Should investors hunt for the bottom in a stock market?

Team Veye | 27-Apr-2020 stock market

It is of no surprise to know that subsequent to every market crash, the most frequently asked question has remained the same, whether a bottom has been made?

While market pundits have often been telling the investors that it is impossible to time the market, it could be only partially true.

As everyone wants to buy low and sell high, it becomes a daunting task, particularly during and in the aftermath of such a pandemic. Investors also devise different strategies of either buying in tranches or forego a margin of 5-10% above the bottom.

While there is no sure way to know when the market or a particular stock has bottomed, keeping certain indications in mind usually help. Some data comes handy to know what is the bottom and when it is formed along with the base.

Probability and back testing can give a reasonable idea on when does the recovery start and how fast and accurately the confirmation could be arrived at.

Follow through days offer certain data, but that does not mean that time has come to jump into the market. Though about bottom one can only say retrospectively that it has been formed, the base formation can be more apparent. It is formed after a strong fall. The market or the stock trades near but does not close below the lowest closing. It may continue like this for some weeks or maybe a few months.

The second indicator to base formation comes when it starts trading 5% above the lowest closing and out of 9 consecutive closings, not more than 3 are negative closing and the remaining 6 are positive closings. And no day it closes 10% below in remaining days.

It will be pertinent to note that many times false signals are generated. Because the market is in no hurry to form either base or bottom.

Disclaimer

Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website www.veye.com.au), and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing this report. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services.

veye logo

Grab Your Free Report On 5 ASX Dividend Stocks To Buy In 2024

(+61)

SALE IS LIVE

Limited Time Deal:   Over 72% OFF

DIVIDEND
INVESTER REPORT

Dividend-Investor-Report

Each week we cover companies offering a good combination of growth & dividends, maintaining a balance between stable 'cash flow' and risker 'raising stars'. Our guidance helps you choose companies with regular dividends and opportunities for lower-risk capital growth.

  • The best High Yield Dividend Stocks picked by our team of analysts every week.
  • Detailed in-depth Analysis with our expert Recommendations Buy, Hold or Sell.
  • Free Daily Analysis Report to keep up with the latest on what's hot and what's not.
  • Gain instant access to a wide range of Dividend Share Reports, exclusive to members only.
Frequency: Every Tuesday