic on the trading floor. We had two days over the weekend to digest the S&P downgrade news and think about what we are going to do Monday morning," said Doreen Mogavero, an NYSE floor broker and the president of Mogavero, Lee & Co.

After living through the flash crash of May 2010 and the horrific moments of the 2008 financial crisis, Monday's 6.66 percent drop in the S&P 500 seemed easier to digest.

"Some people had to cancel their weekend plans and vacation plans to be here. I would say the floor today is fully staffed. Everyone who has to be here is here."

That's not to say people took the day lightly. Options trading volume spiked to 41 million contracts, a new one-day record, according to the Options Clearing Corp., a sign investors were busy protecting their portfolios.

WHEN FEAR TRUMPS GREED

Monday's decline left the S&P 500 down 17.9 percent from its 2011 closing high, reached on April 29. That put the index close to a 20 percent drop from a recent peak, which Wall Street defines as bear market territory.

In a conference call with analysts, Stifel Financial CEO Ron Kruszewski said: "You can make an argument that today presented a buying opportunity, but I see a lot more caution than I see risk-taking. So fear is still trumping greed at this point."

Knight's trading floor, which can house nearly 400 traders, was sparsely populated due to the August holidays.

But at least one senior trader cut short his long weekend to be on hand.

Mazella grew optimistic as a dive in the late afternoon was met with some buying. Another trader at Knight Capital shouted out that a boutique investment fund put in an across-the-board buy order for technology shares.

"We are starting to see people put money to work right now," Mazella said.

It wasn't enough to hold back the wave of selling, however.

The CBOE Volatility Index VIX <.VIX>, Wall Street's fear gauge, surged 50 percent to end at 48, its biggest one-day percentage gain since February 2007.

Peter Costa, president of Empire Executions, who trades options, including the VIX, on the NYSE, said, "It wasn't a pretty day but then again, trades were done orderly."

(Reporting by Angela Moon and Edward Krudy; Additional reporting by Joseph Giannone and Lauren Young; Editing by David Gaffen and Jan Paschal)

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