The Dow fell more than 2,000 points over the weekend down 7.3% while the S&P fell close to the same at 7% from Friday’s close. A fall this fast triggers a ‘circuit breaker’ that is put in to place to protect against these panic sellers. The first breaker was tripped within the first 10 minutes of open Monday morning so we got a 15 minute time-out while the markets were halted. So we sat and waited. And we were left with our thoughts to think about our next moves. This circuit breaker acted exactly as it was meant. Shortly after markets re-opened we saw a slight bounce off the lows. There are three different circuit breaker levels based on the S&P:
Level #1: 7% drop = 15 minutes of market halt
Level #2: 13% drop = 15 minutes of market halt again
Level #3: 20% drop = markets halt the remainder of the trading day
We have yet to see if the remaining 2 circuit breakers will trigger today or the rest of the week. But one thing for certain is people are starting to panic. Most of last year brought “dip buyers” that didn’t have a rhyme/reason/plan to trading except to buy when the market dips. That’s not a plan – that’s a failed approach of trying to get rich quick. That’s not putting in the time to do your homework and understand market movements and signals. That’s exactly how we got the ‘melt-up over the last 6 months. With that melt-up came a false sense of security and now here we are: PANIC mode.
Eleven days ago we were at all-time highs and today we dropped back to where we were last June. Nine months of trading wiped out in 11 days. That’s fierce and should give good reason for some to panic if they have not managed risk well.