When to Start Buying Stocks Again? 5 Signs to Buy
The descent into a bearish market happens when sellers take control and there’s a lack of buyers to balance the price of stocks. Inherently, it’s a time when investors are afraid of buying or unwilling to buy. The question becomes one of when to start buying stocks again. Should you peg a specific price? Wait for seller volume to taper? Set a moving average target?
The question of when to start buying stocks again is one that can leave even seasoned investors second-guessing themselves. The last thing you want to do is overconfidently rush into a position… only to see it fall dramatically a few days later. The mistake many investors make that leads them to this scenario is to look at micro factors, instead of macro ones.
While you might want to open a position in a specific stock, it’s best to observe macro trends to get an idea of when it’s safe to pursue that position. Here are five variables you can observe to get a better understanding of when markets have begun to stabilize and when it’s safe to start buying stocks again.
No. 5 CBOE Volatility Index (VIX) Stability
The Chicago Board Options Exchange’s CBOE Volatility Index (VIX) is, for all intents and purposes, a measure of investor uncertainty. The more fearful investors become of the market and its instability, the higher the index climbs. For example, since the beginning of 2022, VIX has risen more than 77%, indicating tremendous uncertainty.
Investors wondering when it’s safe to start buying stocks again should monitor this index closely. Look for a plateau and a reversal that signals growing investor confidence before opening new positions. Watch the price of the index in relation to its recent highs and 50-day moving average to determine a confident entry point.
No. 4 Stock Capitulations are Behind Us
Stock capitulations will make headlines, and several already have in 2022. In February, Meta Platforms (Nasdaq: FB) shed 25% of its market cap overnight. In early May, Amazon (Nasdaq: AMZN) dropped more than 25% over the span of a week. Netflix (Nasdaq: NFLX) recently tumbled 35% in a single trading period.
Once a stock capitulation occurs, it paves the way to a buying opportunity, provided the stock finds a bottom first. Capitulations are so dramatic that a period of stability often follows, allowing the stock price to even-out. Observe a stock’s behavior post-capitulation to gauge its stability moving forward, and use this as a basis for informed decision-making for when to start buying stocks again.
No. 3 Companies Reaching 52-Week Lows
Take a look at a cross-section of the S&P 500, Dow Jones Industrial Average (DJIA) or the Nasdaq Composite Index. Pick 20 companies and see how many of them are at or near their 52-week lows. If 40% or more of these random companies are at hovering near that figure, it’s a good sign to start buying stocks again. It’s a signal that many companies have found a bottom and the support that comes with it.
Alternatively, another way of looking at this is to examine the 200-day moving average. If no more than 20-25% of companies in your random sample are trading above this average, it’s the sign of broad buying opportunities.
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Is it Time to Buy Stocks Again?
The five indicators above are macro trends. If these macro trends signal stability, you can start looking at individual metrics like target price or volume. Ultimately, you’ll also need to factor in your risk tolerance, as well. Some investors will be more eager than others to get in at the ground floor and thus, more willing to risk a reversal on a short-lived rally. Keep an eye on these factors, identify a compelling entry point for the stock in question, and stay true to your personal risk profile before you buy stocks again.
Looking for even more insight into when to start buying stocks again? Discover the best investment newsletters today! Doing this can help you find the confidence to start buying stocks at the right time.
