S&P 500 Most Oversold in 12 Years – Time to Buy?

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S&P 500 Most Oversold in 12 Years – Time to Buy?

Global stocks are having one of their worst weeks since the global financial crisis of 2008. Investors are nervous and looking for guidance. Today I am going to share my outlook for global stocks – and share two portfolio strategies.

The S&P 500 fell 10% yesterday – the leading index is now down 30% from the 52-week high. Here is a 5-year chart below. You can see the intensity of this drop.

Coronavirus and Oil Weighing on Global Stocks

There are two major forces weighing on global stocks.

Coronavirus still getting worse: The news coming out of coronavirus is not good. More cases, more deaths. Tom frickin’ Hanks gets it. The trend here is bad news.

Low oil hurting stocks: Low oil price is bad news for US oil companies because many of them need oil to be above $50 a barrel to be profitable. These oil companies have borrowed hundreds of billions from big banks. If they default on these loans it could spell trouble for big banks and the global financial system. That’s why low oil is also a big reason stocks have been so weak.

Are you looking for good news? Then check this out…..

Here’s some good news. US stocks are the most oversold they have been in the last five years. Any time US stocks were this oversold in the last five years – they rebounded and rallied into a new high.

The relative strength index measures when a stock is oversold or overbought. The relative strength index on the S&P 500 is the most oversold its been in the last five years. Take a look below.

What Should We Expect from Stocks Moving Forward?

Looking forward here is the big question – is this the bottom or stocks headed lower?

In the short run I am expecting more volatility and uncertainty.

But no matter how coronavirus plays out, in the long run I expect stocks to recover just like they always have – through world wars, depressions, and recessions.

Two Portfolio Strategies for Investors to Consider

This streak of weakness is making investors nervous. Today I am going to share two portfolio strategies to help navigate a volatile market.

Sit tight, do nothing: For stock holdings, just sit tight and ride it out. The risk is that stocks continue to fall. But if stocks rebound, the portfolio will too.

Sell 50% of Stocks: Get more defensive and trim stock holdings. The risk is that stocks rally. The potential benefit – if stocks fall further – avoid the loss and use cash to buy low.

What Could Cause a Big Rebound in Stocks?

Some kind of relief or even permanent rally would be great news after these steep declines. I see a few events that could trigger a rebound or reversal.

1.) Huge financial stimulus package from the Fed and global central banks.
2.) Slower rate of transmission.
3.) Vaccine created.

This is the Bottom Line

We’re seeing some extreme weakness in stocks and investors are nervous. In the short run I am expecting to see more volatility and uncertainty because most of the news on coronavirus is negative. However, in the long run I expect stocks to recover just like they always have.

Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.

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