Market Routs Continue on Black Monday

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Market Routs Continue on Black Monday

By Lex Yaranu | Wednesday, August 26th, 2020

$490 billion! That is the value of the selloff that occurred on August 24, 2020 across stock markets, commodities markets and currency markets. Market players have heard the term Black Monday before, only that this year, Black Monday seems to have come very early.

– India’s stock exchange closed the day at levels not seen in seven years.
– The DOW fell 588 points, making this day the worst day of the year for the biggest American stock exchange.
– The South African Rand plunged to its lowest level ever against the US Dollar.

From Hong Kong to Cairo, Dubai to Mumbai, Saudi Arabia to Russia, the story is the same. Markets are now officially in panic mode. Once again we have been reminded that all takes for a jam-packed room to empty out in minutes in a state of utter confusion is for someone to scream “fire!” People have looked at the situation in China, the impact it has had on the Asian region and the commodities markets, and a few people have screamed fire. Now the panic seems to have caught on globally with the DOW entering its fifth losing day in a row. Each day seems to have been worse than the previous one. At a point, the Dow plunged 1,000 points on Black Monday trading, then recovered before losing ground again to close 588 points lower.

It is left for binary options traders to study the market events very closely as they cover all trading asset classes. These news crate trading opportunities, which the trader can capitalize on from advice given by the relevant professionals.

‘Level 1’ Stock Market Shut Down Barely Scratches 1987’s Black Monday

The S&P 500 index fell drastically Monday triggering the first circuit breaker threshold leading to a temporary halt in stock market trading.

Trading stopped for a full 15-minute period on Monday morning but it hardly compares to the full meltdown of ‘Black Monday’ in 1987. | Source: AP Photo/Michael Probst

  • The initial circuit breaker threshold was breached after stocks fell drastically.
  • The system is designed to pause trading in times of extreme stock market volatility.
  • Comparatively, there have been worse days in the U.S. equity markets.

After the S&P 500 nosedived by over 7% Monday, the initial market-wide circuit breaker threshold was breached leading to a temporary halt in trading. Market activity was suspended for 15 minutes in the U.S. equity markets in line with the rules.

Market volatility thresholds

Per the rules, circuit breakers are triggered after a drastic drop in the S&P 500 index. A decline of 7% from the prior trading sessions’ close activates the Level 1 circuit breaker threshold. This pauses trading for 15 minutes.

If the index falls by 13% from the prior trading session’s close after the resumption of trading, trading is paused for another 15 minutes. The decline must occur before 3:25 p.m. ET for the second circuit breaker threshold to be triggered though.

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A fall of 20% from the prior trading session’s close in the S&P 500 triggers the Level 3 circuit breaker.

History of the market-wide circuit breakers

Despite the existence of market-wide circuit breakers for decades, the system failed to prevent the May 10 th , 2020 flash crash when the Dow declined by over 1,000 points. At the time it was the biggest drop in the Dow’s history.

This failure resulted in the Limit Up/Limit Down (LULD) Plan which was approved on May 31 st , 2020 by the Securities and Exchange Commission. The plan was made permanent last year on April 11 th .

The events of today pale in comparison to the Black Monday market crash of three decades ago. So far the stock market circuit breaker has only been triggered once. On October 19 th , 1987 all three levels were activated after the S&P 500 fell by 20%. The Dow, on the other hand, fell by 22.6% on the same day. The day is popularly referred to as the Black Monday crash.

What caused the Black Monday stock market crash?

The market crash was blamed on among others falling crude oil prices, geopolitical tensions and an ailing U.S. economy. Computerized trading, which was still at its infancy, is also thought to have contributed to the market crash.

Currently, the S&P 500 index is down less than 6% from Friday’s close. While the decline is significant, if the drop does not escalate further, it will not only pale in comparison to the Black Monday crash but the 20 worst days in the index’s history.

The next five worst drops in the index’s history, with declines ranging between 9.1% and 12.9%, were all recorded pre-1940. In recent memory, the worst stock market crashes were recorded in 2008 at the height of the global financial crisis.

This article was edited by Samburaj Das.

Worst stock market crash ever is coming – Max Keiser on Black Monday’s 30th anniversary

RT talked to Keiser Report host Max Keiser about the root causes of the 1987 crash and the possibilities of another market meltdown.

Today’s stock market has parallels to the 1987 market, said Keiser, adding that “valuations are at historic highs.”

“The Fed (and central bank counterparts) are pumping money, and sentiment is wildly bullish.”

Analysts have been warning recent stock market moves look eerily similar to just before 1987’s ‘Black Monday.’ Investors also raised concerns steep valuations might mean a correction is overdue.

On October 19, 1987, stock markets around the world crashed, shedding billions in value very quickly. The crash began in Hong Kong and spread to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones Industrial Average which comprises the 30 largest US publicly traded companies, lost 22.6 percent of its value that day.

Keiser says to understand what happened with the market we have to recall the global financial crisis of 2008.

According to him, “unprecedented amounts, over $20 trillion in cash, was printed and thrown at Wall St. creditors to repair their technically insolvent balance sheets.”

“There was no reform or attempt to reign in the crooked behavior of bankers at all. In turn, they interpreted this as a ‘green light’ to keep doing what they had been doing that led to the crash; namely, engage in extreme, reckless borrowing to speculate.”

A former stockbroker, Keiser said that now in 2020, the debt pyramid has never been higher. “Just one indicator of this would be the sovereign bond market in the US and UK that are trading at multi-hundred-year highs thanks to the Ponzi-economics of central bank debt monetization (printing money and buying back their own debt).”

Talking about the risks of another Black Monday equities crash, Keiser said it is impossible to say exactly when “this truckload of market risk explodes but it’s 100 percent guaranteed and will be by far the biggest loss of wealth ever recorded.”

He added that “countries like Russia are smart to be loading into Gold and initiating crypto strategies ahead of the ‘bond-pocalypse’ and equity inferno.”

Individual investors should be doing the same, Keiser said.

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