How to know if a stock is bottomed out?
If a stock has bottomed out, it means the stock reached its low point and could be in the early stages of an upward trend. Often a bottom can be a signal for a reversal. Investors often see a bottom as an opportunity to purchase a stock when the stock is under-priced or trading at its lowest value.
How to identify the first signs of the market bottoming out?
In the very macro sense we have really only seen two, maybe four bottoms since 1992: late 2002 and 2009 and maybe you could argue the end of 1998 and 2018. The S&P went from over 1500 in September 2000 to under 1000 at the bottom in October 2002. In Spring 2009 it went sub 750 after having been over 1500 in Fall 2007. In late 2018 it went from 2900 to under 2400. In 1998 it went from almost 1200 to under 1000.
Stock market bottom predictions as an art, is on the fringe of probability and there are no absolutes in making such forecasts. You can never be sure the market has reached the bottom. If you wait for the decline to end you will only buy the upswing and may not even get a discount. Market tops are easier to spot just through immense crowd participation. As JP Morgan was quoted ‘it’s time to get out when my shoeshine boy is recommending stocks”. But finding bottoming out is not an easy task.
While there is no way to know for sure when a stock has bottomed, there are a number of indications that a savvy investor can keep in mind.
Will the bottom fall out of the stock market?
I guarantee you will turn a profit if you would go ahead and put your money in the stock market. Whether it's reached a bottom or not the stock market always goes up higher!
When should you start buying again?
It is not very hard to tell when a country (or more) is in recession. That is the best moment to buy stocks. Companies do not perform well in recessions, so people start losing their future trust in most of the stocks — this is what drives the price up/down the most. When you feel like it has reached a minimum historical level and that it can perform much better than that, it is the moment to buy.
