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
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
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Buy the Dip or Sell into any Rally?

Stock-Markets / Stock Markets 2010 May 22, 2010 - 04:57 AM GMT

By: Sy_Harding

Stock-Markets Best Financial Markets Analysis ArticleWhen institutional investors, corporate insiders, professional investors, and hedge funds become concerned that the market has become overbought or over-valued and due for a correction they tend to sell early, making sure they will be selling into still rising prices. In fact, as their selling progresses it usually is the catalyst that causes the market to soon run out of steam and turn down even though others are still buying.


The pattern seems to have held true this time around, as evidenced by the high level of insider selling in the first quarter, and the recent SEC filings by the likes of Warren Buffett, George Soros, and other large investors who must report changes in holdings, showing they sold large amounts of stock from their portfolios in the first quarter.

Meanwhile, public investors, even if aware of the overbought conditions and expecting a correction, tend to hold on to try to get every last upside point. By definition that means holding on until the market has proven it is in a correction.

Obviously, the profit is the same if one sells early and the market rises another 5%, or if one waits until it is down 5% before selling. The market will be at the same level in both cases.

Institutional investors, hedge funds, and large professional investors deal in huge amounts of stock that cannot all be sold at once, requiring time to move. It would be a great risk for them to wait until a correction has begun before beginning to sell.

Individual investors don’t have that problem. They can instantly make a change with the click of a mouse button or one phone call. So theoretically they can wait until the last minute.

In practice it doesn’t quite work that way. It isn’t always easy to know when the last minute has arrived until after it has passed, as marked by the market being down 5%, or whatever decline it takes to convince an investor that a pullback is not just another buy the dip opportunity.

Another benefit of selling into strength is that one often gets a better price than expected, while trying to sell into a serious decline often results in selling at a much lower price than expected, as indicated by the 1,000 point ‘flash crash’ two weeks ago, and the Dow’s three-day plunge of 556 points this week.

I say all that as background to noting that in its significant plunge of the last three weeks the market has become somewhat oversold technically.

That could well bring at least a brief oversold rally.

Would a rally present a second opportunity to sell into its strength before the downside resumes? Or would it be a buying opportunity in anticipation of another leg up in the bull market, as happened after the 10% January/February correction earlier this year?

Here are a couple of things to consider if a rally does get underway.

The announcement of the $trillion EU/IMF European debt rescue plan brought only very brief relief, and then global markets nose-dived again, to even lower lows. Did that indicate that markets believe a slide back into recession in Europe has become unavoidable at this point in spite of the rescue plan, and perhaps even that the rescue plan itself, with its ‘austerity’ requirements of pay and pension cuts, and sharply reduced government spending, makes that result even more likely?

Then there is that Warren Buffett, George Soros et al do not normally cut back market exposure on expectation of only a 10% pullback.

From the technical side (which we prefer), with several of the market’s longer-term support levels broken, if an oversold rally does get underway it will probably be smart to pay attention to overhead resistance levels as possible upside limits to a rally. One such resistance level is the 20-week moving average of the S&P 500. It was previous support that was recently broken. If it now becomes overhead resistance it is about 5% above the market’s current level.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2010 Copyright Sy Harding- 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