19 October 2017: 1987, part III – Black Monday

19 October 1987. Also known as ‘Black Monday’. The S&P 500 lost 20.5% in a single day, the Dow even 22.6%. What were the ingredients that led to this financial catastrophe? Stock prices had gone up dramatically in the months before Black Monday. There was disappointment among investors about the growing US trade deficit. An Iranian missile attack was responded to by a US missile attack. The expiration of many option contracts took place on the Friday before Black Monday. A US treasury secretary was threatening Germany (and other countries) which had a trade surplus in those days and were increasing their interest rates.
Could it happen again? Could it happen today, tomorrow or next week? A dramatic rise of stock prices: check. The US trade deficit as a percentage of the US GDP is more negative now than it was in 1987. An Iranian missile attack? Not very likely, but a North Korean one is not completely unlikely. The nearest expiration date of option contracts is 21 October 2017. Donald Trump on the German trade surplus: “The Germans are bad, really bad. Look at the millions of cars they sell in the US. It’s terrible. We’ll put a stop to that.”

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The major US indices closed at record levels on Wednesday with the Dow ending above 23,000 for the first time. Stocks were supported by better-than-expected earnings results. The S&P 500 gained 0.07%, the Dow added 0.70% and the NASDAQ ended fractionally higher (+0.01%). Volatility eased: the VIX closed more than 2% lower. UVXY ETFs recorded another (small) loss of almost 1%. XIV ETNs added 0.36%.
Danny Daredevil saw his RSS drop to just below 11%. Adventurous Anny is still holding cash. Her RSS remains at 9%. Solid Suzy and Lazy Larry made a small gain. Their RSS stands at 65%.
None of our models gave a trading signal at the end of yesterday’s session.

Model  Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

10.70%

-72.54%

-20.54%

6%

Adventurous Anny Cash 6 March 2017

9.22%

9.22%

0.67%

15%

Solid Suzy XIV 6 March 2017

64.85%

64.85%

12.69%

123%

Lazy Larry
XIV 6 March 2017

64.85%

64.85%

12.69%

123%

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 

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During his last long-haul flight for an insolvent airline, this pilot demonstrated this morning how hashtags are made.

 

 

Photo of stock trader: Still from NBC News