Tuesday, 2 September 2014

What Steps To Take Now That The Stock Market Is On A High?

Posted at  09:15  |  in  Stock Market

Everyone among us remembers the day 4th March, 2014, a day that is worthy of going down in the history of Wall Street as it marked the beginning of the end of the latest bull market that is now going to celebrate its 5th birthday. It was on March 4th that the Dow Jones Industrial average rose by 227 points based on the report that the Russian troops were coming back from Ukraine’s border. This particular news set the market on fire, a sign that said that the market is heading into a stage of mania where it doesn’t take much to encourage stocks.

Can the stock market go even higher? Sure it can but the higher it goes, the more dangerous it will become. During the latter stages of a bull market, the market will gradually separate itself from the reality and appear to be a different planet. Here are some Red Flags.

  1. Retail investors have been investing money into stock mutual funds: There is a constant fear of missing out on the 6th year of the bullish market and this has created a buying panic. However, the stock cheerleaders are back and rooting for their stocks and mutual funds to go higher, what they always do before the crash of a bear market.
  1. The intelligence survey of the investors are concerning: The closely watched survey also shows a low proportion of bears which some investors have pointed out as the lowest proportion since the 1987 crash.
  1. Sentiment indicators are pessimistic: The VIX, the put call ratio and other sentiment indicators are of the opinion that investors and traders are gradually getting complacent. The market participants believe that the Fed will safeguard them during worse conditions.
What to do now?

There have been a large number of predictions on the crash of the stock market since the last 5 years. This is the reason why many investors have closed their ease and there’s practically noone to blame them. The stock market has ignored the warnings and has still gone up. However, now that we are facing a dangerous market, we can discuss what we have to do now. Check them out.

The market is practically ‘naked’

Just like the emperor, the market is practically naked. At this present moment, most people will see what they want to believe. The panic to buy stocks will be now replaced by the urgency to get out at any price and now no one knows what will cause perceptions to change and they will. The emerging markets are now in deep trouble and what happened in Ukraine didn’t help. The CEOs who urged to go long with emerging markets were proved to be wrong. Emerging markets will recover very soon.

If we are going through the ‘mania’ stage of the bull market, the market will keep moving higher based on hope, greed and rumors. It takes tremendous discipline to sit on the sidelines and wait for the bull market to top out. As we gradually get closer to the end, investors need to be prepared about increased volatility.

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Jimmy Simond is founder of wallstreetsfinancenews.com he share his immense knowledge of finance in this blog. You can follow him on Google+.

1 comment:

  1. Nice post. Really enjoyed reading it from start to finish. Please visit my "World News" page and leave comments.

    ReplyDelete

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