It is not uncommon to see a trading instrument such as an index or a stock react to an anniversary date. If we look back 33 years (a well-known mystical and powerful number) we land in the year 1987 and the famous market break that occurred on Monday, October 19th. This year on Monday, October 19th the equity markets gapped up early in the session, but strong orderly selling came in throughout the day knocking the main averages down. What is similar about this year and 1987 is that the market found a high point in late summer and proceeded to sell off as autumn took hold. In addition, computerized trading was the hot new area in the financial landscape back in 1987, & along with portfolio insurance products that were new and untested, the combination was explosive to the downside. Today computerized trading is found everywhere and we have untested, highly levered trading instruments that can go awry when stressed & if liquidity dries up. As market volatility increases and formerly consistent relationships between correlated assets come untethered, algorithmic trading can become unprofitable. In such a situation, the "Algo" trading computers withdraw from the marketplace. It is when liquidity dries up that a potential panic can arise. Keep an eye on the news, and when there is uncertainty, trade smaller. When using stops to protect capital, consider a wider band to account for the increased volatility.
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