Markets Remember Black Monday 30 Years Later

The floor of support provided by the 200 Day Moving Average held yesterday under the extreme pressure of a multi-day record setting trend by the US stock market.  The fact that this held is a testament to the strength of this floor, as it has now been tested multiple times in recent weeks. However, although breakouts are the exception and not the rule, they do indeed happen. Therefore, we must remain on guard as bonds continue to test the strength and resilience of the 200 DMA.  As history goes, if this level is broken, bonds will fall sharply lower as investors sell their bond holdings in panic.  It’s amazing how predictable investor behavior and market movements can be when you truly study the patterns and trends.

Today marks the 30-year anniversary of Black Monday, when the US stock market fell 25% within a matter of hours. It started the Friday before, with the DOW losing 100 points that day.  The following Monday, however, was the epic fall of another 500 points.  Although this is far less significant of a move in today’s DOW points, it was equivalent to the DOW losing around 5,000 points today.  As you can imagine, that created a level of fear and panic that caused many stockbrokers and investors to take their own lives.  With this Day now three decades behind us, it seems stock investors are reminded of the pain.  With stocks falling sharply this morning for no apparent reason, we can assume this is a sympathy move that will be temporary.

After hitting the bottom of the floor, we can assume the likely move will be for bonds to move higher and once again touch the ceiling. Although there is no guarantee that bonds won’t break the floor, we can suggest a carefully floating stance to give the markets time to see what happens.  If the channel is broken, lock immediately.