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Trend reversal: ‘Buy the dip’ is becoming ‘short the pop’

Taylor ConwayTaylor Conway ·

The set-up: Throughout the current bull market – now more than eight years old – plenty of people have maintained that every dip is a buying opportunity. That thinking was intensified after the post-election Trump bump, as every tiny dip has been bought up ferociously, creating new high after new high.

That may be coming to an end.

The catalyst: Many people are looking for a Trump dump, but I don’t think this market will turn based on politics or news. After all, political tensions are already at nightmare levels; if news was in play, we’d already be down 5 or 10 percent or more.

No, we have simply been watching a huge bubble that has been ignoring this stuff; the catalyst, therefore, is purely technical. At some point, the market always adjusts and people abandon the idea that the market will just run up and up.

The new trend: The conversation is changing from “buy every dip” into “short every pop.”

The market has been a land of euphoria but it’s going to turn into something ugly for a while. In the overall scheme of things, taking the lumps would be the healthiest thing for the market, and it’s important to recognize that you can make as much shorting the pop as you do buying the dip. That might be the mindset to adopt until the next big correction passes.

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   Taylor Conway is the lead day trader at PennyPro.com. He is a short-term day trader of stocks and ETFs. 

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