20 years ago today....

Seargent Pepper told his band to SELL!!!!! Or something like that.


20 years ago today the US stock markets were pummled into submission. It was known as Black Monday here in the states. The event itself was a major blow to the newly appointed Fed chairman Alan Greenspan.

First off, I am no longer a trader, nor do I claim to make recommendations on here about and buying or selling. This is an opinion post only!!!!


The market then is quite different from the market then, but I believe we are looking at the same type of sell off. As I sit here now, the market is down some 200 points right now. Today is an options expiration day and historically that means sell the morning and buy the close. Its actully a manipulative play that works quite well for the traders, but completely legal. BUT...today I am afraid we do not buy the close, and we continue to sell on Monday. We would need a loss of over 1500 points for any comparisons to be made and elements in the markets almost won't allow that, unless major events take place during the day. We now have triggers in the market that are set off to protect such sell offs. The first is the stopping of basket trading. This is electronic trading the automatically happens when certain levels are broken and often accelerates selling to the down side. The circuit breakers are set off and that type of trading is halted for a period of time.

Beyond that......I believe things to be very ominous. The credit crisis and llack or liquidity is killing new orders. The weak dollar has been helping big business in many ways, especailly with propping up earnings due to these companies selling goods over sees and translating that money back into the US$. I am afraid that this too is being over taken by the weakness of new orders here at home. Caterpillar (CAT) has been one of these companies reaping huge windfalls from the weak US$, but today they warned that US sales are hurting more than the weak $ is helping. Not a good indicator. United Technologies met their last earnings, but wanred on weak sales, 3M Corp said the same. Now that the bottom lines of the big guys are hurting too, that means that the market as I see it is a tipping point. A very dangerous tipping point.

The S&P index is fairly valued, or it was based on 2nd and 3rd quarter earnings. Just about every company has lowered guidance for the 4th quarter, the year and 2008. That means that the S&P in my view is over valued and must come down to trade in parity with the value of the stocks. Sound familiar? 2000 all over again, but.....companies are much stronger than the were then. In 2000 we were trading companies at extreme values with no earnings, never had earnings and never did end up with earnings. BUT, with the on slaught of the credit crunch, and regardless of what the FED does, it is far, far from over, we are going to see major hits in the markets. I expect retracements of 15-20%. The first move probably will be a bit drastic, but it will rebound and sell off again. Probably taking 6 months to play out and reach my targets.

The FED has a lot of blame for the current conditions if you ask me. Most of due to its free money satnce it took post 9-11. Greenspan acted heroicly and corageously after 9-11 lowering rates and saving the Economy. BUT, he waited way to long to start reveresing rates. Money was essentially free for too long. People could borrow money at low rates, invest in treasury notes, and once inflation was accounted, would actually profit from holding the money to maturity and then paying the loan back. The FED slowly brought rates back to a more normal level, yet still historically low. Back in 1987, rates were much, much higher.

Anyway, I don;t have time to really go into detail right now, as I have to get back to work. Just want to let you all know ...IT WAS 20 YEARS AGO TODAY. THOSE WHO DO NOT REMEMBER THEIR HISTORY ARE DOOMED TO REPEAT IT. All those stock jockeys out there who were in highschool when it happened have no idea how dangerous the market is right now.... Becareful, IF THEY DO NOT BUY THE CLOSE TODAY, MONDAY WILL BE VERY PAINFUL. The market always carries through from the close to the open.

Great post.

Its seems the economy just keeps marching on like a wounded soldier on the battlefield, even with all of these ridiculously bad indicators. Is it just smoke and mirrors? I mean we all know how statistics can be construed any which way. It seems that the U.S. government and its citizens are in some sort of uncharted waters, economically speaking. La La Land.

Now we have oil at $90 a barrel and no one is flinching, but everyone was blowing a gasket when it was pushing $70. At what point will it start having an effect on consumers? $90 a barrel going into Christmas will have to have some sort of negative impact. Consumers are propping up the economy but their budgets are going bust with the housing bubble and, very shortly, the price of gasoline.

My favorite economics link (for those of us who have no expertise in these matters):

TheIndependenceJournal:
www.independencejournal.com...

A lot of give and take in the markets right now. With 1 hour and 10 minutes to go, we will see what they decide to do. The close in the most important part of todays trading day, if they don't buy the close the MONDAY follow through could be scary. Everything is set up for a redux of Black Monday (21st century style).

i remember black monday. i was a freshman in high school in civics class my teacher had explained what happened. i suppose that was tuesday.

