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Stocks: This Investment Decision Can be Worse Than "Buy-and-Hold"

There is a way that can help you avoid making it, though

by Bob Stokes
Updated: September 14, 2018

Sentiment measures from the past couple of months reveal that stock market optimism pervades much of the investment community.

Unequivocal stock market bears are rare, but at least one of them holds a prominent position in the financial community. He's the chief equity strategist for a major Wall Street bank who just sent a note to clients that says (CNBC, Sept. 12):

"We think this 'rolling bear market' has already begun with peak valuations in December and peak sentiment in January."

There are others who anticipate a pullback, but they're actually more optimistic than fearful. In other words, they view pullbacks as opportunities. A noted value investor says (CNBC, Sept. 12):

"You want to buy when you have a sell-off because we do think the market's in a trading range and you want to buy weakness rather than chase strength."

Yes, financial media consumers have heard it many times before: "Buy the dip."

Well, the next dip may indeed turn out to be a "buying opportunity." Then again, it might turn out to be the start of something big.

Let's rewind the clock to Sept. 27, 2007, when the Wall Street Journal ran this headline:

U.S. Stocks Viewed As Undervalued

Well, they were about to get a lot more "undervalued." Less than two weeks later, the DJIA hit that milestone October 2007 high before sliding into a big bear market.

Yes, buying stocks just because prices are lower can be perilous.

The April 2001 Elliott Wave Financial Forecast offers another example via this chart and commentary:

DipBuyersNightmare

Anyone who bought into the euphoria at the all-time high or the bull trap highs of early September and late January, would have taken successive hits of 40%, 47% and 38%. You can bet that many people followed the "buy" advice in the media on every bounce, losing even more than the "hold-only" loss of 65% from top to bottom.

The Elliott wave model can help investors distinguish buying opportunities from setups that are best avoided. It shows you where in the trending progression the market is, so you know the probabilities of whether or not the "dip" is over -- or if there is more to come.

You can get a lot more time-critical insights in the just-published September Elliott Wave Theorist.

Just Where is the Stock Market Headed?

You may find these words from the just-published September Elliott Wave Theorist worth your time:

What happened over the past month cleared the Elliott wave picture in two key indexes.

Learn exactly what the Theorist is talking about.

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