{"id":114992,"date":"2017-10-19T10:14:26","date_gmt":"2017-10-19T14:14:26","guid":{"rendered":"http:\/\/countingpips.com\/?p=114992"},"modified":"2018-06-01T15:55:31","modified_gmt":"2018-06-01T15:55:31","slug":"30th-anniversary-of-black-monday-is-a-resurgence-possible","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/10\/30th-anniversary-of-black-monday-is-a-resurgence-possible\/","title":{"rendered":"30th Anniversary of Black Monday: Is a Resurgence Possible?"},"content":{"rendered":"
October 19, 2017<\/div>
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By WallStreetDaily.com<\/u><\/a> \"30th<\/p>\n

\"LouisToday is the 30th anniversary of Black Monday \u2014 the bloodiest day in Wall Street history.<\/p>\n

On this fateful day in 1987, the Dow crashed by 22.6%, annihilating the previous one-day record (-12.8%) set on Oct. 28, 1929.<\/p>\n

\u201cAppropriately enough, Michael Jackson\u2019s \u2018Bad\u2019 topped the U.S. Billboard charts. At the cinema, Fatal Attraction<\/em> was a box office smash just as investors\u2019 love affair with the stock market, albeit briefly, was about to end.\u201d \u2014Investment Week<\/em><\/p>\n

When you look at 1987\u2019s pre-crash metrics against today\u2019s, it gets a little scary.<\/p>\n

Check out the image to the right to see for yourself.<\/p>

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Of course, the stock market didn\u2019t have \u201ccircuit breakers\u201d in place in 1987, which might\u2019ve squelched much of the panic.<\/p>\n

Yet still, can we truly justify the hefty valuations of today\u2019s market?<\/p>\n

Or is a crash right around the corner?<\/p>\n

Here\u2019s what you need to know\u2026<\/p>\n

Dealing With a Different Beast<\/h2>\n

\"MartinThe question is not \u201cif\u201d Black Monday could happen again today. Of course it could.<\/p>\n

But it\u2019s important to learn from the mistakes of investors at the time.<\/p>\n

Only idiots lost money during Black Monday. By that I mean those who sold directly after the crash.<\/p>\n

If you avoided selling into the panic, you could have made out like a bandit.<\/p>\n

Indeed, by February 1995, 7\u00bd years after Black Monday, the Dow was at 4,000. That\u2019s almost 50% above its pre-Black Monday peak of 2,722.<\/p>\n

And by 2000, the Dow was trading at four times its 1987 peak.<\/p>\n

With that said, a crash today would result in longer-term losses. Mainly because of interest rates\u2026<\/p>\n

You see, in the \u201980s, Paul Volcker kept interest rates extremely high. This depressed earnings, so the market wasn\u2019t especially high before Black Monday hit.<\/p>\n

That\u2019s the opposite today. Interest rates have been super low for a decade, so stock market earnings are artificially inflated.<\/p>\n

So unlike in 1987, if a Black Monday happens now, you will lose real money. Which means the losses will take longer to reverse.<\/p>\n

The Problem With \u201cCircuit Breakers\u201d<\/h2>\n

\"JonathanAs Hutch mentions above, rising corporate earnings \u2014 fueled by historically low interest rates \u2014 have driven this bull market for nearly a decade.<\/p>\n

But low volatility has lulled the market into dangerous complacency.<\/p>\n

Eventually, we will see a significant correction \u2014 much more than the sub-2% drops we\u2019ve seen so far this year.<\/p>\n

And when we do, it could sting a whole lot worse than Black Monday.<\/p>\n

Allow me to explain\u2026<\/p>\n

Seventy-five percent of market volume is represented by computer-automated trading, according to Reuters.<\/p>\n

Why is this important?<\/p>\n

Two years after the 1987 crash, \u201ccircuit breakers\u201d were installed on the major U.S. stock exchanges to prevent a one-day drop like Black Monday.<\/p>\n

As you may know, a circuit breaker is a software safeguard designed to halt trading on issues experiencing sharp intraday drops on heavy volume.<\/p>\n

But far more computers \u2014 rather than humans \u2014 trade shares back and forth than ever before.<\/p>\n

So when the selling hits, the circuit breakers will certainly pause trades.<\/p>\n

But as soon as the lights come back on, network computers will resume their frantic selling.<\/p>\n

Worse still, if the markets get rocked hard enough, stocks could go completely without bids as automated-trading computers refuse to buy.<\/p>\n

We have seen both happen in 2015 during the August \u201cflash crash.\u201d<\/p>\n

How can investors protect themselves from getting whipsawed?<\/p>\n

With the strategic use of stop losses and keeping a close eye on the markets.<\/p>\n

Just Don\u2019t Be an Idiot<\/h2>\n

\"LouisHistory is our best teacher. Markets might sell off lightning fast, but they don\u2019t keep plummeting. They find a bottom quickly.<\/p>\n

Consequently, as Martin pointed out, only idiots lose money in the throes of a crash. And that\u2019s because they defy all logic and sell in a panic.<\/p>\n

Panic selling is not an exit strategy. Moreover, it never leads to more profits.<\/p>\n

So whether you fear a major crash is right around the corner or far off\u2026 and a subsequent recovery would be swift or a long time coming\u2026 the appropriate response is the same.<\/p>\n

You should position size and use trailing stops. If they get triggered, look to reinvest when the panic subsides.<\/p>\n

If they don\u2019t get triggered, hang tight. The market\u2019s long-term trajectory is still going to be up and to the right. So a little patience, not panic, will always increase your bottom line.<\/p>\n

Ahead of the tape,<\/p>\n

Louis Basenese
\nChief Investment Strategist, Wall Street Daily<\/em><\/p>\n

The post 30th Anniversary of Black Monday: Is a Resurgence Possible?<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

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 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com Today is the 30th anniversary of Black Monday \u2014 the bloodiest day in Wall Street history. On this fateful day in 1987, the Dow crashed by 22.6%, annihilating the previous one-day record (-12.8%) set on Oct. 28, 1929. \u201cAppropriately enough, Michael Jackson\u2019s \u2018Bad\u2019 topped the U.S. Billboard charts. At the cinema, Fatal Attraction […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-114992","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/114992","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=114992"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/114992\/revisions"}],"predecessor-version":[{"id":115014,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/114992\/revisions\/115014"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=114992"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=114992"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=114992"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}