A stock market crash is a sudden dramatic decline of stock prices across a
significant cross-section of a stock market. Crashes are driven by panic as
much as by underlying economic factors. They often follow speculative stock
market bubbles.
Stock market crashes are social phenomena where external economic events
combine with crowd behaviour and psychology in a positive feedback
loop where selling by some market participants drives more market
participants to sell. Generally speaking, crashes usually occur under
the following conditions: a prolonged period of rising stock prices and
excessive economic optimism, a market where P/E ratios exceed long-term
averages, and extensive use of margin debt and leverage by market participants.
There is no numerically-specific definition of a crash but the term
commonly applies to steep double-digit percentage losses in a stock market
index over a period of several days. Crashes are often distinguished from bear
markets
by panic selling and abrupt, dramatic price declines. Bear markets are
periods of declining stock market prices that are measured in months or
years. While crashes are often associated with bear markets, they do
not necessarily go hand in hand. The crash of 1987 for example did not
lead to a bear market. Likewise, the Japanese Nikkei bear market of the 1990s
occurred over several years without any notable crashes.
28 October 1997
U.S. stock markets were widely expected to open lower for October 28
due to the Asian markets falling even more than they did on the 27th.
Hong Kong's Hang Seng Index declined a staggering 14%. The Nikkei fell
4.26%. The U.S. stock markets initially continued their drop from the
27th, but abruptly ended, and began to climb. The Dow was down as much
as 186 points by 10:06 A.M., and soon thereafter a rally started. By
10:20 A.M. The Dow was down only 25 points. Five minutes later, the Dow
roared back into positive territory and was up 50 points. Nine minutes
later at 10:34 A.M., the Dow rallied to a triple-digit advance up
137.27 points. Stock prices continued to soar in choppy trading
throughout the rest of the day. At the close of trading at 4:00 P.M.,
the Dow finished with a record 337.17 point gain (recovering 61% of the
previous day's loss) to close at 7,498.32. The market restored $384
billion of the $663 billion in market capitalization lost the previous
day. One billion shares were traded on the New York Stock Exchange for the
first time ever, with a volume of 1.21 billion shares. In 2006
terms, this amount is considered very light. The NASDAQ Composite also
made a record gain on record volume, gaining 67.93 to 1,603.02. The
NASDAQ also saw its first-ever one-billion share day with 1.23 billion
shares changing hands.
Save your money...before you will be TRAPPED
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