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Stock charts show the daily price movement of either the stock market or individual stocks. The above chart demonstrates the pattern of stock market movement that can be very informative for investors. The chart shows a 200 day moving average line in red that allowed investors to either make a mint or to lose their shirts depending upon if they ignored the 200 or not. The 200 day moving average is an average of prices over a 200 day period.
Lesson #1: Invest with the Trend: Fighting the trend is like trying to canoe up river, it takes a lot of work, and investors most often end up further down stream with less money in their account. It is much better to be in a position that benefits from going with the trend.
View our stock-market-101 .com analysis to learn where today's market stands relative to the trend.
Stock Market Analysis at Stock-Market-101.com
Lesson #2: Case Study of the Stock Market Crash of 1987. We look through some examples of history to help us understand the future.
THE STOCK MARKET CRASH OF 1987
The stock market crash of 1987, or October 87 crash, was the largest one day stock market crashes in recent history. There are many theories about the panic in 1987 that collapsed the stock market more than 22%. This page will break down the technical analysis or graphically examine the October 1987 correction commonly referred to as black Monday.
The 87 stock market crash is sometimes thought of as the "no news" stock market correction. There were no big announcements on the day of the crash. Examination of the charts tells us that the market was already starting down the road to a correction when the 87 panic struck.
The first noteworthy technical item is that prior to the stock market crash of 1987 the stock market was in a sustained upward trend or bull market for several years. The second noteworthy item on the stock market chart below showing the October 87 panic was the previous stock market support found on the two hundred day moving average or 200 dma. The red arrows on the chart below show the market participants stepping in a buying stocks each time the market approached the 200 dma.
Stock Market direction before the crash looked very typical to stock market digesting a recent rally. The market action starting in September and early October began choppy action changing direction very similar to six changes in direction that are shown below from April to June.
The chart of the 1987 crash shows that on Friday, October 2 and Monday October 5 the market closed at nearly the same price it started the day, indicating the market was trending water in indecision near marker "1". The market then crossed below the 50 and 10 day moving average with a decisive movement. The Dow Jones Industrial Average then trended lower staying below the green line or 10 day moving average for the next 17 days. On October 15th, at marker number 2, the Dow 30 crossed below a major line of support, the 200 day moving average. On Monday, October 19th, 1987, the Dow opened with a gap down, a gap down confirming that the market wasn't going to find support at the 200 dma.
Evaluation of the first technical indicator, the 21 day relative strength of the dow jones industrial average. As shown below the 21 day moving average showed signs that the market was in overbought territory by scoring a reading greater than 70, however, this reading did not seem to be any more significant than previous reading into the same category that did not result in a significant market correction.
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STOCK-MARKET-101.COM HTTP://STOCKCHARTS.COM or HTTP://YAHOO.COM . INFORMATION HERE IS NOT INTENDED AS TRADING ADVICE. STOCKS ARE RISKY, YOU MAY LOSE EVERYTHING YOU INVEST OR MORE DEPENDING ON THE TYPE OF INVESTMENT. A STATISTICAL ANOMALY OR OCCURRENCE DOES NOT NECESSARILY IMPLY SOME FUTURE DIRECTION.