Exchange traded funds (ETFs), stocks and other securities have been slaughtered over this past year and many invest have been pondering whether or not the markets have hit rock bottom and if it is a good time to jump back in.
First, let’s take a look at the Nasdaq, represented by the PowerShares QQQ Trust (QQQQ), which has tested its Nov. 20 lows on various occasions and has continued to hold up. It’s within spitting distance of that low, just 0.5% above it. This could be as a result of biotech’s relative outperformance over the past six months and the realization that the most recent bubbles in real estate and commodities are not a repeat of the dotcom craze, states Gary Gordon of ETF Expert. Make no mistake, though: it’s ugly out there. The index is down 16.1% year-to-date and down 5.4% for the last three months.
Next, let’s take a look at the Diamonds (DIA), which tracks the Dow Jones Industrial Average. The Dow has taken a real beating lately, sinking 10.4% below the Nov. 20 lows. DIA is down 22.9% year-to-date and down 17% for the last three months. Although many average investors use the Dow Jones Industrial Average to indicate how the overall market is performing, in general, it is a poor representation of how the entire marketplace is doing. Keep in mind, it only tracks 30 stocks.
Lastly, we will take a look at the S&P 500, represented by the SPDR S&P 500 (SPY), which is down 22.4% year-to-date and down 14.1% in the last three months. The index is now sitting 6.9% below the market’s Nov. 20 lows.
It is tough to tell if we have hit rock bottom, the markets have been extremely volatile, and no one can correctly predict the future. Gordon believes that trying to time the bottom is nothing more than an ego-stroking pursuit.
There is one fact to bear in mind, however: many stocks and indexes can be picked up at historical bargain prices. Whether those are rock-bottom prices, or whether you can pick up a better bargain by waiting a week or a month remains to be seen.
Keep in mind, although they are being offered at a bargain, sometimes things are just too good to be true. We suggest that if you do want to enter the markets to watch the trendlines, use stop losses and keep your emotions in check.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.