« Some stats to consider. »
Traders,
Repeat after me.
“Most corrections don’t become prolonged bear markets.”
“Every market selloff is a buying opportunity. Some just take longer to pay you.”
“Stocks become less (not more) risky the lower the go.”
The decline in the Russell 2000 has been swift. We’ve gone from a 52-week high to down 20% within three months. That officially placed the RUT in a bear market. So what does history say about the index’s performance after such a rout?
Per the Chart of the Day from @sentimentrader, we’ve had six prior instances of this happening since 1980. It’s a small sample size, but the takeaway is still legit. The odds of the market being higher one week to 2 months after the decline was only 50%. So not great.
But, extend your hold time to 3 months, and the odds of success went up to 67%.
Hold even longer to 6 months, and the probability of profit rose to 83%.
One year out, you were up money in all six instances.
Hopefully, the takeaway is clear. Buying stock indexes this far off the highs has been a stellar buying opportunity for those investing money with a long time horizon.
Chart of the Day: Russell 2000 after cycling from 52-week high to 20% drawdown in < 3 months
Here’s what history says about the odds when buying RUT after a rapid 20% decline.
Video of the day: Queen’s Court: Analyzing trading candidates $BAC $F
In this edition of the Queen’s Court, Coaches Emily and Matt analyze 2 Tackle 25 Covered Call list stocks: Bank Of America and Ford.
Today’s line up
Traders Lounge 11 AM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
The Coaches Show Replay
If you missed last night’s episode where Coaches Coaches Mark Justice and Frank Martin talked about Moving Averages or would like to watch it again, check it out here.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.
Trade Masters 7:00 PM EST
Every Wednesday at 7 PM EST join us on the Trade Masters where two Coaches go head-to-head to see who can find the best trading setup.
Trading Justice 461: The Basics of Support
In this episode, Coach Matt teaches the basics of Support when reading technical charts. Support represents a key price level and the location that demand comes in to drive price back up. Traders use this level for a variety of important reasons. Listen in to learn more from Matt on support.
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