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How You Can Profit from Buying the Dip

Jeremy Mullin
·6 mins read

Now that stocks have pulled back from all-time highs, investors are wondering how to maneuver their assets going forward. For those exposed to the market surge since March, it has been very rewarding. From the pandemic lows to September highs, the S&P was up over 60%, while the Nasdaq peaked after an 85% higher. For those who overlooked the opportunity, there is now an urge to catch up with the rest of the pack. If you are in the later camp, I know what you’re thinking…

How did I miss out on 60%?!

Maybe you were too cautious because you didn’t feel you knew enough about stocks. Maybe it was nervousness about the uncertainty surrounding the virus. Understanding yourself and the psychology behind why you missed out is important. But more important is NOT missing the next opportunity, and NOT being fearful to take the risk that comes with nailing that move.

As we approach the fourth quarter, it is paramount to have a game plan going into the election and holiday months. Now that we have seen an aggressive pullback, we will likely see some consolidation, before ultimately moving higher. Any further upcoming pullbacks will be caused by market events that will be fueled by anxious bears. This is the time to strike!

If investors know what sectors to buy and what stocks to focus on, the rewards can lead to double-digit gains next year. The opportunity that is awaiting patient investors that have cash ready to be put to work, can create a life-changing year in 2021.

Below I talk about upcoming market risks, sector rotation winners and why buying the next big dip will be rewarding.

More . . .


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Is the Market Rigged?

How often have you owned a stock that gets pummeled with no logical explanation? This is often caused by computer-driven High-Frequency Traders (HFT). They fire off massive amounts of short trades to drive stock prices down, then profit from the rebound. Their gains come at the expense of human investors.

The good news is that Zacks has mounted a Counterstrike to catch the best of these “manipulated price drops” as they rebound. For example, we recently closed gains of +70.2%, +47.5%, and even one for +10.0% in just 1 day.

Access to these trades must be limited. It closes to new investors Sunday, October 11.

See Counterstrike Stocks Now >>

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Short-term Market Risks

1) Election 2020 – Unlike the 2016 election, this one has snuck up on us. By this time four years ago we had already seen multiple debates and there was much more clarity on each candidate’s platform. Instead, the news surrounding COVID-19, economic hardships and civil unrest has kept both politicians and voters distracted from what’s ahead. There is a lot of uncertainty on how smooth mail-in voting will be, so if there is no clear winner on November 4th, the market could see selling pressure.

2) COVID and Lockdowns – Europe and parts of the U.S. continue to see spikes in cases of COVID-19. While markets aren’t as sensitive to the virus as they used to be, any threat of lockdowns of major economies can bring aggressive selling into the markets.

Recently, half the White House administration was infected with COVID. While the market reacted with fear, the dip was bought as news came out that President Trump was being released from the hospital. The COVID related sell offs will continue to present buy-the-dip opportunities.

3) Volatility – The VIX has been elevated this year, meaning markets are nervous about something. While some risks are obvious, some are sometimes not seen until they show their ugly face. After we get past the election and a vaccine comes, the VIX will start to come down. Until then, investors must be prepared for pullbacks.

Sector Rotation 

With stocks finally hitting pandemic lows in March, the smart money had to reallocate their assets to areas that would benefit from this new world we are living in. This reallocation caused violent sector rotation causing certain sectors like technology to surge. Despite the recent sell off, you might be surprised to see some sectors are still up massively over the last six months.

Let’s go over some ETF stats since the March lows:

Homebuilders (XHB): 123%

Retail (XRT): 92%

Consumer Discretionary (XLY): 79%

Biotech (XBI): 76%

Technology (XLK): 70%

Metals & Mining (XME): 64%

Industrials (XLI): 62%


Take note of these ETFs. The sectors that outperformed since the pandemic started will continue to perform through this environment. However, if the risks mentioned above come to light, these sectors will give investors opportunity at discount prices. Buying an ETF might be easy to do when this happens, but finding the right stocks to buy is much tougher.

Buying Stocks on a Dip

Buying stocks has more risk than buying an ETF, but can lead to greater reward. When markets sell off, we can utilize the Zacks Rank to separate the weaker stocks from the profitable ones. By combing the fundamentals of the Zacks Rank and technical analysis, investors can decipher which stocks to buy and which ones to ignore.

In addition, sell offs tend to be manipulated by computer-driven algorithm trading that can over exaggerate a move lower. An investor who recognizes this abuse can squeeze a couple more percentage points out of a trade than an investor who doesn’t.  

Since early 2020 we have seen a pandemic, a recession and multiple earnings seasons with not-so-good results. Each time investors buy the dips in this market, they have been rewarded handsomely. While the recent pullback has been more aggressive, this buying-the-dip mentality could be rewarding again in 2021.

How to Fully Capitalize

So far in 2020 we have seen a major bounce from the COVID sell off and some aggressive selling off the recent highs. So, is another bounce coming late in 2020? Why not profit from it?

In addition to the irrational stock swings created by headlines, there is another force at play that we can use to our advantage.

Computer-driven High-Frequency Traders (HFTs) continue to push down worthy stocks and then profit from the rebounds. We can, too.

That is the mission of my portfolio, Zacks Counterstrike.

Counterstrike is designed to sniff out when a stock price is moving the wrong way for the wrong reason. We take advantage by buying the best of these unfairly beaten-down stocks. Then when price moves our way, we lock in gains and look for the next opportunity.

Look into this portfolio today and as an added bonus you may download our Special Report, 7 Best Stocks for the Next 30 Days. These buy-and-holds are the perfect complement to Counterstrike's faster-action trades. Zacks experts reveal stocks believed to have great upside potential over the next 30 days.

Important: To maximize the profit potential of our recommendations, we must limit the number of members who have access to the Counterstrike portfolio and 7 Best Stocks for the Next 30 Days Special Report. This opportunity ends Sunday, October 11.

See Counterstrike and 7 Best Stocks for the Next 30 Days Now >>

Wishing you great financial success,

Jeremy

Jeremy Mullin has been a professional trader for more than 15 years with specific expertise in profiting from patterns set by High-Frequency Traders. He is the editor of Zacks Counterstrike.


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