If you examine price volatility you see that price movement in stocks has a measuring tool called the VIX, which represents how wide the range of price is in a defined period. There are many indicators of volatility, but it’s best to take the original one and use it to compare historical events. The price volatility we have experienced in this millennium which includes the housing crisis of 2008 and coronavirus of today is unlikely to happen again in your lifetime, so take a minute and look at the Dow down -2000 followed by an up day of +1000. Understand the previous matching volatility was 1929 and 1987, so in your lifetime you might get volatility like we are having now maybe 5 times – so what you are seeing now is special.
They did not measure price volatility in 1929, you only have the percentage moves day-to-day to use as a comparison, but in these rare events, you have near 25% of your asset value lost in a single day. This gets everyone’s attention.
Today in March 2020 we get emails like this which are rare listing the circuit breakers.
Sent: Wednesday, March 11, 2020 8:22 AM
Subject: SP March futures day session trading limits and reminder of key technical level in the SP cash
From 8:30am to 2:25pm CST: there are three limits….in the March futures they are…
• 7% which is 2676.50
• 13% which is 2503.5
• 20% which is 2302.00
From 2:25 to 3:00pm CST: the only limit is a 20% decline (2302.00 today)
From 3:00 to 4:00pm CST: the limit is either 5% below the 3:00pm CST reference price or the previously established 20% limit, whichever is closer to the 3:00pm CST price.
A trading halt is only triggered if the NYSE Rule 80B is enacted. So, if the futures contract gets ahead of the cash, trading will continue in the future, within the price limits, until the NYSE acts.
When trading is halted, it is halted, even if you want to buy above the limit down level.
Trading resumes when the NYSE says it does, the time of a trading halt is variable, depending on the underlying situation.
The daily low in the SP cash on Monday and Tuesday were almost identical, 2734.43 and 2734.00, respectively. The 0.618 retracement from the low of December 26, 2018 and the high of February 19, 2020 is in that vicinity as well, 2746.51; close enough to the recent lows if you use a thick enough charting crayon.
When you look back and compare market drivers during the 1920s, the U.S. stock market underwent rapid expansion, reaching its peak in August 1929 after a period of wild speculation during the roaring twenties. By then, production had already declined and unemployment had risen, leaving stocks in great excess of their real value. Among the other causes of the stock market crash of 1929 were low wages, the proliferation of debt, a struggling agricultural sector and an excess of large bank loans that could not be liquidated.
Stock prices began to decline in September and early October 1929, and on October 18 the fall began. Panic set in, and on October 24, Black Thursday, a record 12,894,650 shares were traded. Investment companies and leading bankers attempted to stabilize the market by buying up great blocks of stock, producing a moderate rally on Friday. On Monday, however, the storm broke anew, and the market went into free fall. Black Monday was followed by Black Tuesday (October 29, 1929), in which stock prices collapsed completely and 16,410,030 shares were traded on the New York Stock Exchange in a single day. Billions of dollars were lost, wiping out thousands of investors, and stock tickers ran hours behind because the machinery could not handle the tremendous volume of trading.
Markets recover and normalcy returns, but many analysts think this decline will have a 10-year impact like 1929, which means that the decade of 2020 will be impacted by the Coronavirus for many years. It already feels this way. It does not feel like 1987 or 1999, it feels different.