Hey Bill,

Maybe I am too new at this to figure it out...but if the goal of trading curbs is to reduce market risk and allow for people to properly consider just what it is they are doing...why dont they have upside curbs or collars, i.e., if the market advances more than 10% trading stops to allow time for people really think about what they are doing...

it would seem that if one were to beleive that "emotion" trading is dangerous..than it must be dangerous whether it is positive or negative...

it just seems to me that if you are going to limit downside risk without a corresponding limit on upside profit...you are just giving people an illusion of security ("hey if the markets go down too much the govt' will protect me)...

anyway I have only been investing for about six months...so i am sure there are great reasons why this is so...but I could not think of any...

I guess that is because to me..in order to accept the full benefit of a potential reward I should be ready to suffer the same corresponding loss...if I can double my money in one day...why cant I lose it all in one day too?

Since most people would not want the govt' telling them how much they can make...why do they allow them to tell them how much they can lose?

I guess I am just naïve...

Steven (no wait I am anonymous rex...lol..)

I had a support staff job with a frontline view of Black Monday. I've rarely thought back to that over the years, but in recent weeks it has been on my mind quite frequently.

Thank you for your outstanding blog!

Notable trend line breaks... RUT, NDX, XAU

Trend line 'stops' have me back at minimum exposure.

Sell discipline trumps.

Steven
In my opinion the circut breakers do not work to calm panic buying or selling, they only add to it. Up or down if the market is halted due to a wide move emotions will take over and cause many people to want to sell or buy. Only way to stop a stampede is to have a force opposing it from the other side Buyer/sellers. Very few will want to buy after a down halt but many will want to sell. And the oposite happens if there was a up limit on markets all buyers no sellers. When markets trade off emotion and not and not by well thought out opinions it is best to step out of the way and let things settle down.

On the subject of stepping back and watching that is mostly what I did today. Lattly in the hot issues there has been group of traders that have the buy the dipp mentality and it has got to the point where they are trying to anticipate the dips which have made them(dips) very shalow and quickly reversed to the upside. This has changed over the last week. It will be interested to see if this see if the Knife catchers come back or step out of the way next week.

Also I will be doing alot of reading this weekend to see what the Talking heads are spewing. Bill if you or some of your readers can recall what the papers where saying the week before Black monday or after the friday plunge.
Maybe we can we can compare the two.

Andrew

I was actively trading during the crash of 1987. There were some key drivers to that crash: rising interest rates, incresing trade and budget deficits, rising inflation, overpriced stocks and a fed that was vigilent against inflation.

The equity market backdrop included diverging performance among the broader market (flat) vs. the big caps moving significantly higher. The Dow declined from about 2700 to 2100 in just a few weeks throughout September and into October. As that weekend drew near I remember that Peter Lynch was busy placing sell orders overseas preparing for a brutal Monday. So when the market opened that Black Monday, the futures were already priming the market for the selloff.

I took my money and ran (out May 5, 2006) with a YTD gain of 12.5%. The logic is as follows: money market yields approaching 5% risk free will allow me to walk away with a 2006 gain of 15% - again no risk from here on. The economy is still very strong (supertanker) that will not turn on a dime. You do the analysis by the numbers (see WSJ 29 economic indicators). The Fed is committed to fighting inflation over growth. Higher energy proces still have not worked their way through the economy. You will see business margins erode and forced to pass transport prices on. Realize that you still have to operate machinery, lights, HVAC. Paper and plastic products cost more as well. Don't be deceived by the line spewed out about reduced impact of higher energy prices, they are still well entrenched in the cost of business.

All this will drive inflation (core and aggregate) higher forcing the Feds hand. Note that there has only been one "soft landing" among many other cycles. The odds are that the Fed will keep driving rates higher to tame the inflation tiger and overdo it as usually occurs. They may engineer another soft landing but don't count on it - that was probably luck more that skill.

The Fed is obviously data driven at this point. I score 18 up economic indicators, 7 down, and 4 neutral. That means the economy is strong and will take some time and effort to slow it down. You can not only look daya to day. The key is to analyze the numbers in the context of the last few years, and in some cases go back 10-15 years to see them in the light of history.

So to continue, my strategy is now to wait and see. I'm now parked in money market and expecting the Fed to raise to about 6% by year end due to the continued economic strenght and resulting inflation. The inflation will drive long bond yields higher as well and that will continue to hammer equities. The higher rates will drive the economy into a recession (remember this economic expansion and bull market is on borrowed time already). At that time I jump into long bonds and ride the yields down (and principal up). As we are then fully into the recession, that is the time to jump back into equities.

Now is not the time to be in equities. The easy money has already been made and the market is very risky!

Glenn