A roundup of investment ideas for active investors
Michael Batnick, director of research at New Yok City-based Ritholtz Wealth Management, presented the disquieting possibility this week that the ‘buy the dip’ strategy in equity markets is dead. If he’s right, the necessary behavioural change for investors is likely to be a painful process., Mr. Batnick began by suggesting that “investors’ mentality over the past decade can be summed up in three words: buy the dip.
More aggressive traders use the 50 day and 100 day moving averages for buy and sell signals, and some even use shorter term 15 and 30 day moving averages. The 200 day, on the other hand, is viewed as a measure of the longer term trend. A stock trading above its 200 day moving average is considered in an uptrend; below the 200 day implies a down trend.
It’s not a huge surprise that the majority of the biggest sell-offs happened when the market was in a down trend. The fact that almost all of the biggest daily rallies occurred during down trends is a far bigger revelation. Downtrends are no time to be buying dips – the volatility can crush portfolio values. So-called bear market rallies are almost always intense, but when they occur, rising stock values must still be seen in the context of a bear market.