During 2008/09 US Subprime Crisis, Hang Seng Index (HSI) touched its 1st 52-week Low of 19,220.28 points on 11 Sep 2008. Thereafter, the market continued its downward and touched a new Low of 16,283.72 points on 18 Sep 2008.
That worked out a huge sum to gain for a short position, with a return of 2,936.56 points.
HSI rebounded to a high of 19,869.02 on 22 Sep 2008 which broke 11 Sep 2008 high of 19,854.82 before it reversed and continued its downtrend - New Lowest of 10,676.29 on 27 Oct 2008 was recorded. Below is the chart on HSI with 52-week High.
A new High of 1,150.45 was recorded on 19 Jan 2010 after it achieved its 1st 52-week High on 11 Nov 2009. That worked out with a gain of +45.08 points (+4.08%).
52-week Low
In this situation, we are not getting a new Low after it touched 1st 52-week Low. Instead, the market rebounded and made a gain of +121.73 (+9.6%). A similar outcome with DJIA in our last two case studies.
Let us move on to the next market, Asia. To see how the Asian market price reacts toward this strategy.
In the last post, we looked at 52-week High on Dow Jones Industrial Average (DJIA) during US Subprime Mortgage Crisis 2008/09.
In 2nd part of DJIA, we shall look at 52-week Low.
DJIA recorded its 1st 52-week Low of 11,634.82 points on 22 Jan 2008. Instead of continuing downtrend, it rebounded to a high of 12,767.74 on 1 Feb 2008.
A gain of +1,132.92 points (+9.74%).
This price action aligned with the alternative strategy which was stated during our introduction of 52-week High Low, as follow:
"Alternatively, another strategy is to sell when price reaches its 52-week high on the assumption that price will recede, or to buy when price reaches its 52-week low in anticipation of a value play."
Take note that the market lost -2,563.28 points (about -18% ) from its high of 14,198.10 points on 11 Oct 2007 to its 1st 52-week Low on 22 Jan 2008.
If we continue forward, we will make an interesting discovery that the 1st 52-week Low was not the lowest point DJIA hit during the crisis. DJIA touched its lowest point of 6,469.95 points on 6 Mar 2009. In the coming posts, we shall look at S&P500 and some Asia markets indices before we conclude 52-week High/Low strategy.
In the last posting, it was stated as follow: "A popular strategy used by stock traders is to buy when price exceeds its 52-week high or to sell when the price falls below its 52-week low."
We select DJIA market performance during US Subprime Mortgage Crisis 2008/2009 to study the strategy. Attached below is Dow Jones Industrial Average (DJIA). During the crisis, DJIA recorded it's lowest of 6,469.95 points on 6 March 2009.
Thereafter, the market rebounded. DJIA recorded it's first 52-Week High of 10,228.20 points on 9 Nov 2009 and the market continued to move upward and recorded a new high of 10,729.90 points on 19 Jan 2010. Net gain of +501.70 points (+4.91%) based on this strategy.
Take note that the market recorded a huge gain of +3,758.25 points (+158%) from 6 March 2009 to first 52-Week High.
This piece of information can be easily found from our local newspaper under the stock section together with daily stock quotes. To understand further, I did some research and found the following information from www.investopedia.com website.
"The highest and lowest prices that a stock has traded at during the previous year.
Many traders and investors view the 52-week high or low as an important factor in determining a stock's current value and predicting future price movement.
As a stock trades within its 52-week price range (the range that exists between the 52-week low and the 52-week high), investors may show increased interest as price nears either the high or the low.
A popular strategy used by stock traders is to buy when price exceeds its 52-week high, or to sell when price falls below its 52-week low.
The rationale behind this strategy is that if price breaks out from the 52-week range (either above or below) there will be enough momentum to continue the price move in a favorable direction.
Alternatively, another strategy is to sell when price reaches its 52-week high on the assumption that price will recede, or to buy when price reaches its 52-week low in anticipation of a value play.
Traders and investors typically conduct additional technical and/or fundamental analysis for confirmation. "
Quite an interesting strategy so I decided to test it out on my metastock software and name it as "S-Trader 52-week High Low".
This video briefly highlights the news features in Metastock XIV which include the User Defined Pattern Editor, Tick Charts, The LCI Trading System and the Improved Power Console.
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If you have a good trading system, who knows you may turn it into a successful
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I wish to take
this opportunity to share some of my personal adventure /or analysis with Metastock.
