If you're looking to get out of the stock
market, there are a number of factors to consider.
First, let's take a look at some of the factors.
To begin with, if the initial investment decision was incorrect
Even though this is a losing transaction, selling the stock is the most sensible move in this situation. Prevent the temptation to go after stocks on fumes to avoid repeating the same error in the future. These stocks may cause you to lose money.
When the price goes up significantly
It isn't always a good idea to sell a stock only because its price has increased considerably. The company's underlying fundamentals (such as sales and earnings) may justify price increases in some situations. On the other hand, the stock may have risen dramatically because of speculative gains or for other reasons, like a short squeeze or takeover rumors. Investors in these situations should conduct some research to find out what's behind the company's recent gains, and then decide whether or not to sell the entire position or just part of it and set a stop order in place to sell the rest if the stock drops below a specific price.
There are times when the market is in the middle of a technical inflection:
An increase in the price of a stock when it is trading near (and eventually breaks under) a multi-year low almost always signals the possibility of further losses. You should consider selling the stock if it breaks below a key technical level. Even more so, it may be advantageous to sell some of your position rather than all of your stock if the price breaks through a critical resistance on the upside, which could indicate greater gains and a wider trading range. Technical analysts also keep a careful eye on stock price charts in order to spot additional signs like moving average crossovers.
Deterioration of the fundamentals
A company's fundamentals can worsen for various reasons, including decreasing earnings and revenue growth, more competition, lower margins, higher expenses, and price. A company's quarterly earnings report or "guidance" before an earnings report may be the first warning of deteriorating fundamentals. An immediate and unmistakable collapse in the stock price might be expected when a firm reveals bad news, such as a lowered future guidance or an earnings miss. When this happens, the investor must decide if the decline in the stock's fundamentals is only transitory or if it will continue indefinitely. First, you may want to consider selling and exiting the position before deciding if you want to buy it again later.
When the market appears to be swaying:
Getting rid of the weaker stocks in your portfolio when the market appears overextended is not an easy task. It is definitely not a recommendation to engage in market timing. Stocks of corporations with a large debt load or a bad financial condition are usually the first to fall in the event of a financial earthquake.