which way is the stock market headed

which way is the stock market headed插图

Up or down
Like an elevator,the stock market usually goes only in two directions –up or down. It rarely goes sideways,although there are times when it travels in a narrow trading range between an upper and lower bound,that is the exception to the rule.

Why do stocks move in the same direction as the market?

That’s because 3 of 4 stocks move in the same direction as the general market, either up or down. (The general market refers to the major indexes, primarily the Nasdaq Composite, SP 500 and Dow Jones Industrial Average.) Simply put: If you buy a stock when the market is in a strong uptrend, you have a 75% chance of being right.

How hard is it to find good stocks to invest in?

You can have all the other six traits lined up, but if the overall market is in a downtrend, it will be very hard for even the best stocks to move higher. That’s because 3 of 4 stocks move in the same direction as the general market, either up or down.

Is the stock market getting closer to a bottom?

Given the current investor sentiment and how the major stock market indices have been doing lately, it wouldn’t be shocking if it turns out the stock market is getting close to a bottom. Mind you, no one can predict the exact top or bottom.

What is the market direction?

Market Direction 1 Make new purchases only in a market uptrend 2 Take defensive action as the market begins to weaken More …

Where is the Market Headed from Here?

Maybe the most frequent question we get is our outlook for stock prices over the next six months, over the next year. Will prices be higher or lower? Will there be a correction or will the momentum continue? We get a similar question all the time about interest rates. Is the Fed done lowering rates? Will rates be higher in six months?

How often does the Wall Street Journal forecast interest rates?

For example, every six months The Wall Street Journal prints the forecast for interest rates based on the opinions and views of some of the top strategists on Wall Street. Now we keep track of these forecasts and we score them as correct if they get the direction correct. In other words will rates be higher in six months, lower in six months, or the same. And what we found over decades is that the forecast is wrong more than 60% of the time. It has no predictive value.

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Does economic forecasting have predictive value?

It has no predictive value. And so you can see the wisdom of John Kenneth Galbraith’s admonition that the only function of economic forecasting is to make astrology look respectable. Now, just because we can’t predict the short-term outlook for the market or interest rates, doesn’t mean we can’t prepare.

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Market Recap for Friday, September 4, 2015

Volatility remains the key for traders. A Volatility Index (VIX) in the 20s and 30s suggests that we not only could wake up to anything, but that we also should expect to see wild swings both higher and lower during the trading day.

Pre-Market Action

U.S. equities appear poised for a solid opening on the heels of a three day holiday weekend. Asian markets and European markets are higher, though Japan’s Nikkei Index did fall over trade concerns. China’s Shanghai Composite, however, was up more than 3% despite economic reports that show the world’s second largest economy to be shrinking.

Current Outlook

Should we see an open somewhere in that 1%-2% range, we’ll still open beneath declining 20 day EMAs on all of our major indices. One sector that I’ll be watching closely will be consumer discretionary (XLY).

Historical Tendencies

I mentioned above that retailers could be an area of the market we look to for leadership. After all, many companies in this space have continued to post very strong earnings and the XLY is home to retail and is the best performing sector over the last day, week and six month time frames.

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What is the chance of buying a stock when the market is in a downtrend?

Simply put: If you buy a stock when the market is in a strong uptrend, you have a 75% chance of being right. But if you buy when the market is in a downtrend, you have a 75% chance of being wrong. IBD makes it easy to keep the odds in your favor.

Is it riskier to buy in a correction?

You may also consider locking in gains. Market in correction Making new buys in a correction is riskier, since most stocks will follow the market’s downward trend. Be sure to keep a close eye on your portfolio to make sure you’re protecting your gains and cutting losses quickly.

Can you have all the other traits lined up?

You can have all the other six traits lined up, but if the overall market is in a downtrend, it will be very hard for even the best stocks to move higher. That’s because 3 of 4 stocks move in the same direction as the general market, either up or down.

Do you have to be fully invested in the market?

You Do Not Need to Always Be Fully Invested in the Market. Your goal is to make money when the market is trending higher and to protect your profits when it starts heading lower. That may sound obvious, but many people pay no attention to overall market direction.

What is the Buffett indicator?

The “Buffett Indicator” is what Warren Buffett claims is the best single measure of where valuations stand at any moment. Buffett is the most successful investor of all time. He started with very little and has created billions of dollars in wealth. He has said that what he looks at is the total stock market value relative to the size of the economy. If the stock market is valued more than the entire economy, it’s probably overpriced since it derives its value from the economy. And if it’s a fraction of the economy, then it’s probably a good price. And so you can see in 1999, it was not a good time to invest in the stock market. You would have had some losses.

How much risk does it take to get a 3% yield?

These drawdowns are significant. In order to get a 3% yield, investors take a 60-70% risk. And it’s the same in the S&P 500. In the stock market, people are stretching for income unaware of the volatility risk.

What is volatility in finance?

Volatility is the destruction of compounded returns. People should avoid volatility wherever possible.

Why is the stock market so high?

A quick note, why is the stock market so high? This is the result of liquidity and of the massive stimulus programs. Some of that liquidity flows into the stock market. As an example, if you could borrow $1 billion at a 1% interest rate, what would you do with it? Well, you might buy stocks, and then stocks go up. And not based on value necessarily, but based on the fact that you think someone else is going to pay a higher price than you will pay, regardless of what the actual earnings are.

What is a P/E ratio?

Essentially, it’s how much you’re paying for a stock relative to its earnings. Here’s an example. Amazon is at a 93 P/E ratio. That is like paying $93,000 for a business that earns $1,000 per year. That’s in essence what you’re doing if you’re buying a share of Amazon stock. These tech giants are very pricey on any basis you evaluate.

What are the top 5 companies in the S&P 500?

The dark blue line in the chart below shows the top five companies in the S&P 500: Facebook, Amazon, Apple, Microsoft, and Google. You can see how much they are affecting the S&P 500. And you can see the other 495 stocks down below with the light blue line. The tech guys are on fire.

When did the dotcom bubble peak?

You can see previous peaks in 1929 and the 2000 dotcom bubble. We’re currently higher than a lot of people are comfortable with. Why does it matter? Well, it makes sense that the more you pay for something, the less likely you’re going to profit from it when you sell it, right? The bottom line is price to earnings ratio matters. You want to buy when stocks are cheap and sell when they’re high, not buy when they’re expensive.

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