For a long time now one of the most consistent patterns in the market has been buying dips created by negative headlines. It has worked so consistently for so long that it has become a bit of a joke in the trading community. Bad news such as terrorist attacks, nuclear war with Korea, Trade wars with China and even President Donald Trump himself have consistently result in automatic and energetic buying.
Typically when a pattern becomes as routine as "buy the dip" it stops working. The move is anticipated and it is discounted before it can even begin. We saw this morning when the market opened in positive territory although futures had been negative all night due to the economic crisis in Turkey. Buy the dip worked if you bought premarket but it failed miserably now as the market reversed intraday.
The sharp intraday reversal wasn't the result of any particular news. It was mostly the product of the "buy the dip" trade become too obvious and too routine to keep working. There is a a certain "self-fulfilling" prophecy to buying the dip these days but its life span has diminished.
The tip-off that traders might be having doubts about the "buy the dip" trade was that breadth was quite poor and the number of new 12-month lows sharply higher. Breadth is now 2 to 1 negative and the number of new 12-month lows has expanded to over 280.
Of course the bears are relieved to see the market actually go down on bad news but there are still clear signs of support. This is just the way that the market beast treats traders that take it for granted for too long. The "buy the dip" traders need to be reminded periodically who really is in charge.
There is quite a bit of poor action in individual stocks on my screen today which is a shift form Friday. The indices were even worse on Friday but today some of the stocks I've been tracking on catching up to the downside. I'm not too concerned that we are about to see a major pullback but stops need to be honored and capital protected just in case.
I have a shopping list of names such as Intelsat ( I) , Turtle Beach ( HEAR) , Sarepta ( SRPT) , Bloom Energy ( BE) and a number of others that I'm holding in small size and looking to add as they develop furthere. There is no rush and I wouldn't be surprised if they go lower before some good support occurs.
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There are plenty of factual reasons for concern right now, but shorting this market is like standing in front of a freight train. Do so at your own peril.
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