I went from middle class to poor that day and never came back untill 2000 when i got my first 'real job'.

great post.

Freshman in highschool......went from middle class to poor.

Were you fully invested? or are you referring to parents investments?

The one thing about that day....it was the greatest buying opportunity in the world. If you bought the Close that day, you bought the beginning of the current 20 year bull market. Just like in nature there are cycles in business, both long and short. That was the beginning of what could be a 20 year cycle. There are also 50 year cycles, but as technology has imporved and advacned at ever increasing paces, these are harder to find.

As I write this a new wave of selling has hit the market and we are now down 300 points. It does not mean to panic, but it does not look good. We still have the close, lets see what action takes place. I will update again after the market close. About 4:20 eastern standard.

I trade in the market, and agree it's very omnious feeling, and I see that you suggest a 15-20% decrease in the Market; I've actually been saying that for 6-9 months that that is what the Market really needs. We're still being propped up by the credit/housing industries, and those industries are still coming back down. CountryWide is a stock I watch, not because I own, but because my parents do. As of today, they've lost well over 50% of that investment. However, when they bought, I don't think anyone expected them to be hit that hard. Their sub-prime lending and giving anyone that wants credit has really come back to bite them in the you know what. I believe Bank of America lost a bunch this week and CAT has done good, but you can't fault them for taking advantage of what the Market dictates to you.

True, a lot of industries are lowering expectations for the 4th quarter and beyond; I can't even begin to remember all of the stocks I read about this week alone that lowered their expectations. My stocks have done ok this year, sort of. My stock that did take a hit was making a comeback, and then Bernanke had to open his mouth and put the market in a tailspin. I'm not a trader, I do my own stocks, one day I'd like to be in the stock game, but, why does everyone get nervous/scared when Bernanke talks? To me, that seems like a golden oppertunity to buy. Now, at the moment with the credit risks, it's hard to say if it is a golden oppertunity. Even though I'm leary of CountryWide(CFC), for $15 a share, maybe it would be a good investment. I fide it hard to believe that that company won't turn itself around at some point.

As an investor, I have to like the returns that I've been getting; still nearly 20% with all the stuff that is going on in the market. I know that the market is inflated, but the question is, how much? Is it like I've been thinking, at least 15%, is it less, or is it more, and if so, how much more? While I'm only 23, I still have time to recoup my losses if I lose a lot of money in the market now; hopefully I'll be ok, but one never knows. However, with people my parents age, early to mid 50's, they don't have time to recoup losses and make that money back. Who do we blame for all of this, The Fed. Those low rates where good for a while, but they let that go on far to long. I've gone to lectures and have listend to people from the Fed, they seem like they know what they're doing, but from all the lectures I've gone too, they seem to be more and more about globalization. A lot of people I know will say globalization is hurting us, but right now it's not. With our dollar being so low, its perfect to be a global company, like CAT. I was to young to remember Black Monday, but I know that I don't want to see another one while I'm alive.

Congrats on being 23 and invested. Buying and holding right for your age. Your parents on the other hand .. that confuses me. How are they down 50% on CFC? How are they not out? The most important part of trading, and this can not be taught at any lecture, is GETTING OUT of a position. Let your winners run, and cut losees. A 50% loss is just never acceptable, I am sorry but that should not have happend. Obviously if it happens over night, nothin you can do about it. Listen, CFC is toxic. CFC is in trouble and a real run would have occured had BAC not stepped in and investeaded (read donated) $2 billion. Why did they need that money? Their bankers would not lend them any more, should tell ya something. BAC is a smart bank, despite there 32% drop in profits in Q3. They know whats happening at CFC. It is their hope (my opinion) that CFC does go bankrupt. Being they were the only ones who stepped up, the will feel they have the first shot at their mortgage book, and on the cheap. Its a great move by BAC. That was at $18. Notice where CFC is lately? the SEC is opeing up investigations on CFC now. Your parents should be no where near this company. Even through a buy out by anyone other than BAC, BAC would probably only break even on their investment.

OK, here is my synopsis of todays action.

1) the market sucked.

2) They traded the market lower all day on an options expiration day. In the past this has been a pattern where they gunned it on the close only to see 100 point gains in the last 20 minutes of the day.

3) Today the market traded in a parculiar pattern. It was like it was pulled lower all day. Every time it tried to rally, Bids would just disappear and sellers would come in. It's like they were trying to draw sellers in to the market. Well, by 2:00 they succeeded and from there things began to unravel.

