When to Get Into Stocks During a Market Crash? SP500 Analysis

1 apr 2020

Do you feel it? The FOMO.

Fear of missing out is a common phenomenon, and I imagine it is starting to creep in right about now.
The last few days have seen the market begin to claw back some of its losses, so the key question is…
When should I get back into the market?

To answer this question, you have to formulate the risk-reward situation. To do this let's establish a few “facts”.
• The S&P500 is building a trading range between 2140 and 2,700 points
• The Virus Outbreak, especially in Europe and the USA is far from over
• There is real economic damage being incurred

But the FOMO is still there, so let's consider your options. (See the Chart)
1. If you believe the market will rise from here, you have a 19% upside to the next resistance
2. The market could, however, move down 17%
3. Worst case scenario could be a further decline of 26% to the 2000 and 2007 Market Highs
4. The total upside from here is 29%, back to the 2020 all-time high
5. The total downside is 43% to the 2007 high

Risk Reward 1.4:1

It would appear for now that the market participants have priced in what they know.
I expect that the S&P500 will trade between 2,100 points and 2,700 points for the foreseeable future.

Potential options to get back into the market.
1. Buy towards the bottom of the “New Trading Range”.
2. Buy on a breakthrough into target 2, above 2,700 points
3. Buy when price moves into the value zone below 2,100
4. Start scaling in now and keep on buying into the dip using DCA (dollar cost averaging)

Do you think there is more downside risk than upside risk?

What do you plan on doing?

Let me know in the comments.