Your Stock Investment Can Always Go Lower, Just Ask Merck

by | Jun 27, 2008 | Asset Management, Stock Market Comments

This article could be titled: Can (fill in the blank) go any lower? I’m not picking on Merck.

The reality is you could drop in Merck, Citibank, General Motors, Ford, J.P. Morgan, along with most other names in the Dow Jones Industrial Average (and most of the largest names in the S&P 500) and ask the same question…can this stock go any lower?

The short answer is: yes. Yes, all of these stocks can go lower — and I can show you the charts that will back up that statement. The real question is… what are you going to do about that?

I’ve lost count of the number of times people have told me “it’s too late to sell — I might as well just hang on at this point.” And over the next few months, the stock they are hanging onto gets sliced in half — again.

When your investment breaks the support line, it is no longer moving in an upward direction. That mutual fund or stock is telling you is it is changing direction — from northbound, over to southbound on the highway. Think about road trips you’ve taken — you may stop and get gas, you may stop off and see friends, you may stop to get something to eat. But the ultimate destination is in ONE direction. Mutual funds and stocks, guided by support and resistance lines, do the same thing.

So, again, when your investment breaks the support line, it is no longer moving in an upward direction. We try to avoid stocks that are trending in that direction. That’s how investment accounts get destroyed.

When the market starts to fall, it’s important to see where your particular stocks are sitting. If they’re sitting above the support line, there’s a chance that the stock may drift down to the support line — and then bounce right back up.

However, if the stock is already broken support, and the market then begins to fall, some stocks begin to “free fall” — since they already broke support, there is no safety net below.

And that’s where many large-cap stocks (names that everybody knows) are sitting today.

If you’ve got any questions at all — about any mutual fund — or any stock whatsoever — you need to e-mail or call right away. I’d be more than happy to give you an instant analysis right over the phone.

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