The DJIA and Stock Market Tips

Anything can happen in the stock market in the short term. Expect both increases and declines.

A market correction is a reversal of the prevailing price movement trend for a security. A “correction” is most often used to describe a decline after a period of rising prices. A market crash is commonly defined as a 20% decline in a single day or over several days. On October 19th 1987-referred to as “Black Monday”-the DJIA plummeted 22.6% in a single session. On 10/10/08, the DJIA closed at 8451.19-around a 22% cumulative loss over 7 trading days. Market crashes do not necessarily lead to bear markets. On 10/13/2008, the DJIA closed at 9387.61–the 936.42 point increase equated to an 11% single-day gain. Up to that point, it was the largest single-day gain in the history of the American stock market since the 1930′s. On 10/15/2008, the DJIA closed at 8577.91. On 10/16/2008, the DJIA closed at 8979.26. “Testing the bottom” is a term meaning the market fluctuates up and down until a low point is reached.

A bear market is a period of decline in multiple broad market indexes such as the Dow Jones Industrial Average (DJIA) and the Standard & Poor’s 500 Index (S&P 500) over several months-at least a two-month period.

Someone once said there are three phases to a bear market:

First phase-a few people see that things are getting worse.
Second phase-most people see that things are getting worse.
Third phase-everyone is convinced that things can only get worse.

The third phase is when consumer confidence is at its lowest.

When consumer confidence is at its lowest, it is typically a good time to purchase securities.

In good markets and bad markets, well-balanced diversified portfolios invested for the long-term are the key to financial success.

Over a long period of time, the DJIA trends upward.

The Standard & Poor’s (S&P Index) odds of increasing over any 1-year period are only 7 to 3. The S&P odds of increasing over any 5-year period are 9 to 1. Stock market investment risks diminish over any 5-year period. Money not needed within 5-years might be considered for stock market investments.

Anything can happen in the short-term; however, over time the market has always rewarded long-term investors.

Be a long-term investor!

“For everything there is a season, and a time for every matter under heaven: … a time to break down, and a time to build up…”-Ecclesiastes 3:1-3 (RSV).