Buy the Dips and sell the Rips! A phrase I heard from a trader this past week. Buying investments after they have come down (Buy the Dips) and selling them once they have moved higher (Sell the Rips); this is what many traders apparently are doing over the last few months. Is this why this market has been range bound over the past year?
Until this market can show some conviction to the upside, the trading community in my opinion continues to sell into market strength. I believe traders and institutional investors have no clue as to where this market is headed and thus are reluctant to stay long (hold on to a position) overnight let alone a weekend. While most of us here in North America are fast asleep, important headlines are being released in Asia and Europe which can take the global markets for a roller coaster ride. Thus by the time we wake up each morning, the markets can easily be up or down triple digits. Traders are reluctant to stay in a position when they are not able to predict what will happen overnight.
After the month that we have just gone through where the major North American markets dropped about 7%, traders and institutional investors which in my opinion control the direction of the stock market (due to the large amounts of many under their care or management), are even more uncertain. I have heard some opinions by analysts in the U.S. that their markets are now in Oversold Territory. Usually, when you have enough investors with this belief, the market eventually rallies. However will this rally be any stronger or longer than some of the rallies we have seen over the last few years? When you look back at the major U.S. indices for example, you will notice that they are pretty much where they were last summer. Thus the more things have changed, the more they have stayed the same.
I believe the saying buy the dips and sell the rips is a great endorsement for dividend paying investments. If traders are taking this market up and down and thus individuals are really not getting any further ahead, the only way to make money is by purchasing investments that pay dividends. I feel that the market at some point will supply the conviction needed for traders to stay long this market (believe the market with go higher). However until that day comes, the main way and possibly only way to have relevant gains in a portfolio is for individuals to buy investments that pay dividends. In my opinion it is not difficult to find good quality names paying between 4% and 6% today.