It’s been quite a violent and volatile couple of weeks. Markets correct in two ways – price and time. In our last blog post we showed you the CNN Fear and Greed index - in that example it was at 15; at the time of writing this post it is at 5.
Additionally, fear has driven many investors to run to treasury bonds which has driven rates to new all-time lows - 0.5% on the 10-year and 1.21% on the 30-year. That’s right folks! You too can earn 1.21% each year for 30 years! These are the extremes that create fear and panic.
For over 40 years we’ve tracked the 52-week (annual) new highs/lows on the New York Stock Exchange (NYSE) as published by Barron’s. There are approx. 2000 stocks, not including preferred and inverse ETF’s that trade daily. Every few years we see extremes which mark either buying or selling opportunities. Anything over 500 new highs or lows starts to trigger a warning and 1000+ means opportunity. The chart below shows two climatic weeks when new lows expanded dramatically. One year later, the S&P 500 gained 30%. This cycle appeared again in December 2018.
Source: Barron’s Market Lab Stats
What does this mean?
The evidence is building that the probabilities of very good returns are ahead. The process is already in motion. As good companies get cheaper, the probabilities of success increase. After 4 decades we’ve never bought the exact bottom or sold the exact top. It’s the 80% in between where you succeed. As the odds of success increase we will continue to put cash reserves to work.
Note: this post was written on March 6, 2020.