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This is not to say that the stock has to rally while the overall market is falling. The stock could move sideways while the market or the sector to which it belongs heads south. It may even fall a little bit but not as much as the market. If you own the stock, you may not be happy that it is moving down, but if the market falls 15 percent and your stock drops by only 5 percent, that is good performance relative to the market.
Step back and think about it for a minute, though. The irrefutable law of supply and demand is what moves stocks. If you see a stock moving sideways during a market decline, it suggests there is enough demand for that stock to offset all of the supply. With most stocks falling during a decline, there is selling pressure on the vast majority of stocks.
Yet here is a stock that is bucking that trend. It is not moving up, but it�s not moving down, either, and that is because of the demand for the stock. Once the selling pressure from the market decline is finished, demand usually remains strong. Not only that, but the investors who were buying the stock during the decline are not likely to sell soon, since they just purchased the stock and are expecting it to move higher. That means there is less supply of the stock to put on the market, and this, too, is good. The point is you can use market declines to try to find stocks that are holding up well.
Relative strength is a good tool to use to help you in this process. You will also want to note that stocks that hold up well are often market leaders once the market turns back up. We should mention one caveat here, however. When the market does decline sharply, you will often see a flight to higher yielding stocks. The thinking is that the yield will offer the stock some support, since investors will pay for the dividend. So be careful that any list you keep of stocks holding up well in a falling market are not all high-yielding stocks.
Category: InvestingGood Stocks in Market Declines was written by:Author:Anthony GreenAdded: Mon, 04 Feb 2008 07:21:29 -0500 This Article Has Been Read 85 times View all Anthony Green's articlesAbout the Author: Collect your free stuff like stock recommendation and investment strategy articles onstock market on http://www.5minutetrader.com/benefits.php. |
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