What Happened To Buying The Dip?
An article in MarketWatch.com mentions how buying the dip, or investors using market pullbacks as an opportunity to add to their positions has waned in popularity over the past several weeks. In contrast to 2017, when major indexes went an unprecedented length of without a pullback of even 3%, let alone 5%, both of which are extremely common, historically speaking. Stocks are currently in their longest stretch in correction territory in a decade. The unwillingness of investors to jump into the market could be a suggestion that they see few bargains out there, even at a time of steady economic growth and corporate profits growing at their fastest clip in years. While corporate results have largely come in ahead of analyst forecasts this earnings season, investors have shown little inclination to reward strong results. Yet they haven’t hesitated to punish stocks when there’s any hint of earnings weakness.
“What really killed the ‘buy the dip’ mentality was the second pullback we saw. That’s when it all changed, and people realized we weren’t looking at a temporary period of high volatility, but a new volatility regime,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab. “They might have gotten burned buying the correction, and now they’re more hesitant. Volatility has been sustained for weeks now, and it’s become too darn stressful to think about jumping in. People are trickling out of the market.”
Last week we wrote “…Holding cash is also a viable strategy if you prefer to sit on the sidelines and wait for a longer-term trend to play out…” The current environment tends to favor day-trader type strategies because of daily triple-digit price reversals. May is typically a tricky month to trade profitably. Invest smaller amounts on shorter duration trades with tight stops to manage risk.
Disclaimer: Futures, Options, Mutual Fund, ETF and Equity trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to ...
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