Market Like 1987 Again?
With Thursday being a downside rout that closed near the low for the day, stocks normally see two way action during the next morning before the opportunity for a stronger move comes after lunch. When markets are in the throes of a decline and I would hesitate to call this a decline of significance at this point, many of us turn to history for price analogs. The crash of 1987 really began to unravel the week before which was options expiration week.
Downside momentum kept building from Wednesday’s open and Friday was a disaster. Stocks crashed on Monday as a confluence of events unfolded not limited to newly appointed Fed Chair,Alan Greenspan, raising rates too quickly, Treasury Secretary James Baker announcing that the U.S. would not defend the dollar and this new, cutting edge institutional risk management program called portfolio insurance which essentially sold more S&P 500 futures the lower stock prices went. And the lower stock prices went, the more contracts that were sold. It was a snowball or pile on effect, much like the Flash Crashes of 2010 and 2015. Anyway, I bring this up not because I think stocks are going to crash 20% on Monday. I don’t. It’s just an interesting tidbit which you may hear about in the media, especially from the gloom and doom crowd.
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