Seeing signs of the beginning of a down trend is a great skill to develop before you are sitting with a 20% decline or more in your trading/investing accounts while holding what were market leaders but are now spiraling downward. The key to keeping bull market profits is the exit with the profits. I do not hang around when an up trend reverses. I go to cash and wait for the up trend to resume to re-renter or go short if key support levels start being lost.
Here are 10 signs that a market may be reversing.
Indexes fail to make new highs.
The market begins to start up in price in the morning but ends up closing lower each day for multiple days.
Previous stocks that were leaders are struggling to make new highs and to hold the price level of their 50 day moving averages, many below.
The market as measured by the SPY ETF (exchange traded fund) is beginning to slip below the 5 day ema and 10 day sma. .
There is a lot of uncertainty about the future in the broad economy and investors are nervous about unknown risks.
The total market along with individual stocks keep having trouble finding support at specific levels but continually have very defined resistance levels in price.
Market indexes start making lower highs and lower lows one by one.
There is a lot of fear about some event that may or may not happen and their is a wait and see attitude.
Talking heads are trying to convince people to buy stocks, that they are now a great ‘value’ even after they start to fall day after day.
It gets very difficult to find leading stocks at proper buy points.
When all these things line up it is a high probability you will win by selling short at price resistance points, buy puts, and take retirement accounts to cash positions. This is a time to be cautious.
No matter how great a company is or how amazing their earnings, a bear market is like a hurricane, it damages all boats regardless of how great they are.