What Does "Market Bottoming and Rebounding" Mean? What Are Its Characteristics? What Impact Does It Bring?
In the stock market, we often see stocks that decline and then rebound. So, what does "market bottoming and rebounding" mean? What are its characteristics, and what impact does it bring? Let’s explore this phenomenon.
What Does "Bottoming and Rebounding" Mean in the Stock Market?
Originally a financial term, "bottoming and rebounding" is now widely used across industries to describe a situation where prices or markets hit a low point and then stage a strong recovery. "Bottom-fishing techniques" refer to strategies for entering the market at the right time during a bottom.
In stock market trends, there is no perpetual upward or downward movement. After a period of rising, prices will fall, and after reaching a certain bottom, they will rise again.
This aligns with the saying, "Extremes meet."
When prices fall to a bottom and touch the value baseline—meaning the actual price is lower than the intrinsic value—a rebound begins. The rebound after an oversold condition is usually sharp, forming a V-shaped recovery. Severely oversold stocks often have significant buying potential, as investors recognize the disconnect between stock prices and actual value, leading to positive market sentiment.
Characteristics of a Bottoming and Rebounding Market
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The Greater the Decline, the Stronger the Rebound: Many stocks that experience deep declines tend to rebound more sharply, though some exceptions may show strong rebounds despite smaller drops.
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Mostly Small and Medium-Cap Stocks (SMEs and GEM Stocks): These stocks have smaller market caps, are often concept-driven, have fewer locked-in positions, and are newly listed, making them easier to rally. Some strongly rebounding stocks may have been listed within five years.
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Tech, Software, and IT Stocks Often Lead Recoveries: These sectors typically see high trading volumes during rallies.
For example, during the rebound on January 29, 2016, an analysis of 50 stocks showed that those with larger declines (some over 40%) rebounded strongly. Most were SME and GEM stocks, which are easier to manipulate due to their small size. Industries like electrical, materials, and tech—market hotspots—dominated this rebound, unlike previous ones. Additionally, surging trading volumes indicated ample market liquidity, driving prices up.
Thus, in a rebound, stocks with small market caps, large declines, hot concepts, and high trading volumes tend to outperform.
However, investors should note that not all stocks clearly signal a bottoming and rebounding pattern. Poor stock selection may lead to being trapped in a downtrend, so caution is advised.
Impact of a Bottoming and Rebounding Market
When the market is about to bottom, an upward trend may follow, ending a prolonged decline. At this stage, most trading is left-side trading, meaning two scenarios are possible:
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The stock continues to fall.
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The stock stabilizes and rises.
The phrase "After hitting bottom, things will improve" suggests a possible bottom, but there is no absolute certainty.
Regardless of market conditions, stock bottoms are typically formed by a mix of long and short positions. Common bottom patterns include double bottoms, single bottoms, V-shaped bottoms, and multiple bottoms. Different patterns require different strategies, so analysis must be tailored to the situation.
In summary, after understanding the meaning and characteristics of a bottoming and rebounding market, investors should avoid rushing in. Instead, they should assess whether a true bottom has been reached. Bottoms are usually a range, not a precise point, so blind bottom-fishing is unwise.
