How To Know When a Stock Has Bottomed Out

Not long ago, we had a stock market that had breached the 15,000 mark. It was a great time for investors. People felt good about their investments, and people from all lifestyles started getting into the game. Then the bottom dropped out. Corruption, scandals, bad bookkeeping, speculative buyers, and more bad investments hit the news. Stocks started a free-fall. It was believed, by well-respected investors, that the stock market was oversold. They were right.

People have lost a great deal of money in the markets. Some people have left the stock market to try to find a safer haven. Many of the investors that had sat on the sidelines for so long are now looking for opportunities. They are looking for stocks that are now undervalued and whose price has bottomed out. Finding these gems is not as difficult as many would think. Here are some signs to look for, when you are looking at individual stocks and the time to get in.

Watch what is falling
This is pretty common sense. Make a list of stocks that are seeing all time lows. Not just bumps, but those that have descended past their 52 week high. These are stocks that are in trouble.

Look at the P/E ratio

The P/E ratio stands for Price to Earnings ratio. This is a measurement of how many years it would take for the purchase of one share to pay for itself, using the current earnings. The closer the P/E is to being 1, the better the deal. When the market was at its all time high, it was not uncommon to see P/E ratios at 80 or more. With the decrease in value, the P/E ratio is lower and shows a better bargain.

Watch the major trading industries
So you have your eyes on a few potential stocks, how do you know if they are really at the bottom? Watch the financial institutions. When you see financial institutions dumping a stock, keep watching it. Financial institutions typically know when a stock is about to go down, so they sell stock at a higher price, then wait for the bottom to hit before they buy the stock back up. By watching the major institutions, you can figure what they anticipate a stock to do.

Avoid the pump and dump schemes
Every investor gets the email about the “Great stock that is about to skyrocket.” This is called “Pump and Dump.” They use all sorts of media outlets to get people buying the stock, then the industries start to sell. You are not usually buying the stock from the company. You are buying from the traders that know the price is about to go down.

Is anyone buying?
When you see a stock go lower, you would think that more people would buy it. A stock that drops in value, but does not show a larger volume in sales, indicates that it may continue to drop. Investors are not interested in the stock until they see the price is attractive enough for them to want to buy it.

All investing has risks. You should always use caution when investing. Research each stock carefully before deciding to buy. Consult professionals for more advice.


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