Arbeter: Tracking the Oct. 24 Stock Meltdown
Stock market futures are limit down ahead of the start of trading Oct. 24, as markets around the world have crashed overnight. The limit prior to the open is 5%, or 60 points, on the S&P 500 futures, 550 points on the DJIA futures, and 85 points on Nasdaq futures. When these limits are hit prior to the opening, a halt in trading occurs. These limits will increase to 10% at 9:30 am EST. The last time we saw this type of pre-market activity was a brief time on Jan. 22 and, of course, on 9/11 and during the crash in 1987.
These circuit breakers were instituted after the '87 crash and were instituted to prevent another crash and let cooler heads prevail. Whether they work this time is anybody's guess.
The global markets are tumbling with the Nikkei down almost 10%, the Hang Seng over 8%, the FTSE almost 8%, and the DAX is lower by over 8%. Maybe this type of price action is what we finally need to clear the decks, wash things out (even more), and help create some type of tradable low. But we just don't know.
The reasons for the limit down action in futures are some very weak corporate earnings reports overseas and worries about the meltdown in the global economy. This has led to continued forced selling by institutions as they are forced to raise cash.
We look for some major action by the government like further cuts in interest rates, more stimulus packages, and if things really get out of hand in the equity markets, a trading halt for a day or two or possibly longer.
Technically, the S&P 500 has undercut the October 10 closing low and is closing in on the recent intraday low of 840. Below this, the next support is the October 9, 2002 bear market low of 777. We are hopeful that this level would hold as the next piece of support is a long-term trendline off the 1932 lows that comes in between 600 and 700.
One thing that we would like to see today is skyrocketing put/call ratios, something that has been missing during the latest selling. If prices plummet throughout the day, we would like to see another weak opening Monday followed by a major upside reversal.
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