With the pandemic came a wave of new retail traders. Using apps that make trading as easy as swiping up on a phone to execute an order, millennials and more jumped on the bull train after the initial market selloff. This rapid bullish trend has made dip-buying (buying an upward trending stock that has made a quick decline in price) a preferred entry method among new traders.
Dip buying has worked especially well as low interest rates, along with the Fed's dovish talk and bond-buying programs have given the market a continuous boost. Because dip buying has continued to work, many new traders have learned to only use this type of strategy. Having said that, as the market picture continues to change, could dip buying begin to lose momentum?
Considering the recent weakness in the market through a waning transportation sector (IYT) and the rangebound small-cap Russell 2000 (IWM), which has not broken to new highs in over five months, we need to keep vigilant eyes there. Should these weekly lows fail, dip buyers could get hurt. However, on the heels of another Fed meeting after "cooling" inflation numbers and a mediocre labor market, we believe the price range will remain intact.
We expect the Fed to remain dovish. This should bring a lot more cash that is currently sidelined, fearful of the September-October historical weakness, back into the market next week.
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ETF Summary
- S&P 500 (SPY): 442 support.
- Russell 2000 (IWM): Next support area the 200-DMA at 218.25. Needs a second close over the 50-DMA at 222.
- Dow (DIA): Playing around the 347.31 support level.
- Nasdaq (QQQ): Needs to clear the 10-DMA at 379.12.
- KRE (Regional Banks): Testing its 50-DMA at 64.04.
- SMH (Semiconductors): Still holding over its 10-DMA at 272.32.
- IYT (Transportation): Watching to clear back over 200-DMA at 248.62.
- IBB (Biotechnology): 168.43 support from the 50-DMA.
- XRT (Retail): 91.49 support area to hold.
Forrest Crist-Ruiz
MarketGauge.com
Assistant Director of Trading Research and Education
