How Likely Is a Market-Wide Circuit Breaker?

January 27, 2025

Hello, my Friends!

🚨Brace yourself, traders - this weekend lit the Impulse early on one of those rare market surprises we typically see only once or twice a year. 🚨

After today’s rollercoaster, I’m more convinced than ever: using leverage in a long-term swing account is a recipe for regret.

We almost witnessed a circuit-breaker across major indices - an event that left everyone scrambling for answers.

Pre-Mkt Gap Up

Pre-market, the VIX rocketed up to a jaw-dropping 52%, offering a front-row seat to the hedge-fund frenzy as big players rushed to lock in their inverse bets.

But let’s be honest: a headline is often just a convenient scapegoat for deeper market volatility.

If you’re unfamiliar with these nationwide circuit-breaker events, here’s the rundown:

  • Level 1: A 7% decline triggers a 15-minute trading halt (if it happens before 3:25 p.m. ET).

  • Level 2: A 13% decline leads to another 15-minute halt (if it happens before 3:25 p.m. ET).

  • Level 3: A 20% decline shuts trading down for the remainder of the day.

If these thresholds are hit after 3:25 p.m. ET, trading typically continues - except for Level 3, which ends the session no matter what.

Although these thresholds officially track the S&P 500, a steep drop in the Nasdaq-100 can tip the broader market into a similar free fall.

Don’t let headlines fool you - the real drivers of market chaos often run much deeper - and if today’s freefall tells us anything, it’s that leverage can be a double-edged sword.

Additional Resources

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Market Rundown⚡

  • Chinese AI Disruptor DeepSeek Rattles Market Confidence
    A free-to-use AI model from Chinese startup DeepSeek raises concerns about the future dominance of U.S. chipmakers.

  • Nvidia Faces Historic $600 Billion Single-Day Loss
    Shares of NVDA plunge 17%, putting it on track for the largest one-day market value drop ever recorded on Wall Street.

  • Semiconductor Index Suffers Biggest Tumble Since 2020
    The SOX slides 10%—the steepest single-day percentage fall since March 2020—as investors question AI-driven chip demand.

  • DeepSeek’s AI Assistant Surpasses ChatGPT on App Store
    The Chinese startup’s rapid climb to the top free app in the U.S. sparks debate on whether cheaper hardware could upset AI’s current industry leaders.

  • Big Tech and Data Centers Under Pressure
    Microsoft falls 2.5%, Alphabet slides 4%, Dell tumbles 11.7%, and data-center operator Digital Realty plunges 10.6%.

  • VIX Hits Highest Mark Since December
    Wall Street’s “fear gauge” jumps to 18.29, reflecting mounting volatility as traders brace for more turbulence.

  • Global Headlines and Fed Decision Loom

    • U.S. and Colombia avert trade tensions on migrant flights

    • Investors await Federal Reserve’s interest-rate call on Wednesday

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Stay safe out there.

Until next time,
Steve B
Founder, The Daily Impulse

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