Keep Your Eye on the Dip-Buyers
There's plenty of red out there this morning. Breadth is poor with 1100 gainers to almost 4000 decliners -- the weakest numbers we've seen in quiet a while. All major sectors are red, but financials and agriculture are showing some relative strength. Gold, coal, steel, oil and commodity names are all lagging.
The dip-buyers have made a couple of tries to turn the market up, but they aren't gaining any traction. The iShares Russell 2000 (IWM), which outperformed Monday, is breaching its early lows and is the laggard today. That probably reflects a move out of the more speculative names and into the safety of bigger caps.
With the market so strong for so long, you have to expect continued dip-buying. Dip-buyers need to be trapped a number of times before they give up. At this point, dip-buying has worked so well so often that there is little fear. The market has come roaring back from any and all weakness, so why should it be different this time?
My approach at this juncture is to stick with the dip-buyers and try to catch some quick bounces. I still see little opportunity on the short side as support appears to be quite stubborn.
The big danger we have to watch for is new intraday lows. Dip-buyers are likely to set stops at the lows of the day, so if they are breached that usually gives us a quick flurry of additional selling. It is the pattern of lower lows that takes its toll on the dip-buyers and eventually sends them to the sidelines. It's too early for that, but we need to keep tight stops in play.
_______
Editor's Links
More from James "Rev Shark" DePorre:
At the time of publication, Rev Shark had no positions in the stocks mentioned.