How To Know When Your Stock Sell-Off Is Over
Best Time To Buy Nigerian Stock After Market Sell-Off – Learn Stock Market Investing Strategies That Tells You When To Hold Your Stock and Buy More.
If you haven’t read my guide on “What to do when your stock continues to fall“, go to this link here to understand how smart investors handle market sell-offs. Unlike a beginner who is emotionally attached to his trade because he doesn’t have a trading system and had picked stocks randomly, an experienced trader with consistent winning strategy don’t take a quick sell decision when they see one of their stocks tank. His equity wasn’t selected out of thin air, they had been subject to historical price performance, fundamental analysis and strength test before they added the company into their portfolio and as such isn’t easily sold-off because the price sank by a certain percentage. This set of traders already know that when profit taking is on it helps them take advantage of emotional traders who out of fear of loss, eventually make good stocks available in the market at a much lower price than what they are valued at.
In the post link above, I also shared practical and actionable steps to take when you see your best performing stock’s price fall sharply like the NSE index in the last one week. As of this writing, most high-cap and fundamentally sound stocks are currently down on a month-to-date basis despite impressive earnings releases and EPS growth. Why? certain investors have already priced the expectations. But now that the seller had created a big bargain opportunity, is it all stocks that are good to buy? absolutely no! The fundamentals of a stock remains a key factor for me. In my book “My Little Secrets That Make Big Money In Stock” I share how to look beyond the market price and focus on the fundamentals of a stock because no matter the direction of the price, it will definitely catch up with the fair value.
One big secret I also discovered in stock is that earnings expectations are more powerful than the earnings itself. When a company financials reveal great numbers across board in the last quarter or previous year, earnings expectations for the next quarter will naturally become high, hence, drive the share prices high as more buyers take position ahead of the release but when the results come out, its natural for the price to sink as the earnings have been factored into the share price.
In stock market, emotion is more powerful than results. Positive sentiments alone can drive a company’s share that trades at N2 to N10 when there is no financial result just like we saw in Japaul Oil and Maritime Services. The $250m capital injection into the oil firm by Milos Global drove the share price from 0.46k to over 0.80k as investors expect the firm to report better numbers in the future. Well, I didn’t buy because I needed to see at least a quarter result before entry. My trading strategy doesn’t push me into any stock, I trade like a sniper and if my setup isn’t complete, I won’t buy.
Back to the sell-off saga, one of my best stocks in the oil sector had tanked by 11% right now and I am even happy not because I love losing money but the new opportunity to buy more. When you do your fundamental analysis well and is confirmed by the company’s recent revenue, profit and cash flow growth, you should always welcome every share price fall as an opportunity to buy more. This company is a top performer in the sector, made loss last two years following the fall in global crude oil price but is staging a great come back as its solidify its gas business and had rebuilt alternative export routes to cushion the effect of re-emergence of militant activities in the Niger Delta while expanding crude oil production beyond pre-crisis level. I had already shared the simple steps I explored to uncover this stock in my book (click here).
As this oil stock fell to a month-low, I started reading my chart on a possible region where sell-off might be over using a combination of volume, and technical indicators (available in my book), here is what I did to ascertain when the stock sell-off is over:
- I checked the historical trend of the stock on a weekly/monthly chart and mark key support regions where the price had tested (at least twice) before it bounced back to an uptrend. As price approaches this region again, I pay close attention to market reactions.
- The next thing I do is, launch my technical indicators to gauge the strength of the sell-off. A strong market sell-off could break that support region to the downside which is the time to exit the stock. A weak sell-off could end at that region, bounce back and resume an uptrend.
- The last thing I watch is the volume traded, I love to see huge volume and wait for the price to close higher than the previous day close as a confirmation that new buyers are in.
Let’s take a look at GTB stock as of when this post was updated: The stock’s price fell from N48 to N44 which is 10% and a lot of traders followed the trend to sell-off their shares too due to fear of losing out but here is how I analysed the stock for better entry.
Going by fundamental analysis that I shared here, GTB is one of the strongest and safest banking stocks to buy, there is no way everybody will sell the stock; the sell-off you are seeing is profit-taking which is a short-term trend, there are still long-term dividend income investors who aren’t ready to sell. What I do is to find a region or key levels short-term sellers will be petered and then watch the volume traded.
The region marked “A” and “B” are the key support levels (N44-N45), you can see how price reacted at the region before retracing upward. The volume indicator marked “C” shows the increased volume (of upto N40million shares) above the average sell-offs in the past 5 days while the RSI technical indicator shows the buying strength. This is a typical example of how I gauge when market sell-off is over and enter a stock with great fundamentals.
I hope you enjoyed this tips? In my book, I shared all the tools and actionable steps to pick top performing stocks in Nigerian stock market, go get it now.