Buying Stocks in a Downtrend is Not a Good Investment Strategy
$DIA, $SPY, $QQQ, $VXX
Buying stocks as they decline to longer-term trends is not a reliable way to reap gainers when the market is too expensive.
In other words, “buying the dip” may not work after a 9-day selloff ended Friday for the longest losing streak since Y 1980. The S&P 500 stock index declined 5% from its 8 August record, not enough to qualify as a 10% correction.
Short-term oversold conditions offer a sense of potential knee-jerk dip-buying of stocks behavior, but the conviction of that behavior is often weak and short-lived. Meanwhile, extreme valuations imply the likelihood of steep market losses ahead.
This month’s losing streak ended as the S&P 500 reached its 200-Day MA, a technical indicator of longer-term price trends. The stock benchmark saw a relief bounce with a 3% gainer Monday, on the headline notion that Democratic Presidential candidate Hillary Clinton would win the election today, 8 November.
Note: the 200-Day MA is not a reliable indicator of an ongoing Bull Market
The position of the S&P 500 relative to its 200-Day MA is not what defines favorable market action or our overall market return/risk classification.
I classify the expected stock market return/risk profile as hard-negative.
Valuations remain offensive, and market action continues to suggest increasing risk-aversion and an exhaustion of yield-seeking speculation.
Historically, the most spectacular stock market losses emerge when overvalued, overbought, overbullish extremes are joined by increasing risk-aversion, as evidenced by breakdowns and dispersion across market internals.
Tuesday, the US major stock market indexes finished at: DJIA +72.83 at 18332.43, NAS Comp +27.32 at 5193.49, S&P 500 +8.01 at 2139.53
Volume: Trade was moderate with 869.4-M/shares exchanged on the NYSE
- Russell 2000 +5.5% YTD
- DJIA +5.2% YTD
- S&P 500 +4.7% YTD
- NAS Comp +3.7% YTD
|HeffX-LTN Analysis for DIA:||Overall||Short||Intermediate||Long|
|Neutral (0.15)||Bullish (0.29)||Neutral (-0.10)||Bullish (0.28)|
|HeffX-LTN Analysis for SPY:||Overall||Short||Intermediate||Long|
|Neutral (-0.05)||Neutral (-0.00)||Neutral (-0.15)||Neutral (-0.01)|
|HeffX-LTN Analysis for QQQ:||Overall||Short||Intermediate||Long|
|Neutral (0.13)||Neutral (-0.10)||Bullish (0.25)||Bullish (0.25)|
|HeffX-LTN Analysis for VXX:||Overall||Short||Intermediate||Long|
|Neutral (-0.23)||Neutral (-0.09)||Neutral (-0.23)||Bearish (-0.38)|
Be prepared, correction is coming, cash is an asset.