August 01, 2007 at 10:37 am | | Comments 1

Not A Dip-Buyer’s Market

For the past year, every dip has been bought. Bulls have enjoyed a nice uptrend, and with each higher low their confidence reached higher levels. Anytime stocks have gone on sale (ie: come under pressure), the buyers have been there with wallets open ready to scoop up shares. And they’ve been compensated quite nicely for it, I might add!

But things have changed. Stocks have been punished lately, and the swagger of the bulls has disappeared. They’re not eager to provide support, and instead they seem to be getting more spooked. Dips have become all-out selloffs, and the buyers are nowhere to be found. In fact, even the bounces have been brief, as bulls become sellers and jump quickly to unload shares into any strength as they seek to raise cash levels. Concerns are running high.

As the major averages reach multi-month lows, it seems emotions are reaching new multi-month highs. And when emotions are playing an increased role by boosting volatility, trading can get a lot more complicated.

I’ve noticed lately that resistance levels are being respected much more than support zones, and that goes with the territory of a downtrend. Take the S&P 500 for example, as it undercut the 1485 area last week with ease (like it wasn’t there), but failed to reclaim it this week on the bounce attempt. The same level which was ignored to the downside was like a brick wall on the upside. As traders, we have to pay close attention to these kinds of things, or else it can cost us dearly. The dip-buying mentality which many have enjoyed for so long is simply not working right now. Key moving averages are being sliced as if they aren’t there, and that’s just one example of how the environment has changed. It’s time to adapt if you haven’t already.

So here’s the bottom line. Unless you’re a trader who’s very quick on the keys and can scalp effectively, or you’re willing to short sell this market, cash is the place to be! Don’t attempt to buy dips in a market like this until some stability is seen and the dust begins to settle. Once a new uptrend emerges, there will be plenty of opportunities to catch a ride, but you sure don’t want to be the first one to buy. Remember, the first person at a party has no fun.

Respect the current market weakness and live to trade another day!

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]

RSSComments: 1  |  Post a Comment  |  Trackback URL

  1. I have to agree with you, this is not a buy the dip market at this time. There is a little ways to go now before we should be buying the dips I believe. There will be a time when many quality stocks are cheap and will be a good investment, but the time is not yet.

Sorry, comments for this entry are closed at this time.