Protection During a Stock Market Correction? Advice to Survive a Bear Market Crash

Protection During a Stock Market Correction?
Advice to Survive a Bear Market Crash
Feb 9, 2010 Kurtis Hemmerling

When stock market prices correct, or even go into a bear market, how can one hedge against it?

The stock market has three basic cycles: bull, bear, and consolidation.

Bull Markets Precede a Stock Market Correction
The stock market is driven by growth. Companies are aggressively fighting for the same piece of investment dollar. Large double or even triple digit growth attracts long term investors who want to build for the future. At this stage the market climbs – often rapidly.

The Market Corrects or Consolidates
If the stock market continued to push upwards, the price of the average share would far exceed any reasonable valuation. That is why the market must correct itself and deflate. A fall of up to ten percent is considered a correction only.

The Exchange Crashes and Turns Bear
If the growth bubble is too large, or if sentiment is particularly sour based on economic events, the stock market may fall in excess of ten percent. At this point it is dubbed a ‘bear market’. The prices are in a severe downturn where negative sentiment rules the trading patterns.

Really, the stock market is a pattern of growth, bubble, burst. And then it starts all over again.



Read more at Suite101: Protection During a Stock Market Correction?: Advice to Survive a Bear Market Crash
http://investment.suite101.com/article.cfm/protection-during-a-stock-market-correction#ixzz0f6KrMI8d