It seems that every time the stock market pulls back the fundamental folks come out with another call to buy good stocks at cheaper prices. Technicians call that "buying the dip" and in a rising market it is a great strategy.
Or is it?
In a roaring bull market there are no little pullbacks. The market does not let johnny come lately bulls get in easily with a nice pullback to, say, the 50-day moving average. No. In real bull markets, momentum indicators get overbought and stay overbought.
In kinda bull markets, when things are rising but in hindsight not by too much, we get those nice pullbacks. Your target stock drops 2% and you are in! Baby, that was easy! But then you think about it - nothing is easy. What's wrong here?
Real bull markets make you sick when you pull the trigger. You buy high and sell higher and have no comfort in buying low or buying at an obvious support level where you can set a nice stop.
That's one of two types of markets that buying dips favors. What about flat markets? Yes, buying the trading range bottom and selling the trading range top works nicely. But when do you see that kind of market? They don't stay flat for long, do they?
And finally, what about a falling market? Buying a dip in a falling market is buying a falling knife? How low is low for an intermediate swing? Beats me. The correct strategy, as anyone will say, is selling rallies, not buying dips. That way, you stay with the trend in force.
So when the pundits come out and tell you to buy stocks during this unprecedented fire sale, think about the trend in force. According the many knowledgeable technicians, the bull market ended a few months ago.