BlogWhat’s A good Stock: It changes with the Season
What’s A good Stock: It changes with the Season
A Good Stock: Start With Trend leaders
Updated March 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.
Good Stock 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 the Dow 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.
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.
Summarising the findings
Based on the information given above, a good stock is performing better than the Dow and has hit a 52-week high. For example, AMZN and NFLX are mentioned as stocks that have achieved this milestone, indicating they may be good stocks to consider. Additionally, focusing on the strength of a stock relative to the market and comparing it to a major index, such as the Dow. 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 results.
