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Let’s Not Fall Into The Gap: Balance and Harmony Pay Well Indeed
One of the biggest clues to a declining market is an increase in margin reserve requirements.
We have not had a 30% market decline in one day, but it is quite possible, even inevitable.
Knowing the trading halt rules helps us better understand why drops up to 2900 Dow points could happen after 2:30 New York Time.
2900 Dow points and the markets stay closed all day.
Could we have a scenario where markets no longer trade for days due to 2900 points limit down?
Absolutely, at least for three days until settlement, based on the 10,183.56 price of the Dow today.
Limit down happens regularly in futures markets, when traders get locked out of the market by air pocket gaps. They may be forced to hedge or offset their position in a different month or face ruin.
Speaking of Futures markets, a most interesting thing happened on 20 October 1987, the day after the 22% drop in the Dow.
Based on announcements, people expected neither the Chicago Futures or New York Stock Exchange to open.
In fact, the Chicago Futures did open without a cash market to trade against for a time.
George Soros, arguably one of the world’s best traders, sold SPU boxcar size into the weakness, with Robert Rubin at Goldman Sachs taking the other side of the trade. Maybe that’s why RR became Clinton Treasury Secretary and Citigroup Adviser Director, where he made $50 Million before he resigned in January 2009 and the stock hit 97 cents, down from $78.31.
http://en.wikipedia.org/wiki/Robert_Rubin
On 20 October 1987, after an hour of freefall on what looked like another Black Tuesday, the New York Stock Exchange opened up as big banks and brokers with emergency credit lines from the Fed began to buy in bulk. Morgan Stanley made $75 Million buying an emergency bushel of stocks from Soros. Goldman Sachs undoubtedly made more with the long side of the Standard & Poors 500 futures.
http://investment-blog.net/interesting-account-of-a-trader-during-the-1987-crash/
