Opportunity Window – Ratings Below Pre-Pandemic Highs :: InvestMacro


by Ino.com

window of opportunity

Six months of relentless selling and randomness swept the markets. This sale reduced the increase in stockpiles caused by the epidemic foam to pre-pandemic levels. In many cases stocks are trading well below their pre-pandemic highs.

Stocks now offer a window of opportunity for long-term investors at this juncture. As collective price-earnings ratios return to their historical average, oversold conditions at their extremes and an inflation picture may combine at a potential inflection point to be the back half.

This window of opportunity may not last much longer based on historical bear market metrics, so pounce and jump stronger if markets slide further.

Mid-June Flushing?

Several commentators in investment circles have stated that an eventual market drift is likely to be needed before moving up in any meaningful way.

Mid-June saw its worst weekly performance since March 2020, dropping 5.8% for the S&P 500 with its overall drop to around 24%. After such a tough week, no stock or sector has been immune to widening participation in this selloff. As such, the market has now recorded unusual extremes in oversold and oversold conditions.


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Is this the loss needed to stop selling pressure in this market, and will it be an inflection point? A host of indicators are suggesting that the markets are close to making a meaningful move higher very soon.

Deviation point?

The percentage of S&P 500 stocks that are trading above the 50-day average has reached a level that cannot go down as is evident over the past 20 years. This level indicates extremely oversold conditions (Figure 1).

% stocks above the 50 day moving average

Figure 1 – Evaluation of overbought and oversold conditions across the percentage of stocks relative to the 50-day moving average (CNBC-approved).

Notably, less than 25% of stocks are still within 20% of their 52-week high. The only times this was worse were the Covid crash and the 2007-2009 financial crisis. More than 42% of S&P 500 shares hit a new 52-week low, only the 10th time since 1985 that this total has crossed 40%.

The average Nasdaq stock underwent a 50% drop from its all-time high. The S&P 500 is now trading at a level it reached for the first time in over 16 months in early 2021. The move reverses the post-Covid advance in the stock markets. Corrective waves in February 2016 and December 2018 bottomed at levels they first reached in nearly two years. Thus, these markets have reached the point where the past two years of rally have been erased.

Stocks look cheap

The current collective P/E is ~16, far from pre-Covid highs and not much higher than where it bottomed in previous heavy sell-offs in 2016, 2018, and 2020 is closer to a P/E of ~14. The S&P 500 equal-weight finished in the middle of June with a profit equivalent to 13.1 times. It should be noted that the markets fell in December 2018 at 12.9 and in March 2020 at 11 (Figure 2).

SP500 forward P/E.

Figure 2 – Evaluation of P/E ratios over the past 10 years (CNBC endorsed).

conclusion

Diligent and haphazard selling has reduced the escalating pandemic foamy stock in stocks to pre-pandemic levels. Stocks now offer a window of opportunity for long-term investors at this juncture.

As collective price-earnings ratios return to their historical average, oversold conditions at their extremes and an inflation picture may combine at a potential inflection point to be the back half.

The percentage of S&P 500 stocks that are trading above their 50-day average has reached a level where the percentage cannot go down compared to the past 20 years. This level indicates very oversold conditions.

Less than 25% of stocks are still within 20% of their 52-week high. The only times this was worse were the Covid crash and the 2007-2009 financial crisis. More than 42% of S&P 500 shares hit a new 52-week low, only for the tenth time since 1985 that total has exceeded 40%. The average Nasdaq stock underwent a 50% drop from its all-time high.

Bank of America’s Bull & Bear Indicator, which captures money flows and other measures of market-based risk appetite, is at frightening depths usually indicating a buying opportunity. During prolonged periods of stress (eg, 2000 – 2002 and 2008 – 09) this measure held at these lower levels while prices continued to trend downward.

This window of opportunity may not last much longer based on historical bear market metrics, so pounce and jump stronger if markets slide further.

Noah Kedrowski
Contributor to INO.com

Disclosure: Stock Options Dad LLC is a Registered Investment Advisor (RIA) firm that specializes in options-based services and education. There are no commercial relationships with any of the companies mentioned in this article. This article reflects the views of the Russian Information Agency. Any recommendation in this article is subject to change at any time. No recommendation is intended to form a complete portfolio. The author encourages all investors to conduct their own research and due diligence before investing or taking any action in options trading. Feel free to comment and provide feedback; The author appreciates all responses. The author is the founder and managing director of Stock Options Dad LLC – a Registered Investment Advisor (RIA) firm. www.stockoptionsdad.com Determining risks, utilizing minimum capital and maximizing return on investment. For more engaging short-term options-based content, visit Stock Options Dad LLC’s Youtube Channel. Please direct all inquiries to [email protected]. The author owns shares of AAPL, ACN, ADBE, AMD, AMZN, ARKK, AXP, BA, BBY, C, CMG, CRM, DIA, DIS, FB, FDX, FXI, GOOGL, GS, HD, HON, IBB, INTC, IWM , JPM, MA, MS, MSFT, NKE, NVDA, PYPL, QCOM, QQQ, SBUX, SPY, SQ, TMO, V.

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source: Window of Opportunity – Ratings are below pre-pandemic levels



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