Welcome to “the Big One”.
The carry trade is unwinding, governments are panicking and the bond market is on fire.
We may be down 1,000 points or more on the Dow. Let’s review the rules on trading curbs or “circuit breakers”.
At the start of each quarter, the NYSE sets three circuit breaker levels at levels of 10%, 20%, and 30% of the average closing price of the DJIA for the month preceding the start of the quarter, rounded to the nearest 50-point interval. As of the fourth quarter of 2008, these levels are 1,100 points, 2,200 points, and 3,350 points respectively. Depending on the point drop that happens and the time of day when it happens, different actions occur automatically:
10% drop —- 1 hr halt 930am – 200 pm; 1/2 hr halt 200 pm to 230 pm; after 230 pm NO HALT.
20% drop —- 2 hr halt 930 am to 100 pm; 1 hr halt 100 pm to 200 pm; after 200 pm MARKET CLOSE
30% drop —- MARKET CLOSES
Trading curbs on Dow futures contracts traded on the CBOE are based on NYSE levels, with the exception that only the 10% threshold is in effect outside of regular NYSE trading hours, and is relative to the previous daily settlement price.
“A prudent man sees danger and takes refuge, but the simple keep going and suffer for it.” –Jewish Proverb
Forget about calling today the bottom, or loading up for a “massive rally” on Monday. Go hide in a cave and don’t come out until it’s safe. Remember, earthquakes have aftershocks.