Stocks in a major downtrend

In case you have not noticed, the major uptrend is over that began back in mid-2003. The stock market is now in a major downtrend. In some sectors, such as real estate investment trusts, the downtrend began months ago. In others, it is just now taking hold. Any knowing speculator does not need to be told this fact; he or she already knows it and has already adjusted his stock position.

For those of you who have not, be advised that in a major downtrend the vast majority of stocks go down. If you stay long of stocks, you are running against a strong headwind. Be advised that the first loss is the smallest loss. Taking a 7-8% loss now is far preferable to looking at 20-50% losses later on. Cutting losses is one rule of speculation that holds for almost all methods of speculating. Be advised that stocks that resist the decline may subsequently catch up with the market and fall. Patience is a virtue in speculating. Markets do not turn on a dime. Wait. The decline will take time. Making a new bottom will take time. The next major uptrend will take time to get going. A major downtrend like this is a good time to do one’s homework, to be looking for stocks that might be shaping up to be leaders in the next uptrend market.

No one knows how deep prices will fall or for how long the downtrend will last. One must wait until the market itself tells us that the downtrend is over by its own price and volume action. That is why it is absolutely essential for speculators to cut their losses at the earliest possible time.

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4:01 pm on January 17, 2008