4) At 3:40, Market on close orders are released, and in the past on option days, they have alwasy been buys and hence the 20 minute rally. Today, they were all to the sell side. You could actually predict this if you watched the ticker all day. At 3:30 they gapped the market up quite hard and with no reason. It made traders think, they were buy MOC's so they all started buying ahead of the rally. But the specialists on the floors use this as a trick, a dirty trick I might add. Attract buyers so they short the market. They know whats on their books and they know the MOC orders. So when the sell orders came out the marklet immediately took its final step lower for the day and finsihed at the lows.

5) They closed the S&P right at the 1500 level. Quite interesting. Normally I would have said since they sold the close, Monday will be week. But I am afraid, I can not make a direct predicition. 2 things could happen. I hate to do this to you guys.

6) The market sold off on horrible news, so bearing any positive surprises over the weekend, I feel (my opinion only) the market will open below the 1500 level on the S&P and continue lower. If this happens Monday could be a very bad day, possible down 75 S&P points, almost double today. Thats equal to almost a 700 point move in the Dow Jones.

7) Even this type of move will not get me to my personal buy targets. I honestly would not buy this market until the DOW closed below 12,000 and the S&P traded below 1325. The S&P move can be an intraday move, but the DOW needs to close below 12,000. (just my opinon)

8) It might not be all bad. Sometimes certain levels are not broken due to huge levels of support. (Supply and demand functions) Now when the S&P broke the 1500 level on the way up it brought in a bunch of new buyers. A lot of these buyers were hedgefunds and mutual funds. They do not want to see it go below this number and could act as support here. The market could rally off this level off the open. BUT I still believe any rally will be to bring more buyers in to satisfy the large sellers that are out there, and by the end of day we are negative, just not down 700. Remember, alot of hedge funds have to be up on the year, and begin locking in gains the last 2 months, so selling positions is the right thing for them.

These are just my opinions, and a possible warning to all you out there. Please do not take my opinions as recommendations to do anything. Research and make your own opinions. Let your winners run,and cut your losses.Trade with conviction, but not your hearts. Never marry a stock, if youlike it and it goes against you....get out and buy it back lower. Stocks trade on supply and demand, not fundamentals!!!!! You invest on fundamentals, you trade based on a trend!

Well, the CFC thing happend when we where on vacation in Colorado, up about 16 miles from Breckenridge, also known as the boondocks. They didn't really have a chance to get rid of it in time, they should cut their losses, but they are a bit stubborn. I did read about the investigation into their CEO I believe, another move that disturbs me. I also had the pleasure of listening to a lecture from an attorney from the SEC and some other lady that did something there, can't remember what. All I know is, if you do something you ain't supposed, those people at the SEC will come down with the full authority that they have on you. Actuall BAC is still a stock I would consider buying if I had the cash on hand(I bought JCI instead, Johnson Controls Inc.). I did not know that BAC gave them $2 Bil, thats quite a bit of a gamble on their part, but I guess you could say that they have some faith in CountryWide, and that company really needs some help at the moment. I still have a hard time not laughing when I see their commercials on TV. It's like they are still trying to give away loans.

Also most of my investments are long term, i.e. my retirement because I doubt social security will be there when I get old. I sold AT&T after I made 65% or so on it and Dynegy at about 100% of what I made. AT&T was stagnant so I sold, it hasn't really done much since I've sold it, maybe a dollar from what I sold it. Dynegy scared the hell out of me so I sold it. They aren't to big of a company so they decided to merge with another company and took on an additional $1 Bil of debt and their profits weren't great so it went. I would sell my mutual fund because its at 112% but it really doesn't help me to sell it off. It's in the Asian market so its been doing fairley well so selling it seems like it would not help me much. As I just looked, my stocks where all down, JCI lost a $1 and some change, my biggest loser. My mutuals were ok, especially the ones invested in foreign stocks, all in all, not a great day. I blame The Fed and Bernanke, opening his mouth is the worst thing for this economy.

I bet if I changed the name of the thread to something shocking about a monumental sell off in the markets...or something. More people would have something to say!

ChrisJr. I will respond to ya later. Have to go to dinner now!

Its cool man, gotta go eat, but you hit the nail on the head when you said the market sucked. Smells worse than the rotting fish that was in my garage, good lord does that smell bad.

reply to post by traderonwallst


Do any FX trading? I made a killing off the dollar drop the past couple days. My most recent EUR/USD buy was near 1.41 and it's currently 1.4295. Closed that position for nice some nice weekend cash. I expect it to drop even more so.

I like your analysis of the current market, it is sound to me.

