Is 'Buy-The-Dip' Dead?

They say that when the former bears turn bullish, that is often the sign of a top.

Source: Caters/Legion Media

For the last three years and during the 64% rally in the S&P 500 from 1800 to 2940, many analysts were quite bearish, expecting the market to top out each and every week. They continued to point towards the “risks” in the market, all the while helping develop that wall of worry that we continued to climb on the long side on the way to our long-term targets. But, let’s be honest – what market does not have risk?

What seriously amazed me was what these bears did once we pulled back off the 2940SPX region. I actually read articles by a number of these former bears suggesting that their readers should “buy the dip” as the market dropped into the 2800 region. I was shocked.

So, after being bearish for three years and missing out on a 64% rally in the market, now it was time to buy the dip? And many of you still think I am foolish for analyzing market sentiment as my primary perspective of market trends?

For years, I have been staunchly bullish of the equity markets. Back in early 2016, when the S&P 500 was in the 1800 region, I was calling for a "global melt-up," while most everyone else was bearish. When we pulled back into the U.S. election time frame, I reiterated that we would rally to 2600+ "no matter who was elected." And I maintained a strong bullish bias until we came into September of 2018.

Back in September, I began to suggest caution to our subscribers at ElliottWaveTrader.net, and to consider that we are approaching a long-term top in the market. And, when the market broke below 2880SPX, I strongly urged those that read my analysis to step to the sidelines. So, while some missed selling at the actual top by 60 points (2%), as my ideal minimum target was in the 3000 region, perfection is something we strive for in financial markets but are not always able to attain.

Yet as I have reiterated to them, and as have even noted in public articles, “I do not see an appropriate long entry until we drop down towards the 2600SPX region.”

So, when I read how these former perma-bears were suggesting to buy the dip up in the 2800SPX region, I knew I was on the right track in terms of expecting much lower before the next buying opportunity arose.

But is this next buying opportunity going to take us to new all-time highs and my prior minimum target in the 3011 region? To be honest, the jury is still out on that one.

While I expect us to be able to rally back to the 2800-2900SPX region, the structure of that rally will give us indications as to whether we can stretch to 3000+. At this point in time, I am not expecting it, but I am quite open to the potential. The market structure will have to guide us once the rally begins.

As I outlined in my last article, “when an impulsive structure fails to attain its ideal target, the ensuing b-wave of the correction can see a higher high, and will sometimes target the level that the primary impulsive structure failed to strike. In our case, that is the 3011 region.”

While my primary expectation at this time is not for us to reach the 3011 region, I have to note the potential because we failed to attain our minimum target during the primary trend, which came up short.

So, to answer the question presented in the title of this article, it all depends on your perspective. If you are looking for a medium-risk buy-the-dip opportunity, then it is not dead. If you are looking for a lower-risk buy-the-dip opportunity, then it will likely be at much lower levels as we look towards 2019. In fact, our standard long-term targets for this market are in the 2200SPX region in the coming year or so. But, we will certainly have a sizable rally before we are set up for that potential.