Some of us (myself included) are too young to remember the infamous Black Monday stock market crash of 1987. But a little research reminds us of how devastating the day was.
So devastating, in fact, that the Dow took a whopping 22.6% hit, a percentage worth $500 billion USD. Black Monday is the largest single day stock market crash in history.
Why is this relevant? Well, Citi’s Tom Fitzpatrick sounding the warning bell, saying he’s seeing similarities now that were seen days before Black Monday of 1987.
Below is a chart showing the similarities visualized via Business Insider.
And here are four notes sent out by Fitzpatrick.
- There’s heightened concern about Europe and its banks. The UK has set a March 2017 date for when it will begin legal proceedings to exit the European Union, and Deutsche Bank failed to reach a swift deal that would lower its $14 billion fine with US authorities.
- We’re in “the most polarizing US presidential election in modern times.”
- More reports are circulating about central banks in Japan and Europe removing some of the economic stimulus they’ve provided by tapering their bond purchases. This is raising concerns about the efficacy of central bank policy around the world, Fitzpatrick said.
- And finally, some peculiar market moves: a 16% move in oil prices within a week; a 20-basis-point shift in US 10-year yields in five days; and a $90 move in gold prices in nine days. The Chinese yuan and British pound have made massive moves in a short period of time, too.
And now comes the warning via Murray Gunn, the head of technical analysis for HSBC. Here’s the core portion of the warning via Business Insider.
“With the US stock market selling off aggressively on 11 October, we now issue a RED ALERT,” Gunn said in the note. “The fall was broad-based and the Traders Index (TRIN) showed intense selling pressure as the market moved to the lows of the day. The VIX index, a barometer of nervousness, has been making a series of higher lows since August.”
Gunn said the selling would truly set in if the Dow Jones Industrial Average were to fall below 17,992 or if the S&P 500 were to dip under 2,116. The Dow closed at 18,128 on Tuesday, while the S&P settled at 2,136.
“As long as those levels remain intact, the bulls still have a slight hope,” Gunn said.
“But should those levels break and the markets close below (which now seems more likely), it would be a clear sign that the bears have taken over and are starting to feast. The possibility of a severe fall in the stock market is now very high.”
Those comments were published this morning (October 12, 2016). The Dow closed today at 18,144.20 and S&P 500 at 2,139.18.
Brace for impact.