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The 1987 "Black Monday" crash was not too long ago but most traders don't even know how or why it happened let alone how much money was lost and in return... made.
Let me give you a quick lesson in history if you are unaware of this specific event.
In late 1985 and early 1986, the United States economy shifted from a rapid recovery from the early 1980s recession to a slower expansion, resulting in a brief "soft landing" period as the economy slowed and inflation dropped (Very similar to today's time). The stock market advanced significantly, (just as it is right now) with the Dow peaking in August 1987. Further financial uncertainty may have resulted from the collapse of OPEC in early 1986, which led to a crude oil price decrease of more than 50% by mid-1986 (the opposite could happen this time, with Oil peaking higher which would result in much higher inflation worldwide).
Now here's how the events unfolded a few days before the big "Black Monday" crash.
On October 14, the DJIA dropped 95.46 points (3.8%) (a then record) to 2,412.70, and fell another 58 points (2.4%) the next day, down over 12% from the August 25 all-time high.
On Thursday, October 15, 1987, Iran hit the American-owned (and Liberian-flagged) supertanker, the Sungari, with a Silkworm missile off Kuwait's main Mina Al Ahmadi oil port. The next morning, Iran hit another ship, the U.S.-flagged MV Sea Isle City, with another Silkworm missile.
On Friday, October 16, when all the markets in London were unexpectedly closed due to the Great Storm of 1987, the DJIA fell 108.35 points (4.6%) to close at 2,246.74 on record volume. Then-Treasury Secretary James Baker stated concerns about the falling prices.
The crash began in the Far Eastern markets the morning of October 19, but accelerated in London time—mainly because London had closed early on October 16 due to the storm—by 9.30am the London FTSE100 had fallen over 136 points. Later that morning, two U.S. warships shelled an Iranian oil platform in the Persian Gulf in response to Iran's Silkworm missile attack on the Sea Isle City which significantly increased the uncertainty in the markets. (OIl prices rose sharply from approx $34 to $40 in just 2 months, eventually reaching $73.00 by early 1990)
By the end of October, stock markets had fallen in Hong Kong (45.5%), Australia (41.8%), Spain (31%), the United Kingdom (26.45%), the United States (22.68%) and Canada (22.5%). New Zealand's market was hit especially hard, falling about 60% from its 1987 peak, and taking several years to recover. The damage to the New Zealand economy was compounded by high exchange rates and the Reserve Bank of New Zealand's refusal to loosen monetary policy in response to the crisis,
Following the stock market crash, a group of 33 economists from various nations met in Washington, D.C. in December 1987, and collectively predicted that "the next few years could be the most troubled since the 1930s". However that was totally wrong as the economy was barely affected and growth actually increased throughout 1987 and 1988, with the DJIA regaining its pre-crash closing high of 2,722 points in early 1989.
So why am I speaking about the 1987 crash? Because if we don't learn from history we are doomed to fail (this is especially true in the markets).
For example, virtually every US president has started or continued a war (see here) and Trump has right now two possible wars on his hands, one with North Korea and the other with Iran. Both of these countries won't back down to the mighty USA so they will retaliate as Iran did in the late 1980's.
What else does 1987 have in common with today? Below are 3 points that could repeat themselves this December. (as I expect a correction in world stock markets)
1. Iran is mentioned then as is it now. (possible war between Saudi, USA ally, and Iran.)
2. Stock market at all time highs
3. The weather closed the UK markets back then, perhaps a "storm" of terror (attacks) the UK is facing could repeat the closure of the UK markets, or US.
In this "Daily observation" I will only mention Oil and Iran, I will release another report closer to the end of November where I will map out my predictions of when this stock market correction will come.
While reading the news I have come up with the clear conclusion that an armed conflict between Riyadh (Saudi Arabia and/or the USA) and Tehran (Iran) would have a major impact on oil markets and in return the global economy. While this is in no way in the interest of Russia and China (China being the largest importer of Oil, which carries the greatest risks in the event of rising Oil prices and Russia which is an economic partner of many of the conflicting countries in the Middle East.) But perhaps this would be in the interest of the US? Think about it for a second, USA's biggest competitors are Russia and China, so why not hurt them?
Generally I believe that Oil has started an uptrend and as the conflicts, issues, threats etc. are not stopping in the middle east, I now fully believe, based on Technical and Sentimental reasons that Oil prices will continue to rise.
As things start I will be buying WTI once the $54.05 level is tested. This is where my orders are set and I plan to stay in this trade for a few months.
I trading plan will be released to all of our members in the PipsMatter Traders Community.