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🥊 «Black Monday» 35th Anniversary: Could the Market Crash Be Repeated?
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📉 The memorable date of the most terrible day in the history of the stock market, many of us did not notice, and in vain. The stock market crash test remains a relevant example of the consequences of «extreme volatility».
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On October 19, 1987, the Dow Jones Industrial Average (DJIA) fell 508 points (-23%) - a wave of insane selling swept through all the stock exchanges. The S&P 500 SPX lost over 20%. The global financial system barely survived such a catastrophe.
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Can this happen again? We hope not. There are two major differences between the situations of 1987 and 2022.
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Firstly, exchange trading is now automatically shut down in the event of a sharp loss of liquidity: the last time this happened was in March 2020, when stocks fell sharply at the beginning of the COVID-19 pandemic. The level of critical StopLoss is set by each exchange independently.
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Secondly, «Black Monday» did not appear by chance: after a rush of unjustified purchases, all stock indices began to decline synchronously three days before the critical moment.
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After the S&P 500 hit an all-time high at the opening of trading in 2022 on January 3, the index then steadily declined by an average of 3% per month. Modern speculators prefer to sell more evenly and there is no dangerous accumulation of volumes yet.
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However, the aggressive tightening of the Fed's policy in an attempt to curb high inflation has provoked a sharp increase in Treasury yields, which is very unnerving for the stock market. Panic-minded investors fear that the formation of the speculative PUT-option required for a similar stock market crash has already begun and the market should be ready to respond adequately.
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Are you ready?
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Profits to y’all!