Market Health

Is This the Buy Signal Investors Have Been Waiting For?

“A smooth sea never made for a skilled sailor.”

That’s an old mariner’s proverb.

And it’s a mindset that every investor should be embracing.

I don’t need to tell you that the market is enduring some rough seas as of late.

This is precisely what we expected. And we may have just received the best buy signal in more than a year!

2022 Is Nothing New

Don’t think that this year is somehow unique.

It’s not.

To kick off the new year, I attacked one of Wall Street’s biggest lies: that January is a great month for stocks.

I outlined how it’s actually one of the worst months for investors. And I shared this chart of January’s historically jittery performance.

 

January starts out as an air pocket between the end of the holiday shopping season and the heart of fourth quarter earnings.

And investors start worrying that any optimism they felt at the close of the previous year was wrong… possibly catastrophically wrong.

This is especially true if there’s a macro event to focus on, such as emerging markets melting down, a brewing trade war with China or the Federal Reserve raising rates.

This leads to anxiety and uncertainty.

And it creates a combustive mixture that triggers widespread volatility.

You know it, I know it and the mainstream financial media spends breathless hours covering it before, during and after each trading day. As a result, stocks have tanked so far in this young year.

We’ve seen this same pattern repeated again and again in January.

It’s nothing new.

Stocks tumbled in January in 2000, 2002, 2003, 2005, 2008, 2009, 2010, 2014, 2015, 2016, 2017, 2020 and 2021. And they’re tumbling again so far in 2022.

That’s six of the last nine Januarys that have seen stock market declines. When identifying a dependable trend to bank on, that’s almost as good as it gets.

But here’s the deal: There’s a trend emerging in recent years that may just be the best buy signal for catapulting your returns.

The “Nasdaq Nosedive” Buy Signal

As predictied, blue chips are in the toilet to begin this year.

After today’s bloodbath, the Dow Jones Industrial Average has fallen more than 8.2% to start 2022, creeping ever closer to a 10% correction.

And for tech stocks, many investors feel like the toilet is stopped up.

The Nasdaq is down more than 18% from its all-time high set back in November. And most of this damage has occurred during the more-than-15.4% slide that’s taken place this month.

The good news is we’ve hit that all-important 10% correction.

Now investors are left wondering whether the tech index will tumble lower to the 20% threshold and a bear market.

Well, I’m here to tell you that the chances of that happening are less than 50/50… though we are remarkably close at this point.

Since 1971, the Nasdaq has seen 65 other 10% corrections. Of those, only 37% – a mere 24 – went on to become full-blown bear markets. Our last bear market, as we all remember, was in February 2020. The last one before that was in October 2018.

That means that the 41 other 10% corrections marked only that we were at or near a bottom.

And regardless, they’ve all served as buying opportunities.

Just take a look at how the Nasdaq has performed in the six months and one year following the date of the last 17 corrections.

That’s a lot of green!

The average gain for the Nasdaq in the six months following these corrections was an impressive 17.64%.

But further out, the average return for the tech index a year after a correction was 31.67%!

And it’s important to point out that though a year hasn’t yet passed since the March 8, 2021, correction, the Nasdaq is currently up 10.7% from the close on that day.

If you’re looking for a buy signal in this panic-fueled market, that’s a good one.

And it’s another bankable trend to count on.

Getting Your Sea Legs

Plenty of investors are feeling sick at the market’s recent moves… especially the moves on the Nasdaq.

But remember, 2022 ain’t nothing special.

This is our third consecutive year of market declines in January. It’s also our sixth drop in the past nine opening months of the year.

And it’s important to note that this marks our third consecutive year of tech stocks suffering a correction in the first three months of the year (February 2020, March 2021 and January 2022).

Beyond that, since 2008, we’ve gotten six Nasdaq corrections in the first three months of the year (January and February 2009, January 2016, February 2020, March 2021 and January 2022).

That’s 9% of the 66 corrections the index has seen since 1971.

These are bits of trend-based knowledge to put in our back pocket for 2023 and beyond.

We knew coming in to the month that January would be tough. And we’ve now seen a multiyear trend of a 10% drop from tech stocks in the first quarter.

So don’t panic… Instead, buy.

These are seas we’ve sailed before. And these are the types of seas that make us skilled – and profitable – sailors.

Here’s to high returns,

Matthew

P.S. As I mentioned, I’ve previously outlined how January is one of the worst months for investors. To read my article on this topic, click here.

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