Updated

Here's Why You Should Think Twice Before Selling Tech

This is a 2-month chart of the Nasdaq US Composite Index (IXIC).

At the bottom is the Stochastic RSI which oscillates up and down depending on how overbought or oversold the market is.

There have only been a few times since its inception a half-century ago, that the Nasdaq Composite Index had a 2-month chart this overextended to the downside. The K value of the Stochastic RSI has actually reached zero.

If the 2-month chart closes at that level, it will mark a super rare occurrence that has only occurred twice in the history of the Nasdaq (the last time being at the bottom of the Great Recession).

I calculated the one-year returns for the Nasdaq one year (from low to high) after the K value of the Stoch RSI on the 2-month time frame dropped below the oversold line (to or nearly to 10). For the case of the Dotcom bust and the Great Recession, I selected the point when the Stoch RSI's K value first reached 0, which is its current reading and which is thus fairly comparable. Even during these significant economic downturns, buying at this oversold level produced decent returns one year out.

Obviously, past price action does not guarantee future price action, but history does tend to repeat itself. Odds are that ten years from now you'll probably be wishing you had bought into this oversold level.

Here are the one-year returns from the market bottom during the 2M period (when the Stoch RSI K value met the criteria listed above) to the market top of the 2M period one year later:

+95.78%
+36.47%
+31.24%
+78.89%
+20.17%
+69.50%
+27.14%
+52.36%

Mean: +51.44%

Not financial advice. As always anything can happen.

Note

Since all of these bottoms occurred in an environment when interest rates were generally declining, this may not be predictive of the current outlook.

For an updated perspective on tech, you can view this post:

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