You see, history shows us that declining prices aren't always bad. Instead, when stocks hit a new 52-week low, it often sets us up for future gains. Following NASDAQ nearly 30% plunge, S&P 500 has also touched its 52-week low in years at the beginning of May. From its peak, it has shedded 17% by now. That's scary... But it is not necessarily bad. If you don't know, new 52-weeks lows are rare – they've only happened less than 1% of the time since 1950, or 23 times in the past 72 years. What happened following those new lows? Surprisingly good or even great:
Per history, stocks tend to perform well after such extreme lows, especially in the longer term with 2-3 years time period. In average, S&P returns shoot up to 24% in two years and the three-year return grows to 31.2%.
This is what I told me DW Family yesterday:
Will a reversal ever come?
Stocks seem to get hit… again today with S&P futures down 30 points or so. Nearly all the indicators I follow are extremely oversold. It may sound like a broken record for me to sing the same bullish music again and again everyday but believe me there will be one heck of a bounce coming at some point.
The million dollar question is of course When? And How sustainable will that bounce be?
My gut feeling tells me it will be… soon and probably lasting a couple of weeks, considering how deeply oversold the market is right now with historically depressed sentiment rarely seen.
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