How will i know that another stock marke crash is coming or quite near?

"How will I know that another stock market crash is coming or quite near?"

+ You'll see bullish comments leaking in the normally bearish financial media.

+ The news will be full of optimism and good financial news. They will say, "The price of oil is going down. The trade deficit is shrinking" or "the troops are winning the war." and "The GDP is strong." People will agree that everything is perfect and wonderful! People feel good about themselves and their finances. They feel like millionaires. They may feel like taking a vacation. Or they may feel like they need to sell everything and invest in the stock market because it's sure it will go up.

+ Near the top of a bull market, the US dollar goes up and gold goes down. US dollar represents confidence and security. Gold represents fear. When gold goes down, it means people are less afraid of the future.

+ People are optimistic and want to invest in the market. We'll be getting there soon. As the market goes up, more and more people will be asking questions like, "How do I buy shares of Microsoft and Walmart, etc...?" or "How do I invest in the stock market?" or "What stock should I buy?"

+ The majority of the crowd usually invests at the wrong time. So, when we see large amounts of capital flow into stock mutual funds and equity exchange-traded funds, we may assume that the market is near the top.

+ The VIX (put/call ratio) should be making lows before market reversals. I tend to ignore this indicator since it has proven to be useless. It has been issuing major sell signals since 2004.

+ An inverted yield curve usually precedes an economic downturn.

+ High interest rates or several consecutive interest rate hikes by the Fed could spark a bear market.

+ Penny stocks skyrocket when the stock market reaches the top. When that happens, these people who own the stocks become instant millionaires, so you start hearing stories about people who made huge amounts of money in the stock market.

+ The Dow, the NASDAQ, and the S&P500 indexes make new highs, but important industry leaders such as GE, MSFT, C, and others are unable to reach new highs. When you see this happening, you know there's weakness in the market.

+ If the market is going up and volume is big, that means people keep buying. If the market is going sideways and volume is big, that means people are selling.

+ If the market is advancing faster and faster following a parabolic trend and if the market is touching or already penetrating the upper bollinger band on monthly and quarterly charts, then it is likely to fall back. Watch out for a crash!

+ Look for other common bearish chart patterns. Do you see an ascending wedge or a head-and-shoulders formation on the charts of major indexes?

+ Extremely high PE ratios and very low short interest ratios tell us that the market is near the top.

+ Decrease in government spending is bad for stocks. Wars usually mean more spending. When a war ends, there may be less spending as a result.

+ When the market is near the top, people are less likely to buy put options, QID, DXD, SDS, and other inverse funds that go down in value while the market is going up. If the volume of these securities gradually decreases as they go down, that means people are losing interest. OR if their volume gradually increases, it may reach a certain point where people decide to sell all their QID, DXD, SDS and put options. So, you'll see huge volume. That's a panic selling of inverse funds.

+ Watch daily prices. Just before a crash, stocks usually close near the lows of the day.

+ Some say that the Dow Jones Utilities Index often precedes the movements of the major indices. This was the case in 1987 and 1998. However, the Utilities index was totally wrong in Y2K! So, I tend to ignore this index.

See Also:
Why did the stock market crash in 1929?
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