Was That The Dip?

So the market finally decided to pull back a little. As of right now (August 11 at night), the market is about 2.6% off it’s all-time high set back in late July. The trough of this most recent pullback put the market at just under 5% from its high (ironically, the $ES_F low was set in the overnight session a few hours after Obama announced the airstrikes in Iraq). So while we’re not at our highs anymore, we’ve barely come off them relative to a normal correction of 10 or more percent.

Having said that, we’re still in a bull market and it’s buy the dip ’till it’s not. And right now, I think from a risk/reward standpoint,that shorting would be a mistake. In fact, you should probably look to be getting long and “buying the dip”. Here’s why.

The Chart

There’s one basic reason why I believe that this was a “BTFD” move. Below is a weekly chart of the SPDR S&P 500 ETF ($SPY).  As you can clearly see, we’ve been in a channel for the past 1½ years. Until we break below this and clearly hold below, it’s tough not being in the buy the dip mode. Maybe we break below this time. Who knows. But so far (and by so far, I mean the last 18 months), that has not paid. Yes, there might be wars and global conflicts. Yes, the $FED might finally tighten (at least sooner than expected). Yes, the small caps’ underperformance is still concerning. Yes, the economy is recovering (which might not necessarily by good for stocks). And yes, we’ve had a massive percentage move over the last few years.

But from a trader’s perspective, you have to view everything from a risk/reward standpoint. And right now, this favors the dip buyers. If it breaks – so be it- cut your losses and reassess. But for now, I say buy the dip.

$SPY Weekly Chart

SPY weekly Aug11



The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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