Stock Market Consolidation

The stock market is controlled by people - and because of that - emotions. The two most prominent are fear and greed. And because of this, the market makes little sense in the short-term and is as volatile as your mother-in-law without her anti-depressants.

By definition, a consolidation - also known as a correction - is usually downward movement in the price of an individual stock, bond, commodity or index.

If prices have been rising on the market as a whole and then fall dramatically, this is know as a correction or consolidation within an upward trend.

People often panic and sell when stock prices have quickly dropped for no apparent reason. If the company you invested in is strong, stabil and still making money and nothing has changed about it, then this is insane; yet thousands of investors do it every time. Sometimes its enough if there's just one black sheep in a sector to draw the entire sector down although all other company's are sound and profitable.

Most people tend to wait until prices are going up again and then buy. If your favourite ice cream went on sale, would you wait until it had doubled in price before you bought it? Why should a stock be any different?

Only one year before the completion of the formation of U.S. Steel (which financial historians have called the deal of the 20th century) J.P. Morgan said that such a feat could never be accomplished again - until the markets crashed.

The depressed valuations of companies allowed him to purchase business entities at a fraction of what they had been selling for 12 monthe earlier. The next time the market is cut drastically to its knees, look around for great and solid Blue Chip companies that have weathered depressions countless times before.

They'll be selling at discount prices, and when the market finally recovers - which it always inevitably does - you'll have made a great deal of money.

The secret to wealth has always been said to be "Buy when there's blood running in the streets and sell when everyone is pounding at the door, crawling to own your equities."

You have to have enough faith in yourself to buy when the rest of the crowd is selling. Most people don't have the self-confidence and resolve to do so and always end up following the crowd.

Remember, just because you follow the majority of people doesn't mean that the majority of people are right! That's why 95% of investors aren't driving Porsche and live on Hawaii 6 months of the year.

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