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Stock Market Bubble is created when the investors or traders buy only in the anticipation of a future increase in stock price or market rally. In such a scenario, sentiments overpower the fundamental analysis. The macroeconomic indicators take a backseat.
To find out Stock Market Bubble, you can check the correlation between the American and Indian market i.e. Dow Jones Industrial Average and the Sensex. If the correlation is high then the risk is very high. On the other hand, if the correlation is low i.e. below 50 then the probability of rally in the stock market is high.
An investor or trader can also check the P/E ratio of the stock market and compare it with the historical value.
In case of stocks, the best way is to compare the future profitability of the company. An investor can compare current P/E and EPS with the forward P/E and EPS. In case, the current P/E and EPS are lower than the forward P/E and EPS then there is a possibility of an increase in the stock price.
Secondly, you can check the fair or intrinsic value of the stock. If the current traded price is more than fair value then fundamentally stock is due for a correction.
Lastly, if the promoters of the company are selling their stake then it is not a good news and there is a high probability of Stock Market Bubble.
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Stock Market Bubble - How to find out? [HINDI] trading screen | |
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| How-to & Style | Upload TimePublished on 14 Jan 2018 |
