In August of this year, we had a situation in which over a third of all NYSE issues traded during the week made 52-week lows. Two weeks ago, we saw nearly a quarter of all NYSE issues make fresh annual price lows. With Monday's weakness, we've started a new week on a footing that just might give us more than 25% of issues making new 52-week lows.
It turns out that explosions of new lows of this type have had favorable returns going forward. If we go back to 1981 (N = 1382 trading weeks), we find only 16 occasions in which more than 25% of traded stocks in a week made 52-week lows. Twenty weeks later, the Dow Jones Industrial Average ($DJI) was up by an average of 7.58% (13 up, 3 down), stronger than the average 20-week change for the remainder of the sample (4.28%; 954 up, 392 down).
It's not unknown for us to see clusters of explosions of 52-week lows. This occurred in September and October of 1981; August, September, and October, 1990; August, September, and October, 1998; and July and October, 2002. If you check your market history, these were not bad occasions to be buying stocks for a multi-year period.
When New Lows Swell
Falling Markets and New Lows