You would have heard many times on TV when it comes to stocks: "Buy the dips".
It's a phrase which refers to purchasing stocks following a decline in prices. But the big question comes: How do you know when the strategy should be put to work. Charts offer great visual tool to implement this strategy. Let me share 3 examples to illustrate how "Buy the Dips" strategy works and how it turns out to be super rewarding.
S&P500 at 1810 in January-Feb 2016
S&P500 was in a total selling mode in Jan-Feb 2016 but despite brutal selling - there was something dip buyers were doing that grabbed my attention. I wrote an article on Jan 24 - highlighting that aspect: the importance of 1810 as important support area
The comfort of S&P500 https://t.co/yzggZY30Tz
— Deepak Singh (@smarket) January 24, 2016
Buy the Dips strategy worked for S&P 500. It's up 20% since Jan-Feb lows of 1810-1820 and that's huge on index level.
2. Apple at Horizontal Support and 200-week moving average in May 2016
Apple was down and out stock in May 2016 (iPhone story over) and it offered a great opportunity then. It was not only at horizontal support but also at 200 week moving average. I shared both set ups on twitter back then.
Why Apple stock can bounce from current levels...the stock is at solid support levels pic.twitter.com/8khPxXhRE6
— Deepak Singh (@smarket) May 3, 2016
Apple is at 200 week moving average NOW - The Utlimate Support level pic.twitter.com/c9ujiMkwiz
— Deepak Singh (@smarket) May 13, 2016
This is what this setup resulted into:
I covered this stock recently in article title: How Good Trade develops.
3. Twitter @ $14: A great product -Down and Out
Twitter is now a $10 billion company. Dramatic decline over last 24 months pic.twitter.com/uDkYaJYThR
— Deepak Singh (@smarket) May 29, 2016
Twitter is a great product. It serves a real need. The only issue: current management was not able to develop a viable business model...but even then there comes a time when stock becomes screaming buy. One such opportunity came on June 13. This is what I shared in Observation note.
What Twitter did from that levels - It's up 50% from that levels
"Buy the Dips" is a strategy that tests conviction of believers. So, next time when stocks offer such opportunity - be ready to grab them because you never know...it might turn out to be super profitable. And Charts offer a great visual tool on how to play: "Buy the Dips"
Do let me know your views
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers