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Take a Look at a Historical “Dip Buyer’s Nightmare”

Why stock investors should be leery of the “buy the dip” mindset

by Bob Stokes
Updated: September 15, 2021

In the bull market of the 1990s, the psychology of optimism became so entrenched that most financial advisors saw any price decline as an opportunistic "pullback."

"Buy the dip" became standard advice.

Even after the big bear markets of 2000-02 and 2007-09, that psychology remained. And, it's still around in 2021.

Indeed, an August 25 Bloomberg article quotes a portfolio manager:

"If we do see a pullback in September, I would definitely be telling clients, 'Take this as a buying opportunity.'"

As our September Elliott Wave Financial Forecast points out:

If anything, the "buy-the-dip" mindset intensified as [August] progressed. At this point, it takes the form of a frothy excitement when stocks decline, however meagerly.

If investors are eager to buy small dips, they will likely be licking their chops when the next significant price slide occurs, believing that the slide is only temporary. That might turn out to be the case -- then again, that dip could be the start of something bigger.

Let's go back to the April 2001 Elliott Wave Financial Forecast for a case in point:

DipBuyersNightmare

Anyone who bought into the euphoria at the [NASDAQ's] all-time high or the bull trap highs of early September and late January, would have taken successive hits of 40%, 47% and 38%. You can bet that many people followed the "buy" advice in the media on every bounce, losing even more than the "hold-only" loss of 65% from top to bottom.

Bear in mind, the NASDAQ continued to fall into October 2002, handing even deeper losses to investors who continued to buy on the way down.

Returning to 2021, only time will tell which "dip" will be the dip which turns into a full-blown bear market.

Yet, one thing's for sure: The Elliott wave model is offering important clues about what's next for the main stock indexes.

Follow the link below to review our flagship investor package so you can prepare your portfolio.

The Investment Battle is Half Won When...

...You know the main trend of the financial market in which you are interested.

Most investors do not possess this basic knowledge. Their strategy is usually akin to "buy, hold and hope."

On the other hand, the Elliott wave model helps investors to identify the main trend -- an absolute must before any investment decision is made -- in any major U.S. market, including stocks.

Yet, this is just the first half of the investment "equation." Even if you have a high-confidence view of the main trend, you still need to anticipate the juncture when this trend will likely change.

That's the other half of a winning investment strategy. Here, too, the rules and guidelines of the Elliott wave model will help you.

Learn what our Elliott wave experts are saying about U.S. stocks, bonds, gold, silver, the U.S. dollar and more by following the subscriber link below.

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