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Buy High and Sell Higher?

Today, March 23, marks the anniversary of the stock market bottom amidst the onset of the COVID-19 pandemic. Time files as it was one year ago that the pandemic-induced crisis triggered a swift and terrifying stock market free fall.

From the 2/19/20 peak, the stock market (SPX – 3,33.52) staged one of the swiftest bear market declines in US history, plunging more than 20% in only 16 trading days. In total, SPX suffered a sharp drop of 35.43% in 23-days, achieving a bottom at 2,191.81 (3/23/21). On the positive side, it also staged one of the fastest stock market recoveries in history, regaining its losses in 105 trading days and establishing a new intra-day record high of 3,395.06 on 8/18/20.


The easy monetary policies from the FED and the stimulus programs from Congress ignited the stock market rebound. As time passed, the release of the coronavirus vaccines also helped stocks rally to new record highs.


Some market pundits are warning that prices went too far, too fast. The famous adage "buy low and sell high" also comes to mind. Although this sounds like a reasonable investment strategy, it often hard to implement because investors are human beings who are emotional creatures.


After bottoming one year ago, SPX has advanced 79%. In the process, there have been 16 record highs this year alone, 33 times during 2020, and 49 days since the March 2020 market bottom. Since the late-1950s, SPX, on average, has recorded new highs almost every 15 days.


Although asset classes may be mean-reverting it does not appear the US stock market is mean-reverting. Instead, there seems to be an inherent powerful upward biased built into the US stock market, at least from a longer-term structural trend perspective.


The more relevant question is should investors buy high and sell higher?


A new high may not necessarily be a danger sign. After all, a rising stock market trend suggests investors are expecting economic conditions to improve. As the global economy eventually recovers from once in a century pandemic, will this lead to new all-time highs?


Momentum and sentiments are also important aspects when investing. If you believe the world will get better over time, then it is reasonable to expect the stock market will trend higher and record new all-time highs over time.


Perhaps the buy high and sell higher mantra is a more practical investment strategy to implement than the popular buy low and sell high motto, at least for long-term investors in the US stock market.


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com


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