Bull or bear?

In stock markets, you will experience both bull and bear markets. The good news is that the bull markets last much longer than the bear markets. Investors who keep their eyes open can typically find good opportunities when the market falls. This is because we often see good stocks act well during declines in the market.

This is not to say that the stock has to rally while the overall market is falling. The stock could move sideways while the market or the sector to which it belongs heads south. It may even fall a little bit but not as much as the market. If you own the stock, you may not be happy that it is moving down, but if the market falls 15 percent and your stock drops by only 5 percent, that is good performance relative to the market.

Step back and think about it for a minute, though. If you see a stock moving sideways during a market decline, it suggests there is enough demand for that stock to offset all of the supply. With most stocks falling during a decline, there is selling pressure on the vast majority of stocks due to broking houses forced-selling their margin client’s shares.

Yet here is a stock that is bucking that trend. It is not moving up, but it’s not moving down, either, and that is because of the demand for the stock. Once the selling pressure from the market decline is finished, demand usually remains strong. Not only that, but the investors who were buying the stock during the decline are not likely to sell soon, since they just purchased the stock and are expecting it to move higher. That means there is less supply of the stock to put on the market, and this, too, is good. The point is you can use market declines to try to find stocks that are holding up well.

All the best!

If you enjoyed this post, make sure you subscribe to my RSS feed!