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Understanding The Stock Market Article

A Tentative Stock Market Recovery - The Potential For Profit and Danger of Loss
By Alan Saunders

The major UK and US stock market indices continue to rally but are still within their Downtrends. The notable exceptions are the FTSE 250 and FTSE SmCap markets both of which continue to display a determination to swing into Uptrend. They are not there yet, indeed they may not get into Uptrend for a long time yet, but both these indices have now virtually completed the swing into the preliminary phase of an Accumulation trend.

This creates a difficult situation; on the one hand there are an increasing number of new 'buy' opportunities presenting themselves from the list of the 550 or so shares in these two indices but to offer 'buy' alerts would run counter to the ShareHunter risk management practice of avoiding trades in individual shares which are not 'in-line' with the main trend of the index. At the same time we do not want to deny ourselves the opportunity to grab some decent profits from these new 'buy' opportunities as they present themselves.

As the dominant trend of these two FTSE indices has changed from their steep Downtrends and swung into new 'Basing' trends we are able to act on new 'buy' alerts on FTSE 250 and FTSE SmCap stocks.

However, there is increased risk of loss involved when buying a share when its holding index is not in Uptrend mode and, particularly when the other major indices (i.e FTSE 100, S&P 500, DJIA) are all still in Downtrend. The two FTSE 'green shoot' indices could so easily suffer sudden price falls in order to accord with (any more) downward movements in the major indices.

Cognisance should be taken of the increased level of risk and a reduced exposure to any new 'long' trade is strongly recommended, at least until ('if') the indices do manage a swing into Uptrend.

When investing at variance to the dominant trend of the index concerned there is always present a greater possibility of a sudden reversal in the share price. An illustration of this is available in the form of the comparative recent price history charts for Debenhams Plc and McBride Plc.

Debenhams Plc and McBride Plc (both FTSE 250 stocks) were recently both showing as 'buys' from the daily analysis scan of all shares. At the time no 'buy' alerts were given on these shares as ShareHunter analysis showed the index as in Downtrend at the time.

We currently have cause to regret this as Debenhams would have made handsome profits to date (up from 51p to 84p last Friday). On the other hand McBride would have caused a loss (down from 147p to 116p last Friday) as it suddenly took a nosedive. McBride's sudden move down is a classic example of the sort of move that will happen from time to time in a sideways moving market. These features are clearly shown on the charts (www.sharehunter.com/news) and illustrate why making any new 'long' investment should be in proportion to the extra risk involved.

ShareHunter - The Best Stock Trading Alerts

With ShareHunter you will be alerted to 'buy' and 'sell' signals on shares in the FTSE 100, FTSE 250, FTSE SmCap, S&P 500, DJIA and Nasdaq 100 stocks. You will be kept advised of the dominant trends with 'red alerts' when they are changing direction.

You can request expert technical analysis of your shares -
Visit http://www.sharehunter.com

Alan Saunders - EzineArticles Expert Author

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