Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Stock Market Buy the Dip is Dead

Stock-Markets / Stock Markets 2018 Nov 20, 2018 - 05:30 PM GMT

By: Troy_Bombardia

Stock-Markets

Here’s today’s big headline from Bloomberg, one that really caught my attention.

Let’s determine the stock market’s most probable direction by objectively quantifying technical analysis. For reference, here’s the random probability of the U.S. stock market going up on any given day, week, or month.


*Probability ≠ certainty.

Buy the dip is failing (or dead)

Let’s get back to the Bloomberg headline:

For the first time in more than a decade, buying the dip isn’t working in the stock market.

As a way of measuring it, Morgan Stanley looked at rolling five-day declines in the S&P 500 Index this year and found that on average, the sixth day also generated a loss: of -0.05 percent. While the drop is small, it’s a big departure from the past 16 years, when dips gave way to gains.

Since 1980, the years when the buy-the-dip mentality was missing all involved bear markets: 1982, 1990, 2000 and 2002. To Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, it’s a sign the market is sussing out troubles ahead, be it economic growth or corporate earnings.

It seems like Morgan Stanley is limiting the data on purpose to create “evidence” to support their market outlook. Why not run the same study all the way back to 1950? It isn’t hard.

In my experience, whenever someone limits the data on purpose (e.g. “1980 – present”) instead of looking at the data holistically, they are trying to manipulate the data to confirm their own bias. It’s like saying “If I ignore the bullish cases and only look at the bearish cases, this study supports my bearish market outlook”.

Here’s the complete data set from 1950 – present.

As you can see, this happens a lot more than you think, especially from the 1970s – 1960s.

I don’t see this as a long term bullish or bearish sign. It’s mostly irrelevant. This basically just looks at “if the S&P has been falling over the past 5 days, what’s the probability of a bounce vs. decline on the 6th day”. It’s a poor representation of “buy the dip” in the stock market.

Lots of volatility

The U.S. stock market’s volatility remains high, with lots of big DOWN days.

Volatility is mean-reverting and tends to move in the opposite direction of the stock market.

6 of the past 29 trading days have seen the S&P 500 fall more than -1.5%.

Here’s what happened next to the S&P 500 when 6 of the past 30 days saw the S&P fall more than -1.5%, while the S&P was within 20% of a 3 year high.

*Data from 1928 – present

As you can see, the stock market tends to bounce over the next 2-3 months, after which forward returns deteriorate.

Back-to-back losses on Monday

The S&P 500 has seen back-to-back -1.5% Mondays.

Is this bad for the stock market? Is this a sign of “systematic selling”?

Here’s every single case of back-to-back -1.5% Mondays, from 1927 – present. As you can see, this is neither consistently bullish nor bearish for the stock market’s long term direction, although there is a bit of a bearish lean.

Click here to see yesterday’s market study

Conclusion

Our discretionary technical outlook remains the same:

  1. The current bull market will peak sometime in Q2 2019.
  2. The medium term remains bullish (i.e. approximately next half year).
  3. The short-medium term is mostly a 50-50 bet, although there is a slight bearish lean to it.

Focus on the medium term and long term. The short term is usually just noise.

Our discretionary outlook is usually, but not always, a reflection of how we’re trading the markets right now. We trade based on our clear, quantitative trading models, such as the Medium-Long Term Model.

Members can see exactly how we’re trading the U.S. stock market right now based on our trading models.

Click here for more market studies

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - 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.


© 2005-2019 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

6 Critical Money Making Rules