Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Don’t blindly buy the dip in Stocks. Do this instead

Stock-Markets / Stock Market 2021 Dec 16, 2021 - 04:33 PM GMT

By: Stephen_McBride

Stock-Markets By Justin Spittler Stocks are under pressure.

Although the big indexes like the S&P 500 have bounced back strongly so far this week... things still look dicey under the surface.

Stocks in leading industries like software, cybersecurity, and clean energy have sold off sharply.

Many investors make a huge mistake during times like this.



They blindly “buy the dip.”

They buy beaten-down stocks just because they’re cheap.

But blindly buying weak stocks—just because they’re down a lot—is the last thing you should be doing right now. More often than not, you’ll be catching a falling knife.

Instead, this is the time to be extremely patient…

And start building a watchlist of the strongest stocks within the strongest industries. Today I’ll share two industries holding up well. This is where you’ll want to start.

Then, I’ll share my thinking on where the market might be headed as we wrap up 2021 and enter 2022.
  • First, let’s look at why many investors and traders are conditioned to blindly buy the dip…

In short: Our brains are trained to seek fire-sale deals.

Many investors think that if a stock down 25% is good... a stock down 50% is even better.

But this mindset leads to buying the weakest stocks. I’ll never buy a stock just because it’s sold off hard—and you shouldn’t, either.

Instead, during volatile times, you want to focus on the strongest stocks—or “market leaders.”

These stocks lead the market higher during rallies.

But just as important, they tend to fall less than most stocks during a market pullback. Sometimes, they even buck the trend entirely.

That’s right. The very best stocks hold steady or rise when most stocks are plunging.

So how can you spot a market leader?

  • Focus on stocks displaying relative strength…

One way to find these opportunities is to look at stocks that maintain a bullish chart structure during broad market selloffs.

You can find these names by looking for stocks that put in “higher lows” during the recent pullback rather than “lower lows.” Or, look for growth stocks that are approaching or setting new highs.

You can also focus your attention on the strongest industries.

Right now, there are two clear standouts. 

Semiconductors are the first. ”Semis” power everything these days from electric toothbrushes to Teslas.

Semis have been standout performers all year. And they continue to display a ton of strength.

Below you’ll see the performance of the VanEck Vectors Semiconductor ETF (SMH). It’s a fund that invests in big-name semiconductor companies like Advanced Micro Devices (AMD) and Nvidia (NVDA).

 

SMH is holding steady near its highs as most of the rest of the market struggles. Unlike many other industries, the semiconductor industry is still in a strong uptrend.

  • Housing stocks are powering higher too…

You can see what I mean below.



This chart shows the performance of the SPDR S&P Homebuilders ETF (XHB), which invests in homebuilder stocks like DR Horton (DHI) as well as companies like Home Depot (HD).

Like semis, housing stocks have performed well this year, and continue to show strength.

You can see that XHB is still holding up well relative to the rest of the market. It’s trading above its May highs and its 50-day moving average.

Relative to the rest of the market, homebuilder stocks look great.

So, if you’re itching to put new money to work today, I suggest looking at semis and homebuilding stocks.

Of course, I should point out one more thing...

  • Stocks could remain under pressure for a few more weeks…

We’re witnessing a “flight to safety” in the markets. It’s when investors sell what they think are higher-risk investments, and buy “safer” ones instead.

You can see what I mean below. This chart shows the performance of the iShares 20+ Year Treasury Bond ETF (TLT). This fund invests in government bonds, which many investors take refuge in when they’re nervous about the broad market.



You can see that TLT just broke out to its highest level since February. This suggests bonds could head higher in the coming weeks, which is evidence of a “risk off” environment in the near term.

As a professional trader, I’ve learned to take warnings from the bond market seriously.

Bonds are the largest financial market on earth—bigger than stocks. And unlike stocks, the vast majority of bonds are managed by professional investors.

For these reasons, movement in bond prices tends to be a more reliable “tell” about where markets are headed.

Right now, government bonds are telling us to be careful. I wouldn’t be surprised if the stock market sells off one more time before it gets moving higher.

For now, I encourage you to fight the urge to blindly buy beaten-down stocks.

Instead, focus on the strongest stocks.

Those names will have the best chance of leading the market higher.

The Great Disruptors: 3 Breakthrough Stocks Set to Double Your Money"

Get our latest report where we reveal our three favorite stocks that will hand you 100% gains as they disrupt whole industries. Get your free copy here.

© 2021 Copyright Justin Spittler - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in