Tags: stock market | crash | highs | records

Do New Highs Signal a Stock Market Crash Is Imminent?

By    |   Friday, 27 February 2015 07:06 AM


Major stock market indexes are near record highs and that makes some investors nervous.

History shows that major crashes like we saw in 1929, 1987, 2000 and 2008 come after new highs.

History also shows that major bull markets also start after new highs. The 180 percent gain in the Dow Jones Industrial Average from 1983 to 1987 is one example. The 300 percent gain in the Dow from 1993 to 1999 is another example.

In fact, bull markets usually require a succession of new highs to be a bull market. Studies have shown that new highs are bullish. If it was possible to do so, buying all stocks setting new 52-week highs every day would outperform the stock market.

Despite the research showing new highs are bullish, new highs always seem to create feelings of fear. Successful investors ignore those feelings and benefit from the gains of a bull market.

Ignoring fear is actually one of the most important traits of successful investors. In theory it’s easy to move to cash and wait for the next pullback to reinvest. But many investors have difficulty deciding when to reinvest. They might always think another down leg is coming and being in cash can carry a high cost.

Investors sitting on cash miss the gains of a bull market. Rather than raising cash because of fear, it is best to have a plan. Knowing in advance what will cause you to sell and then defining the conditions that will lead to new buying can be the cornerstone of market success.


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MichaelCarr
Major stock market indexes are near record highs and that makes some investors nervous. History shows that major crashes like we saw in 1929, 1987, 2000 and 2008 come after new highs.
stock market, crash, highs, records
259
2015-06-27
Friday, 27 February 2015 07:06 AM
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