The Changing Seasons of Good Stocks: The Evolving Market

Good stocks, when to buy them

Start Strong with Trend Leaders: Unveiling the Secrets of Good Stocks

Updated May 2023

Contrary to the popular belief that investing in stocks that have hit 52-week highs and outperformed the market can guarantee good returns, some studies have shown otherwise. According to a study by Harvard Business School, stocks that hit 52-week highs underperform the market in the following year. The study found that investors overreact to positive news, driving the stock price to a level that cannot be sustained, leading to a subsequent decline in the stock price. Therefore, buying stocks that have hit a 52-week high may not always be a good strategy for long-term investors.

Another study by Yale University found that investing in low-performing stocks or “losers” can yield better returns than investing in high-performing stocks or “winners.” The study suggests that investors tend to overvalue high-performing stocks, leading to their overpricing, while undervaluing low-performing stocks. Therefore, buying stocks that are not performing well can be a contrarian strategy that can yield higher returns in the long run.

Decoding Good Stocks: Insights from Pattern Analysis

One method to ascertain robust stocks to purchase is to concentrate on the potency of a stock compared to the market by equating it to a significant index. As the Dow is trading below its secondary support line, which lies between the 24,500 to 24,700 ranges, any stock doing better than the Dow will attain a 52-week high long before it does.

For instance, AMZN and NFLX have already accomplished this achievement. This is a subtle signal that this Bull Market has entered Stealth mode, and during such times, one has the prospect of securing the most substantial long-term gains.

AMZN, Inc. daily Stock Chart


NVDA NVIDIA Corporation daily Stock Chart


EXPD Expeditors International of Washington, Inc. daily Stock Chart


UPS United Parcel Service, Inc. daily Stock Chart


VRNS Varonis Systems, Inc. daily Stock Chart

In conclusion, while buying stocks that have outperformed the market and hit 52-week highs may be a good strategy in some cases, it is not a guarantee of success. Contrarian strategies, such as investing in low-performing stocks, can also yield good returns in the long run.

This exercise reveals several things:

Focusing on the strength of a stock relative to the market and comparing it to a major index, such as the Dow, is a good strategy. If a stock is faring better than the index, it may also be considered a reasonable choice.

However, it is essential to note that investing in the stock market always carries some risk, and past performance does not guarantee future resMany former leaders have already priced the worst news in and, by default, fall under the category of a good stock. The stock market is predicting that they will fare well in the future. Secondly, it indicates that the bull is not dead, as you would not have stocks in the technology sector breaking out to new highs when the Dow is trading well of its delights.

So, these players listed above could become winners; it does not mean the other candidates won’t perform well.  In many cases, they could serve even better on a percentage basis, but the first leg up will favour the above candidates and those with a similar pattern.

Summary of the critical points about stocks performing better than the market:

– A stock hitting a 52-week high means it is performing well compared to how it has done over the past year. This suggests the stock may be strengthening.

– Comparing a stock’s performance to a primary market index like the Dow Jones Industrial Average can show if it outperforms the broader market. If a store is doing better than the index, that may indicate it is a more vital investment.

– However, no investment is without risk. Past gains don’t guarantee future returns, so it’s essential to research any stock before investing thoroughly. Other factors like the company’s financials and industry trends also need consideration.

– Netflix and Amazon were mentioned as examples of stocks currently outperforming the market by reaching new 52-week highs. However, investors would still need to evaluate if those companies fit their individual goals, risk tolerance, and portfolio.

– In summary, a stock rising to a 52-week high or outperforming the broader market can be a positive sign, but more diligence is always advised when making investment decisions. No single factor should determine if a stock is purchased.

Random Stock Market Reflections

Before we conclude this article, let’s take a moment to explore some solid investment concepts.

On a different note, acquiring a firm understanding of technical analysis is of tremendous significance, as it empowers individuals to identify market turning points and navigate the complexities of crowd behaviour, herd mentality, and the bandwagon effect.

These psychological phenomena can significantly impact investment outcomes, often leading to adverse consequences. By incorporating the principles of Mass Psychology into your investment approach and embracing contrarian investing, you can mitigate the risks associated with blindly following the crowd.

This comprehensive strategy helps you avoid succumbing to emotional biases that can cloud judgment, empowering you to make informed decisions based on objective analysis.


Q: Are stocks that hit 52-week highs always a good investment?
A: No, studies show that stocks hitting 52-week highs can underperform in the following year due to overreaction and subsequent price decline.

Q: Can investing in low-performing stocks yield better returns?
A: Investing in “losers” can be a contrarian strategy that may yield higher returns as high-performing stocks tend to be overvalued.

Q: How can I identify robust stocks to invest in?
A: Comparing a stock’s strength to a primary index, such as the Dow, can be a good strategy. Stocks outperforming the index, like AMZN and NFLX, may indicate long-term gains.

Q: Is buying stocks that have outperformed the market a guaranteed success?
A: No, while it can be a good strategy in some cases, it doesn’t guarantee success. Contrarian strategies and careful risk assessment are essential in stock market investments.

Q: Does past performance guarantee future results?
A: No, investing in stocks always carries some risk, and past performance does not guarantee future returns.

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