Buying and selling stocks successfully depends a lot on understanding the overall direction of the stock market, whether it is going up or down. One of the biggest factors in determining whether we are in a bull or bear market is unemployment. The most reliable place for information on this is the St. Louis Federal Reserve
website. If you click on the link and look at the Federal Reserve statistics, you will see that the graph of unemployment is clearly declining. This means that businesses are doing well, and people are being hired. The economy is getting better, and the general trend of the stock market is bullish.
However, the market will not go up forever. We will always have pullbacks at certain times, and the downturns will usually last a few weeks depending on how much fuel the reversal gets from bad news. For example, financial problems in the U.S. or Europe could pull the stock market down for a while. If you know approximately when stocks will decline, you can make money on the downside as well as protecting your profits from the upside.
One of the ways to know that we are at an intermediate stock market top is to look at a chart of the S&P 500 Index
. If the relative strength at the top of the graph is showing an overbought situation, then stocks could easily go down due to bad news or profit taking.