Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

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.

© 2005-2019 - 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