Also, you have any opinion on the capital flight issue?

[edit on 10/19/07 by aava]

reply to post by ChrisJr03


First off I own a small Investment Advisory firm, so I am not just blowing smoke. I have been doing this through all types of market breakdowns.

Countrywide will probably be ok. Buying some puts against the position probably wouldn't be a bad idea if it is large percentage of their total portfolio. Of course in hindsight they should have sold but they didn't, so don't panic now. Most stocks that have gone up 10,000% have had periods where they dropped over 50% before getting there. so while troublesome it isn't the end of the world for CFC(not saying CFC is going up that much if at all). I wouldn't sell it when it is on sale by any means, but buy protection if they can't afford to lose all the money.

As for the markets performance today, yeah it sucked. My client accounts probably fell over a million bucks today. They are pretty diversified between all equity classes with a handful of ind. stocks thrown in. Today pretty much wiped out gains since the first two weeks of September. Still up 10% plus or so for the year.

What will markets do Monday? I actually hope the OP is right and they continue to fall. I have a bunch of new money to invest. I put a third to work today, will buy another third if down big on Monday, and will then see what happens for the rest. A further decline is possible, but that is the nature of all investing.

I simply do not believe in timing. I do try to time initial client investments, but generally am happy if I get them in 3-5% below levels when the money came in or old investments sold.. Once I do buy an investment (mostly funds, etf's) I plan to never sell it except to reallocate back to original allocation and periodic sales to meet some clients retirement income needs. Individual stocks I buy with the expectation of holding it 5+ years unless some major change happens.

Anyone alive to read this, had they started periodically investing in a diversified fund portfolio when they got their first job, and continued to invest until the present time, would have earned an average of 10-12% orpotentially much higher, per annum. If anyone has reached retirement age and did this their whole working life, then they most likely have wealth well beyond their needs or expectations. Likewise those who tried to pick and choose individual stocks, tried to time the markets and worried about what the next day would bring, most likely eventually got scared out of equities alltogether and got ended up caught in the fixed income wealth destruction cycle. (Buy a 10 year bond- each years interest buys less and less goods- after 10 years you get the principal back which also buys much fewer goods. A recipe for financial disaster.)

Buy stocks, and stay in stocks. Buy them in 5-6 different funds with varying objectives in styles. Every time your tempted to sell, buy more in addition to your periodic investments. You will not go wrong over time. I am prepared to back this up with numbers if someone wants to challenge me with any time frame. The point being that all the evidence points to buy and holding a substantial portion of the stock market has always brought superior returns over a 10+ year holding period than all other types of passive investments. Folks looking at the day to day are falling into a game that 99% of people cannot play successfully.

Oh, I advised the parents not to sell, it would not have done any good when it had allready dropped so much. Personally I expect CFC to go back up, when, don't know, but it will go back up at some point. They're pretty diversified in their stocks, and mutual funds they are pretty well. I basically do their stocks and then because I don't have the certification, they consult with the Financial Advisor; she's pretty good, thats who I do my stuff through. Basically, shes good at retirement stuff, I'm not. I can do stocks and some mutual funds(haven't spent much time researching them as most people who ask for tips/advice deal in stocks), but retirement isn't my forte since I'm still young and without a 401K. When the day comes for that, I learn more about it.

As for my parents stock, the ones I told them to buy, Valero(bought at $48.14) and Under Armour(bought at $39.99) are doing very well for them. The advisor hit on XTO(bought at $51.19) and Dell(bought at 24.46) but completely missed on CountryWide(bought at $37.74) and Unitedhealth Group(bought at $53.81). I would have signed off on Dell and XTO, maybe CFC but I didn't advise them on those two. They had a company called Stryker but sold it when it kinda leveled off, however, its gone back up since they sold. I know their mutual funds are solid, but I don't track theirs as they have quite a few. I honestly hate when they buy bonds; theres just not enough return from a bond and most of the mutual funds are pretty stable and will return more than whatever a bond is fetching, I'd guess 4.5%, and thats a guess on the high side.

