You Want to Buy the Dips? Too Bad!

The Dow Jones Industrial Average posted a new all-time closing high yesterday.

So did the Nasdaq Composite. The S&P 500, too. Even the small-cap Russell 2000 joined the party. Big and small, stocks sprinted higher across the board. Heck, even beaten-down energy names caught a bid yesterday…

Don’t worry – your favorite tech stocks were also invited to the party. After a brief respite, the FAANGs (Facebook, Amazon, Apple, Netflix, and Google) are back on top. Netflix Inc. (NADSAQ:NFLX) crushed earnings earlier this week and jetted to new all-time highs. (NASDAQ:AMZN) and Facebook (NASDAQ:FB) are also entering uncharted territory. Only Apple and Google are missing from the all-time high crew this month – but not by much.

Back in early June, we talked about how every financial fluff piece marveled at the unstoppable strength of the FAANGs. You’re a damn fool if you don’t own these names, the financial press declared. Even when these stocks get whacked, they don’t stay down very long.

That’s great news if you’re long and strong.

But crazy melt-ups like we’re seeing this year can drive some investors bonkers.

The market’s not rewarding the patient dip buyers this year. Think about it. We haven’t even had the chance to enjoy a single buyable broad market pullback this summer. Any investor who has waited for stocks to settle down or retreat has nothing to show for his efforts.

Just how calm and orderly is this year’s rally?

Search the world’s major averages and you will fail to find any downside move that’s even close to a correction…

“Three major stock-market benchmarks in the U.S., Europe and Asia have avoided pullbacks this year, commonly defined as 5% declines from recent highs. Never in at least the past 30 years have all three indexes—the S&P 500, MSCI Europe and MSCI Asia-Pacific ex-Japan—gone a calendar year without falling at some point by at least 5%,” The Wall Street Journal reports.

History tells us we should expect pullbacks even during the market’s strongest performing years.

Remember the 2013 rally? The market was hot right out of the gate following the fiscal cliff “crisis” that emerged right before the new year. When all was said and done, the major averages posted incredible gains. The S&P 500 rose 30% in 2013. The Nasdaq Composite jumped more than 38%.

But even during a year where stocks seemed unstoppable, traders and investors had to endure some rough spots. Here’s a chart of 2013’s performance I shared with you earlier this month:

The S&P endured a 7% peak-to-trough pullback that ended in late June, followed by two more 5% pullbacks before finally ripping higher in October. That’s three significant pullbacks over just five months – all while the S&P was ripping to new highs on a regular basis for the first time since the financial crisis.

There are a lot of market watchers out there who like to say we’re experiencing the most hated bull market of all time. That’s a bold statement. But I don’t know if it’s true. As I’ve mentioned before, I believe we could be in the midst of the most ignored bull market of all time.

But I’m fine with either hate or indifference. The herd can stay on the sidelines all year and wait for a dip that never comes. The market loves to rally in the face of skeptics. That’s exactly what we’re seeing right now. Everyone is desperate for a pullback that refuses to materialize.

Of course, even the strongest bull market will eventually hit some turbulence. This time is no different. Once everyone on the sidelines gives up and chases the hot stocks they were originally waiting to buy at lower prices, we’ll finally see that big pullback that the herd thought it wanted in the first place…


Greg Guenthner
for The Daily Reckoning

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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