BTFD (Buy the Freaking Dip) has been a wildly successful investment strategy over the past year.
Traders who simply waited for a dip in the market in order to put money to work have been rewarded every single time.
It didn’t have to be a big dip either…
Just buying the S&P 500 (SPX) every time it dipped down towards its 50-day moving average line has generated big gains.
Take a look at this SPX chart…
The dip to the 50-day moving average (MA) line didn’t always mark the absolute low of the move. But, in every case over the past year, buying at the 50-day MA proved profitable within a few weeks.
But, there’s something interesting happening now… pullbacks are being bought up much faster.
You see, corrections in the stock market tend to unfold in three legs. There’s the first move lower… Then there’s the bounce… And then typically we get another decline to a lower low.
It’s that move to a lower low that provides the best buying opportunity. The first four blue arrows on the chart show how that plays out.
But something changed starting in May. We got the dip, and we got the bounce. But the next decline formed a higher low.
Buyers were more eager than usual to step up.
|
Free Trading Resources Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out. |
In the June pullback, we got the dip, and we got the bounce. Then, the market paused for one day before blasting off again. Buyers just couldn’t wait to put money to work.
Then, we got last week’s action. The market sold off hard on Monday and created oversold conditions.
Later, on Tuesday, the market just took off and never looked back. The S&P 500 made a new all-time high by Friday.
V-shaped recoveries really aren’t supposed to happen all that often. It’s not normal for folks to go from “I hate stocks” to “I love stocks” so quickly.
Usually, after a sharp decline there’s some skepticism of the first bounce attempt. Traders who got caught too aggressively long prior to the decline use that bounce to reduce their exposure, and that selling pressure often leads to a retest of the lows, or maybe a dip to lower lows – which then sets up a much better buying opportunity.
But, that didn’t happen during the last three declines. Instead, these dips that take a mere 3% or so off the value of the indexes are being recovered right away.
So, like Pavlov’s dogs, traders are being conditioned to BTFD no matter how mild. Indeed, if you watch any of the financial TV stations, that’s the mantra that was pushed multiple times on Thursday and Friday. The talking heads advised us to buy every pullback. Of course, they started saying that on Thursday – not Monday.
The BTFD strategy has worked quite well over the past year. But, there will come a time when that strategy fails, and that’s when we’ll get a much stronger correction.
Given how popular BTFD has become, how shallow the recent pullbacks have been, and how quickly stocks have recovered, I suspect the time for a stronger correction is not too far away.
Best regards and good trading,
Jeff Clark
P.S. I’d like to thank everyone who attended my special presentation on Thursday, where I went over a rare move coming to the market that’s only happened twice in 50 years. I call it the “zero-sum” market, and it’ll be a nightmare for shareholders.
But, if you know how to play it, you could double your money 10 times by simply waiting for a specific pattern to emerge and trading it… and I went over how to do it in my presentation.
To prepare for this “zero-sum” market you can click right here to watch my presentation… but don’t wait, it won’t be available for long.
Reader Mailbag
Have you been using the BTFD strategy during these unprecedented market movements? If so, have you made significant gains?
Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com.