My stocks are ok; one thats losing that's pissing me off is United Global Investors (GROW). I read recently that they had quite a few funds that where very well respected, yet, with all the stuff the Fed has done, that particular stock has dropped quite a bit, about 20% for me, but I still like it so I'm not going to sell it. I only sold AT&T and Dynegy because I made a good return and it was time to sell. One stock that most people will tell me I'm and idiot for buying is Ford. Why I bought, I thought it was a good deal at $8 something. Even though they lose a lot of money, or have, they are not going to go under. Now I'm not as pessimistic as some investors, but I figure Ford is either going to turn it around(Ex-Boeing CEO) or some other car manufacturer will buy them(Please let it be Toyota). I figured that if Toyota buys it, and gives me like 8-10 shares for my Ford stock, I'd come out with nearly $800 in pure profit on the whole deal. I'm not one of the people who will sell off, I'm holding and thinking long term unless its just to good to sell something off at the time. I'm also someone who will do his research on it. I use the MotleyFool.com, Yahoo Finance, SEC.gov, Edward Jones, and a few other sites. Finding out the potential of the stock, how their income/balance sheets look, their cash flows is very important to me. Most times I could careless what some analyst has to say about a stock. If I cared everytime someone said a stock was going to do this or that, I'd never buy into the market.

Sounds like you have a good grip on it. Good luck.

One stat I came across the other day, I think it was a motley fool ad article:

Since 1927

$1000 in large cap stocks became a bit less than $2 million

$1000 in small capstocks became something around $10 million

$1000 in small cap value stocks became $33 million.

Make sure your funds have decent exposure to the smallcap area.

Imagine the WHO's "Won't get fooled again"' playing in the background

Ah yes 1987 "Bio-Techs" I remember them well,

Then the "dotcoms" circa 1997-99

Then the "sub primes" 2004-2007"

My pattern recognition skill aren't what they used to be....

I can't wait for that new "alien-assisted" technology boom !!!!

A few of my stocks I've found from going through the small to mid cap stocks. It's a lot of work, but it's well worth it. My small cap so far has returned me 42% or so and it's still undervalued to me. Solid numbers, good field-oil drilling/exploration, and they know what they're doing.

Well, looking at whats going on over seas....Things do not look good for tomorrow. And more bad news is this credit crunch is spreading. It is effecting auto loans and credit cards. There is a whole new slew of companies to start looking at on the down side. One company in particular that I believe will become a victim is Capital One Financial. NYSE:COF

They are heavily leveraged to the credit cards......they have already begun shutting down some of their mortgage business....... This is a high-flyer, a dangerous stock to play on the short side, but a prime target of what I believe is going to a bad market for such companies and will only get worse.

Besides that....I would start looking at all those high flying companies that have been immune to the recent downturn, and that made it through August's slump. Those companies are mostly trading at rather high P/E's and should fall along with the rest of the garbage this time. You really can;t reach my targets with out them falling. The only good thing is those are the companies that you buy when we bottom out. Not the CROX's of the world, they seem to be only going up because there is a constant short squeeze. The stock reminds me NVDIA in the late 90's and KKD in the ealy 2000's.

Things look nasty tomorrow, I am not saying we are gonna crash or anything, just be careful if your trading tomorrow's market. Hold on to strong stocks but don't be afraid to sell things you like. You can always buy them back lower, if your that confident. I would not try legging into a stock on the way down right now, only because we don;t know how low they are going. I am not recommending any sectors to buy or sell. Just use your heads tomorrow.

Good night and trade smart!

Well, what do you know. FED representatives are out this morning alreay propping things up, say the FED will act if need be. Silly traders, Rate cuts are for kids! A rate cut, although will prop the market up, will not do anything for the underlying economy. One of the biggest things I see out there is the under reporting of inflation. According to all standards that the FED and Treasury follow, inflation is about 2.2%, YEAH!!

LIES, LIES, and more lies. The inflation is rising at a much rapid rate. When they measure this, they take out such items as food and energy...why? They say they are too volatile and screw up the results. I say Bull Sh*t! 2 of the most important costs to the average american is food and energy, whether it be gas for your car or heating oil to stay warm. One of the big reasons for the low inflation in the early 2000's was there was not an ability to raise prices and keep them up. A company would raise its price and another would lower, hence they would take business away. Now with pricing power, one company raises prices, the rest all rush to do the same.

The FED champions an open market environment, but ignores that when it comes to the stock market. They fear reprocussions far outweigh allowing the market to work itself through some hic-cups.

Stupid does as stupid is told to do!!!! The FED is telling traders to support this market by offering further rate cuts on a day like this. The market should be down big, but don't be surprsied if they begin to rally it around 10:00. Once the shorts start to get squeezed you see them recoup everything from Friday. (I STILL SAY THE MARKET SHOULD BE DOWN BETWEEN 3OO AND 600 POINTS TODAY)

Trader -

Here is a link to an article about Goldman Sachs and another article about the market in general. I would love to know your perspective.


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