Is This Our Best Buy Signal in Months?

There’s no place to hide.

At least that’s how it feels.

The bleeding is as if an artery’s been struck. And investors are starting to get woozy from the losses.

It’s been one of the most difficult stretches for U.S. equities in some time.

So much so, that my phone and email are blowing up from panicked investors.

“What should we do?”

“Do I move completely to cash and let this blow over?”

“When will the pain end?”

Well, I can’t answer that.

But what I can tell you is what’s currently unfolding… and how to prepare for what’s potentially may come next.

Be Greedy…

My favorite trading indicators are contrarian in nature.

And their sentiment based.

That makes them easy to read, easy to understand, with no high-level mathematics degree needed to deduce their meaning.

Right now, anxiety is universal.

We can see that clearly as the CNN Fear & Greed Index has fallen to 16… a reading of “Extreme Fear.”

In fact, the reading today is lower than when it was on August 5, 2024 (a date to remember for later).

Meanwhile, the AAII Investor Sentiment Survey is now more than 57% bearish on the outlook for stocks… The last time bearishness was this high was September 2022, when we were approaching the end of the 2022 bear market.

Now, let’s make no mistake… there’s plenty of reason for this pessimism.

This is more of the Trump tariff tantrum and the souring outlook on the economy because of these moves.

So, after a series of brutal trading sessions – including today’s - the Nasdaq has implobed into correction territory.

The tech-heavy index’s all-time closing high of 20,173.89 was set on December 16. And since then, the index has shed more than 2,500 points. Much of the damage done in the past month.

We’re now hovering around 17,600. The last time the index was this low was mid-September 2024.

That means, all of the Nasdaq’s gains from the post-election rally have been erased. It’s now lower today than following the announcement that Donald Trump had won the U.S. presidential election.

That’s a sobering – anxiety filled - reality.

But let’s set aside the madness coming out of Washington, D.C. and Wall Street.

Let’s ask ourselves – regardless of the current selloff trigger - are moves such as these that extraordinary?

And more importantly, is there any chance for relief in sight?

Well, here’s where history provides an excellent guide.

2024 Rerun

Look… we’ve been here before.

And it really wasn’t that long ago.

The last time we saw a downward move as brutal as this was less than a year ago… July to August 2024.

It was a nerve-rattling stretch.

But like all declines – including our current one – it was precluded by new highs.

The Nasdaq closed at 18,509.34 on July 16.

The Dow Jones Industrial Average and the S&P 500 set new all-time highs that day.

Then the wheels started to come off.

The major crack appeared on July 24, 2024. That was the day the S&P 500 fell 2% for the first time in 356 trading days. That was the longest such winning streak in 20 years!

At the time, fears bubbled over that maybe A.I. wasn’t all it’s cracked up to be.

And by August 7, the Nasdaq had tumbled all the way down to 16,195.81.

That marked a 12.5% decline from its closing price on July 16, as well as a 13.15% decline from its then all-time high of 18,647.45 set on July 10.

Now, remember from above where I said the current CNN Fear & Greed Index is reading its lowest level since August 5?

That marked we were near the market’s bottom.

And from August 7, 2024, to December 16, 2024 (our last all-time high), the Nasdaq gained 24.6%!

Our Annual Buy Signal

Here’s the real takeaway… pullbacks like this happen almost once per year.

From 2002 to 2021, the S&P experienced a correction of 10% or more in 10 of those years. The average decline was 15%.

But despite this, during that stretch, the index had positive returns in 17 of those 20 years.

Even in 2024 – our last 10% correction – the S&P ended the year up more than 23%. And the Nasdaq closed the year up 28.6%.

Plus, keep in mind, that was only one of the selloffs we saw in 2024. We had a swift 7% pullback from April 10 to April 19 on the Nasdaq.

So, keep in mind, even though they can be frustrating, these moves are simply part of the normal rhythms of the market.

Sure, they’re scary.

Sure, they make you question the future.

Sure, they make you question whether the markets might be broken.

But they also provide opportunities to open new positions at new discounted prices.

The most famous maxim on Wall Street comes from billionaire Warren Buffett: “Be greedy when others are fearful.”

I have my own take on it… For every butt-puckering selloff there is a face-ripping rebound.

Right now, everyone is afraid. And I imagine sphincters haven’t been this tight since August 2024… January 2022… March 2021… September 2020… February 2020… June 2019… October 2018… I could go on. But you get the picture.

Remember, these are often the best buy signals we see each year. And in 10 of the last 11 Nasdaq corrections, the index was up an average of 21% twelve months later.

So, break out those shopping lists. No need to spend your whole wad. But start dipping your toes. Future you will thank you.

Shopping the bargain bins today,

Matthew