Posted on 25 July 2011.
Stock market trends are powerful undercurrents that pull stocks up or down. While individual stocks can and do sometimes trade counter to the prevailing stock market trends, understanding the current stock market trends can provide a stock trader or investor a great advantage and aid in making highly profitable investment decisions.
There are old sayings on Wall Street, “The trend is your friend” and “Don’t fight the trend”. These old Wall Street adages may sound quaint and irrelevant in the modern world, but they exist for a reason because over long periods of time they have proven to be correct.
The stock market has two overriding trends: a rising market (Bull Market) and falling market (Bear Market). Bull Market and Bear Market trends can last many years, even over a decade. Investors who understand the current stock market trend can adjust their investment strategies accordingly and profit handsomely.
While stock market Bull Market and Bear Market trends are highly influenced by the overall state of the United States economy, it is a mistake to try to make a direct correlation between domestic economic growth and the anticipated stock market trend. This is because investors who invest in the stock market are looking at economic conditions six to nine months in advance. Because of this forward looking investing, major changes in stock market trends often begin well before the economic growth rate changes.
For example, while common sense might tell a stock market investor to wait until the end of a recession and buy into the stock market when an economic recovery has begun, historical stock market trends indicate that the best time to buy into the stock market to catch the next Bull Market higher is actually in the middle of a recession. The stock market typically finds a bottom and a recession related Bear Market ends in the middle of a recession, as investors look forward to better economic times six to nine months down the road. For more information about the stock market and stock market valuation indicators, see: Stock Market Advice and Advice On Stocks.
There can also be sharp counter trends within overall Bull or Bear Market trends. In fact, some of the sharpest rallies ever recorded in stock market history have been short covering rallies during Bear Market trends. These counter trends to the broader stock market trends can provide excellent short term trading opportunities for stock market traders. For stock market investors with longer range investment perspectives, understanding the broader stock market trends can be very helpful when making investment decisions regarding when to buy and sell stock positions, and even whether an investor’s money would be better off on the sidelines in a stable interest bearing account or a bond fund.
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