Can We Buy the Dip Yet?

By Jani Ziedins | End of Day Analysis

Jan 07
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks rebounded and a sigh of relief spread across the market as another crisis was averted. At least that was the initial reaction to Wednesday’s bounce off of 2,000. If this was last year, then we’d have a green-light to buy the dip with reckless abandon. But that was back when pessimism ruled and underweight fund managers were forced to chase a market that was quickly leaving them behind. Can we say the same conditions exist at the start of 2015?

The change in calendar gives fund managers three-months of breathing room before they are required to report positions and performance to their customers. There is far less pressure for cautious managers to chase since they now have time on their side. As for pessimism, it is hard to get the market to worry about anything since investors have a ready-made excuse for every concern. This is a dramatic reversal from the days when an economic boogeyman was hiding around every corner (Cyprus, Taper, etc).

Every rally ends and so will this one, but what we really want to know is if this is that time. Dip-buying has become so routine that we will easily coast back up to the 50dma and 2,050 region in coming days. What happens next holds the key to where this market is headed. If we smash through 2,050, then the Teflon rally continues and we have nothing to worry about. If we struggle with 2,050, then it is time to get defensive, very defensive.

I’ve been behind this rally for years, but increasing volatility makes this time feel different. I want to see this run continue, but failing to make new highs will tell us the trend is changing.

Jani

Follow

About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.

[email protected] January 7, 2015

I agree with you that this market feels weird. many rallies and corrections in the very recent past defy any logic or wisdom of TA on how the market should behave. Many times I expected a break in a rally or consolidation but the market relentlessly moved thru expected stops leaving me with open mouth in surprise.

I still see the trend intact, but I agree with you that now we need to see a new higher high to find out that the market wants to go higher. If that fail then yes, I also will be reversing my trading.

I only have one issue with these reversals. I have positions (options) which are not yet developed and if the market reverses, these will go to hell. I haven’t figured out yet how to protect my trades against this.

Comments are closed