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How To Know When Stocks Will Tumble!

Sometimes I wonder if stock market investing is more science or art. Do you ever wonder that? It seems like the people who know in advance what the market is going to do (and take appropriate action to make money off of that) seem to work as if they have a crystal ball in front of them. I’m not sure if it’s voodoo or insider trading or what, but some people just seem to know… do you know what I mean?

For instance, how come some people just know when the stock market is about to crash? How do these people get their money out in time so that they don’t lose all the value that they have built up? Well the answer may be easier than you think. It’s not a crystal ball, and it’s not voodoo… and it’s certainly not insider trading!

In this article today I’m going to give you a few indicators that you can use to determine whether the stock market is about to take a turn for the worse. These indicators aren’t the gospel truth, but they will give you a heads up and an idea that the market is about to take a turn for the worse.

The first thing to look out for is heavy New York Stock Exchange member short selling. Members are professional investors who spend their time day in and day out on the floor of the exchange investing for themselves and for their clients. These guys and girls have a fairly strong record of being able to determine when the market is about to turn… I won’t go so far as to say that they cause the market to turn, but they’re certainly the first ones to see it happening and when they do see it happen the first thing they do is sell short.

Selling short is when they borrow shares and sell them in the hope that those same shares will decline in value at which point they can buy them back at cheaper costs and return them to those whom they borrowed them from… pocketing the difference in price as profit.

When member short sales exceed 87% of all short sales within a given week, then you have a pretty good idea that the market is about to turn for the worse. You can find this information in Barrons and in the Wall Street Journal and through many private financial newsletters.

The next indicator is to watch the for Federal Reserve Bank for an interest rate increase. Stocks are very sensitive when it comes to the Federal Reserve and especially when it comes to interest rates. Low interest rates means a lot of stock market activity and precludes bull market advances usually. On the other hand, rising interest rates usually restricts stock market investing and causes the market to take a downturn.

Finally watch for heavy stock churning. When people buy and sell lots of stock, it’s an indicator that the market is becoming unstable and therefore likely to take a downturn. You can watch volume levels fairly easily online.

So there you have several indicators that you can use to determine when it may be time to sell your stocks before they start falling.

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