Buying Stocks in a Downtrend is Not a Good Investment Strategy

Buying Stocks in a Downtrend is Not a Good Investment Strategy

Buying Stocks in a Downtrend is Not a Good Investment Strategy


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.

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.

Stay tuned…



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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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