How to properly assess the stock market today

How to properly assess the stock market today

By: Christina Pomoni

The current financial crisis has made investors extremely nervous.

• In majority, they doubt that there are buying opportunities in such downturn, or at least opportunities that will give them a return that can compensate them for the extra risk they undertake under these extremely risky market conditions. 
• On the other hand, equity analysts and stock market theorists consider that this is the perfect timing for entering the stock market and buying good stocks at low prices instead of entering the options markets and buy defensive puts.

1.  One good strategy to assess the potential of stock markets in today’s economy is to evaluate the daily performance of NASDAQ and Dow Jones. The decline of the stock markets is expected given the negative climate of global economy and therefore, the NASDAQ and Dow Jones demonstrate a negative performance, often over a series of trading sessions. However, the index performance alone is not enough to assess the overall performance of the stock market. Investors should also evaluate the performance of the individual stocks. For instance, there are companies that perform really well within the financial crisis such as copper and gold companies that expose positive increases. Therefore, investors can read accurate stock reports on Yahoo Finance or Bloomberg in order to get an idea of the market performance as a whole and be able to evaluate the overall performance of the economy.

2.  Another way to assess market performance is to evaluate the fundamentals of the listed companies. Fundamental analysis examines the economic factors, industrial factors and company variables that define the intrinsic value of an investment. Hence, investors can take into account all these parameters in order to observe how a stock performs in this kind of economy and compare its intrinsic value to its market price. In doing so, investors take well-informed investment decisions. Besides, not all companies under-perform within financial crises. Companies are different, have different products, goals, missions and organizational structures and all these diversities are reflected on their interim financial statements and, of course, on their annual reports. Therefore, by following daily trends, but also by getting to know the company fundamentals, investors acquire a general idea of the market and stick to the hot shots, while avoiding the stocks that decline sharply.

3.  For those investors who are not so much into fundamental analysis, technical analysis may be the answer to their inquiries about the prospect of a stock and the market in general. Technical analysis observes historical data of market performance such as price and volume and identifies new trends in order to estimate the market prospects. In this context, investors can use technical analysis to base their investment decisions on historical market data and psychological factors.

4.  Finally, investors can visit the company website in order to get information on historical data, past performance, market positioning, how well the company does in relation to competition and what are their estimates for the future. Besides, corporate websites are always a good source of information in regards to major organizational or other sort of changes and how smooth they occurred. Stability is extremely important in a company and consequently in an investment decision. Stable companies typically rise upwards. Unstable companies are volatile and fluctuate too much.

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