There appears to be a tug of war going on with the markets. One day we’re up 100 points or more and the next were down 100 points or more. The short term trend line has been challenged a couple of times but has held so far. The markets appear to be preparing for the next move and this could take some time. With that in mind here are some thoughts.
We need to remember that the business of Wall Street is to manufacture and market securities and it is up to you to know what you are buying. You need to learn enough about securities to know a good investment without anyone telling you so.
The stock market is a bit of a game. A game engaged in by the wealthiest most powerful people in the world. It is not an easy game for an outsider, and trying to judge the future course of the markets can be difficult. Movements in the stock market are the result of large interests who accumulate stocks in times of weakness, and liquidate in strong markets when other people are enthusiastically buying. An experienced operator can make distribution look like accumulation or accumulation look like distribution. The action by these operators smooths out the swings in the market which would be very erratic if it came solely from the buying and selling of the public.
What kind of an attitude do you have about the markets, is it a bullish or bearish view? Most of the public are chronic bulls. They buy when the market advances or has been advancing for some time. At the top of the market they are the most active, helping those that are distributing their supply of stock. Just like market bottoms it takes time to distribute that stock, and this is where the bulls come into play. The major players will often become buyers pushing the markets higher and keeping the bullish tone of the markets alive.
The future of the market is ascertained by looking directly at the action of the market not by listening to what your friends and advisers think. It is the action of the market that counts. The forces that drive markets higher eventually lose their momentum and the trend changes. If you can identify that kind of action then you can sell your stocks to take in a profit and go short the markets.
Once the decline starts:
As the markets move from the market top to the bottom it is only a question of time until the bulls are forced out. They will get tired of the markets or they will just get out because they have become disgusted. Investors experiencing a market sell off wait for a rally that they can sell into. The rally may not be strong enough or perhaps it is so strong that the investor gets bullish, only to be disappointed once again. A psychology of panic sets in. The public becomes spooked by sudden and unexpected events and this uncertainty leads to fear, and this fear shakes them out of the market.
At the bottom of these market declines, the sellers are overcome by support (buyers). The buyers gain dominance and the foundation of a recovery is made. If you were a bull at the top of the market and sold out at the bottom you did not make a profit. If you want to make money you need to learn to limit your losses you can’t let your losses run. If you understood the markets then you could have gone short and made money.
When things are tough at the bottom of the market you will not be guided by any adviser or advisory, you’ll need common sense and nerve. You must have nerve in order to buy while the sky is falling.
During the accumulation phase at the bottom of a stock market decline you will see certain actions by the large operators. Advances often get knocked down in order to keep prices low so that more accumulation can take place, the accumulation stage can go on for many months. These type of conditions tend to discourage the public. Investors become tired of holding onto their stocks and are often shaken out of their positions just when things are actually getting better..
Stock accumulation or distribution by large interests represent a knowledge about what the future holds. Wouldn’t it be nice know what the earnings for a stock or a market index was going to be in the future?
It all begins with technical analysis. Charts record price history, along with volume and provide a valuable aid for studying past performances and as an aid in forecasting. The price movements of a stock or the stock market represent everything that everybody knows, believes or anticipates will happen. Learning how to interpret trend lines and recognizing signs of strength or weakness are some of the tools that I will try to place in your hands.
Just keep on coming back!!