The stock market is an insane thing. To many, it appears like gambling but to a special few it is an intrinsically weaved tapestry that properly dissected can result in a fortune for the person who figured it out. If you have invested in stocks then you are likely always watching for changes in your stocks and the larger market. Here are three powerful signs that the stock market is about to crash. Watch out for these key signs:
The Buffet Indicator
Warren Buffet has been an incredibly successful investor for some time. One tool that he uses is the stock market capitalization value versus GDP. That basically means how much the American stock market is worth compared to the total value of goods in America. If the stock market is ever too high compared to what America is earning, then it is overvalued and will move downwards soon. This was proved correct before the recessions of 2002 and 2008. It may be a worry to find out that this figure is at an all-time high right now.
Stocks declining on good news
Stocks can often be simple. A company does something good, the share price goes up. A company does something bad, the share price goes down. It does not always work this way. If you notice companies reporting good news and their share price falls, this is a clear sign that the market is not in good health. It shows a lack of confidence in the future of the market and is a sign to get out.
If it looks too good to be true, it probably is. John Templeton a very successful investor once noted that “Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria”. The reason behind this is simple. If everyone is excited about a market they all buy shares. If everyone is buying shares, there is no money left to buy more shares. The price has nowhere to go but down. Beware a market that is too happy, it is about to be sad.