The Importance of Knowing The General Stock Market Direction

Article by Eddie Z

Knowing the general stock market direction is critically important to investors and traders everywhere. The bottom line is this: Most stocks (80%+) follow the general direction of the stock market. In a bull market cycle, most stocks will hold their own or rise. In a correction or bear market cycle, NEARLY ALL STOCKS will fall. And stocks tend to fall much faster than they rise!

It doesn’t matter how good a stock’s earnings and fundamentals are or how well the stock has been accumulated over the last several months. Make no mistake, when the market turns bearish, the correction can be brutal. It can do a lot of damage to an otherwise good portfolio.

A great case in point would be Apple (AAPL: Nasdaq). In the brutal bear market of ’08-’09, AAPL fell close to 60% in value, even though the fundamentals never changed. Other examples include Amazon.com (AMZN:Nasdaq) and Baidu Inc. (BIDU:Nasdaq), I am sure you can think of a few stocks that did the same! These particular stocks happened to recover. But many stocks NEVER recover!

If you had invested in these stocks when the market first turned negative, you would have experienced a lot of pain. Think about this: mathematically a stock that drops 60% needs to raise 150% just to get back to even! For example, if you buy a stock at 0 a share and it drops to .00, a 60% dive, the stock would now need to raise 150% to get back to 0. How often does that happen? Not very often!

In bull markets all the cream rises to the top AND KEEPS RISING! In bear markets EVERYTHING pretty much comes down.

Now as a full time stock market trader, I make no distinction between “long-term” bull and bear cycles or what the talking heads on TV love to call “Secular Bull” or “Secular Bear” markets. Stocks are either in uptrends or downtrends, PERIOD. In his bestselling book “How to Make Money in Stocks”, William O’Neil teaches investors exactly how to determine the stock market’s direction and how to make decisions based on this direction. Additionally, O’Neil does all the analysis work for you in the Investor’s Business Daily (IBD) newspaper article entitled “The Big Picture” which appears every day on the first page. He essentially tells you!

In summary, if you want to improve your investment or trading results, know the stock market’s general direction. If you are buying stocks in a market correction you have a much higher probability of losing money and vice versa. The single best place to find the general market direction in the IBD article “The Big Picture.”

About the Author

About Eddie Z: Eddie Z is a full time stock trader and founder of http://www.EZBreakouts.comOn his website he offers traders and investors an opportunity to benefit from his 23 years of trading experience by participating in his top 5 stocks that are most poised to move the next day. To learn more, please visit http://www.EZBreakouts.com