John Melloy points us to Lon Juricic, who crunches the numbers, and discovers that the 998 point whoosh was actually closer to 1250 points.

How?

The Dow actually fell closer to 1,250 points — if you calculate the average using low prices for stocks that traded away from the NYSE.

Off exchange trades that were allowed to stand:

“This is not using the trades that were busted because they were 60 percent off the market, according to Lon Juricic, who ran the shocking numbers for his informative research site StreetInsider.com. These are trades that stand for the stocks, but just didn’t go into the index calculation. The low for Procter & Gamble [PG] during the quick collapse was $39.37, which occurred on another exchange and still stands to this day because it was within the parameters of legitimate trades as dictated by regulators and the exchanges. But the low price for P&G that went into the Dow calculation during the crash was $56. Juricic calculated his new Dow low of 9625.97 for that day just like the Dow Jones Indexes service does, but using these off-exchange lows. He added the 30 components up using the $15 low for General Electric [GE], the $67.98 low for 3M [MMM] and so on. Then he divided by the Dow divisor for Thursday. The divisor is an essential part of calculating index levels which accounts for stock splits in the member stocks through the years.”

Pretty wild stuff — and that is likely how the index should be calculated — based on actual trades (Assuming they all occurred at the similar times) . . .

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Source:

Did Dow Actually Drop 1250 in ‘Flash Crash?

John Melloy, Executive Producer, Fast Money

CNBC, May 12 2010

http://www.cnbc.com/id/37109515