If you stayed in the stock market during the 2007-2009 crash, the time since then has been a great opportunity to recover those losses.
The stock market has doubled from the March 2009 low. The market has not always been so kind after similar declines in the past.
Are you hoping to recover even more? Maybe you imagine kicking yourself because once you sell, the rally continues.
Yet please realize this: Every seller wants to catch the stock market's top tick, but almost none do. The odds are… well, the lottery comes to mind.
You might reply, "I'm not aiming for the very top of the market. I have a certain level in mind. If the price drops to that level, I'll get out."
That may work out as planned, it may not -- because the rule is that stock markets fall much faster than they rise. Fear is the dominant emotion when a market craters.
And almost all traders everywhere respond to fear in the same way. Let's see what happened to the Saudi Arabia Stock Index in 2006 (see chart below).
The graph shows how quickly hope changes to fear. No doubt there were investors who hoped to get out near the top, and then hoped for a second chance. But all of the bounces stayed well below the high.
The December 2006 Elliott Wave Theorist carried this quote from The Boston Globe:
The downturn has been disastrous for many Saudis...Until February, the market was growing by almost 100 percent annually, leading many Saudis to predict a new boom.
In turn, Robert Prechter observed that "most people need a boom to predict a boom. So, the collapse took many Saudis by surprise."
Many Dubai Index investors were similarly surprised.
These two examples of severe stock market downturns show how markets turn on a dime. Otherwise intelligent people held all the way down. Conflicting emotions may interfere with an investor's desire to exit near the top.
What about the U.S. stock market? What is the Wave Principle telling us about the psychological and technical condition of this long rally?
Find out in the just-published February Elliott Wave Theorist which includes 16 must-see charts and Robert Prechter's independent market insights into 2012. Plus the NEW Theorist is over 20 percent longer than usual!
The Elliott Wave Theorist is part of our flagship Financial Forecast Service which also includes the monthly Financial Forecast and the 3 times a week Short Term Update.