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Once the First World War was over, the U.S. entered into a new era. It was a time of great enthusiasm, and optimism. This was a time when great inventions, like the airplane and radio, made pretty much anything seem possible in the 1920's.
By around 1925, more and more people were getting involved in the stock market. Then in 1927, there was a very strong upward price trend. This enticed even more people to get into the stock market. By 1928, the stock market boom had taken off.
At this point, the stock market seemed like a place where virtually everyone thought they could become rich. The stock market had reached a fever pitch. Everyone thought they were an expert, and stocks were talked about everywhere. Tips were given by almost everyone. Lesson number one: Beware when the fever pitch is high, and everyone thinks they are a master of the stock market, getting richer by the day. Beware when everything seems too good to be true, and tips are given out by almost everyone.
About this time, the Federal Reserve began to raise interest rates. Then in March of 1929, the stock market suffered a mini crash. In the spring of 1929, there were more signs that the economy could be headed for trouble. Steel production went down, house construction slowed down, and car sales tailed off.
Lesson number two: Rising interest rates is a negative for the stock market. Also, when economic conditions begin to deteriorate, this is another negative.
In the Summer of 1929, the market surged ahead again, and all early warning signs were forgotten. From June through August, the stock market reached its highest price level ever. Nearly everyone thought it was a stock market heaven, which would never end.
Lesson number three: When the market seems too good to be true, it probably is, and at the very least, a correction is coming soon.
It is important to remember that markets do not go straight up forever. What we are seeing here is a classic example of mob psychology in full force. This is human nature at work, with the emotion of greed taking over many people. A real get-rich-quick attitude.
By August of 1929, many leading stocks were rising in price in dramatic fashion. This is called a climax run, and another warning sign of trouble up ahead for the market.
Lesson number four: When leading stocks, after a big run up in price, make huge price gains in a relatively short period of time, this is a warning sign of the market topping.
The stock market peaked in September of 1929. At this point, heavy selling in big volume began to happen, and became somewhat common place. This is a major sign that smart money was leaving the market. There were five declines on heavy volume throughout September. All this selling was happening a full month before all hell broke loose in the stock market.
Lesson number five: When general market declines on heavy volume begin to mount, it is definitely time to start selling your stocks. This is a major warning sign.
The Dow declined nearly 90% from its peak in September, 1929, to its July, 1932 bottom. Many people lost their entire savings, and more. Savvy traders saw many signs of trouble, and had plenty of time to exit the market, before it really started to crash.
Lesson number six: Those who knew the market warning signs, and acted, had plenty of time to exit the market, before it crashed, late in 1929. These stock market warning signs are just as valid today, as they were back then. Always keep an eye out for these warning signs, and act appropriately.
By Gary E Kerkow
Article Source: http://EzineArticles.com
By around 1925, more and more people were getting involved in the stock market. Then in 1927, there was a very strong upward price trend. This enticed even more people to get into the stock market. By 1928, the stock market boom had taken off.
At this point, the stock market seemed like a place where virtually everyone thought they could become rich. The stock market had reached a fever pitch. Everyone thought they were an expert, and stocks were talked about everywhere. Tips were given by almost everyone. Lesson number one: Beware when the fever pitch is high, and everyone thinks they are a master of the stock market, getting richer by the day. Beware when everything seems too good to be true, and tips are given out by almost everyone.
About this time, the Federal Reserve began to raise interest rates. Then in March of 1929, the stock market suffered a mini crash. In the spring of 1929, there were more signs that the economy could be headed for trouble. Steel production went down, house construction slowed down, and car sales tailed off.
Lesson number two: Rising interest rates is a negative for the stock market. Also, when economic conditions begin to deteriorate, this is another negative.
In the Summer of 1929, the market surged ahead again, and all early warning signs were forgotten. From June through August, the stock market reached its highest price level ever. Nearly everyone thought it was a stock market heaven, which would never end.
Lesson number three: When the market seems too good to be true, it probably is, and at the very least, a correction is coming soon.
It is important to remember that markets do not go straight up forever. What we are seeing here is a classic example of mob psychology in full force. This is human nature at work, with the emotion of greed taking over many people. A real get-rich-quick attitude.
By August of 1929, many leading stocks were rising in price in dramatic fashion. This is called a climax run, and another warning sign of trouble up ahead for the market.
Lesson number four: When leading stocks, after a big run up in price, make huge price gains in a relatively short period of time, this is a warning sign of the market topping.
The stock market peaked in September of 1929. At this point, heavy selling in big volume began to happen, and became somewhat common place. This is a major sign that smart money was leaving the market. There were five declines on heavy volume throughout September. All this selling was happening a full month before all hell broke loose in the stock market.
Lesson number five: When general market declines on heavy volume begin to mount, it is definitely time to start selling your stocks. This is a major warning sign.
The Dow declined nearly 90% from its peak in September, 1929, to its July, 1932 bottom. Many people lost their entire savings, and more. Savvy traders saw many signs of trouble, and had plenty of time to exit the market, before it really started to crash.
Lesson number six: Those who knew the market warning signs, and acted, had plenty of time to exit the market, before it crashed, late in 1929. These stock market warning signs are just as valid today, as they were back then. Always keep an eye out for these warning signs, and act appropriately.
By Gary E Kerkow
Article Source: http://EzineArticles.com
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