Not a subscriber? Click here to learn
more.
|
| Home | About Us | Resources | Archive | Free Reports | Market Window |
Why This Selloff Is the Next "Buy the Dip" Opportunity in StocksBy
Wednesday, October 15, 2014
Investors are scared.
Over the past few years, we've seen investors hit the panic button every time the market sells off even a few percent.
"This is the big one," they think. So they run for the door as sentiment reaches a negative extreme. But in this bull market, these extremes in sentiment have turned out to be "buy the dip" moments... not the starts of crashes.
Today, we have a similar extreme. It's not in investor sentiment, but in the actual price movements of companies.
Let me explain...
Today's extreme comes from a broad look at the entire stock market. We're not just focusing on the largest companies. We're looking at the entire picture.
The extreme is in Bloomberg's New Highs & New Lows Sentiment Index...
This is a simple ratio of New York Stock Exchange-listed companies. The index forms a ratio of companies making new 52-week highs versus those making new 52-week lows. Specifically, the ratio is new highs over the combined new highs and new lows.
When the ratio is low, it means few companies have made new 52-week highs versus the amount making new 52-week lows. And today, we're at one of the lowest readings in years. Take a look...
 Late 2011 was the last time we saw a reading this low. And as you probably remember, that was a fantastic time to buy stocks. After a painful 20%-plus correction, the U.S. market soared after the 2011 bottom. And that kind of action is typical when this index gets this low...
Overall, we've seen a reading this low 10 times since the late 1990s. Outside of a few early signals, these have offered fantastic opportunities to buy. The full details are below...
Buying when this ratio fell below 0.15 led to profits 70% of the time. And two of the losers were simply early (in 2008 and 2011). On average, this extreme led to 4.7% gains over the next 1.4 months. This indicator doesn't have a perfect track record. And it can be early. But history shows that today's selloff is likely a "buy the dip" opportunity... not the start of a crash.
We've been bullish for years. And even though it's scary out there, history says we need to stay the course. Now isn't the time to sell. It's time to "buy the dip."
Good investing,
Brett Eversole
Further Reading:
"I am not too worried about the volatility we saw last week," Steve Sjuggerud writes. "It wasn't that exciting, in the grand scheme of things..." Click here to learn the two reasons Steve thinks there's still plenty of upside ahead.
"If you want to be successful in stocks, there's one simple thing you have to do," Editor in Chief Brian Hunt writes. "Focus on the price you pay. Buy at bargain prices." Learn how you can use this idea to make winning investments right here.
Market NotesTHE UPTREND IS STILL INTACT FOR DRUG STOCKS The stock market is down... But drug stocks are still in a big uptrend.
Longtime DailyWealth readers are familiar with Dr. David Eifrig's urging to take a position in big drug stocks like Pfizer, Abbott Labs, and Eli Lilly. For years now, "Doc" has noted how aging Baby Boomers are driving more health care consumption. Plus, government programs like "Obamacare" will lead to increased demand for drugs.
An easy way to track (and invest in) this idea is the PowerShares Dynamic Pharmaceuticals Fund (PJP). It's a "one click" way to own a diversified basket of U.S. drug makers.
As you can see from the chart below, Doc was dead-on with his call. PJP has climbed from $25 per share to more than $60 per share (a 150% gain). And although the fund is 6.5% below its late September high, PJP is still in an uptrend. It could be a great opportunity to "buy the dip" in drug stocks.
 |
Recent Articles
|
