Stock market crash is denoted term to a frequently prevailing phenomenon. It occurs when the collective stock price percentage crosses the lower ever limit of the market. It happens due to several reasons including socio economic situations of a country, political instability, economic vulnerability, warlike situations, natural disasters and poor decisions of strategic nature. Sometimes stock market crash in response to some happening around that could only be judged through some indicators. It cannot be measured before time. For example, the recent crash of 2008 was not being anticipated to grow so enormous. Here we have a list of some signs that indicate about a stock market crash. However these should not be taken as rule of thumb but they might remain helpful in judging an event if having an eye on the market operations carefully and continuously.
1. Investors Sentiments
Traders’ sentiments and emotions are the most important factors that might help a stock market to go rise or to get crashed. The drivers of a market are undoubtedly the investors, if they feel insecure, market cannot move anymore. It is the matter of judgment. If investors are not investing in the risky stocks broadly and showing pessimist and insecure behavior towards trading activity, it might be sign that market is about to crash soon.
2. Monopoly in the market
If market operations are held by a few hands, market can be crashed anytime if demands of the holding hands are not fulfilled. It is common practice in south Asian stock markets e.g., Pakistan, India and Sri Lanka etc. To judge this factor, a mediocre investor must keep a sharp eye over the administration’s relations with the key market monopolists.
3. Ignorance towards Fundamentals
If the investors broadly start ignoring the fundamentals before making an investment, market equilibrium will go depressed. Shares will largely start over and undervalued because of poor calculations and anticipations of the investors. This will start making a false bubble, and will blast badly after completing its circle.
4. Downturn in Commodity Market
The most important and deadly sign is the less demand at commodity market tending low prices. When major commodities are priced at lower level, market starts fluctuating as it is doing now. These commodities include gold, silver, iron, and fuel. Price of the mentioned commodities (in international as well as in local markets) has a sharp impact over the investors’ sentiments and risk calculations. Because of lowering prices of commodities and surplus availability, economy get vulnerable and other economic melodies might evolve for example, unemployment, currency depreciation, increase in inflation, lowering interest rate, bankruptcy, sinking companies and many others. Thus investors must remain beware of decreasing prices.
5. Every rise has a fall
It is a deadly situation if bulls are continuously increasing. The formula of “Against Every Bull, There is a Bear”. If it would not be followed, market will compensate the number of bears by getting crashed. Currently, it is a troubling situation that since the year 2009, NYSE and NASDAQ are generating bulls.