Avoiding Calls To Buy During Weak Moves

2021-05-20

With the market reeling early this week and cryptocurrency tanking midweek there has arisen the familiar battle cry of “buy the dip!”

Seems a promising tactic, but in reality this is seldom undertaken by many traders.

The problem with this popular trading call to arms is that the reality of the “buy low” sentiment tends to be more like the child crying “wolf.” Today the open session solidified the empty sentiment as all three major indexes had strong recovery rallies after three consecutive days of losses.

Selling this week delivered a pullback for sure, but did it change the trend?

Before “buying the dip” becomes an actionable strategy, traders should consider if the strategy is viable. Question whether the trend has changed.

The trend overrides directional bias, i.e. bullish or bearish — like the bearish bias growling loudly during the current volatility.

As an example, in the midst of this week’s market fray, the upward trending Dow (YM) barely flinched with all the volatility. The drop didn’t affect the current trend, so “buy the dip” proved to be a “hyped” call to action.

This volatility can still create actionable opportunities as tickers pull back against the upward trend. Crack open the Dow and this can lead to outperformers such as healthcare, industrials, transports, and financials (also showing up in the S&P 500) opening up to buying potential.

These outperformers in the Dow reveal opportunities that readily compare to Big Tech darlings in the Nasdaq (maybe even more solid over the long run).

Moving forward into the early summer we’ll continue to work with the viable trend, wait for a pullback, find the relative outperformers, and continue to repeat the process. That’s how we keep it Simpler.

Viable probabilities dictate opportunities without relying on battle cries or the sounds of the wild wolf.

We Saw: Market shift to rally for recovery — 

  • Big Tech, positive jobs data boosts rally
  • Big talk about new U.S. electric vehicles, production
  • Fed getting cozy with crypto?

We’re Watching: Flurry of action in all directions —

  • Directional bias to settle down
  • Continuing to hold and target plays
  • Setups in: ZM, MSFT, SHOP, XOM, PINS, CSIQ