It is imperative to know the general market's direction and to follow its trend. When the market turns down, three out of four stocks will also fall -- even quality stocks.

• Watch the daily price and volume movements of the major market averages (Dow, Nasdaq and S&P 500), looking for "distribution" that may herald a downtrend and - on the flip side - "follow-throughs" that may indicate a new uptrend.
• Read IBD's "The Big Picture" column to understand the market's health.
• Find out if the market is favoring big-capitalization or small-capitalization stocks. Check IBD's charts on "Big-cap Growth Funds Vs. Small-Cap Growth Funds" and "Value Funds Vs. Growth Funds." Focus your research on whichever is moving higher.
• Also check the S&P 500 and Dow indexes (which represent big-caps) and the S&P 600 (which represents small-caps).
  

Related Resources:

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