Stash away the news, buy the dips

Take a look at Yahoo Finance's news section for today. In the morning, the jobs number can only be summed up in one word: disappointing. Job losses in the economy. The market did look dreary, reacting with a downmove all the way to yesterday's lows in the premarket for the Nasdaq futures.

And then the market rallied up to new yearly highs. Now take a look at their explanation: Take report in stride?. Suddenly there was a pleasant surprise in the numbers. Keep in mind that this "surprise" is the same number in the morning that showed that the US economy has lost 85,000 jobs in December. Once again, reporters who know very little about the market try to fit the news to market action. This is a great example of how market psychology rules price. The market psychology now is to buy whenever there is a favorable buying opportunity, such as today.

Buying "dips", which is trader lingo for buying stock when it quickly falls in price, has been the very profitable in these past few months, as you can see from the chart to the left. Starting from November, you could have realistically bought the market 4 times on dips and if you correctly set your stops and let your position ride, you would be in an incredible position of strength now. What is most important to remember when buying dips is that you must only do so when the market is in an uptrend, and you must use a stop just in case the dip you bought into happens to be a change in trend. And even though this strategy has worked for the past couple of months, it would not surprise me if it fails to work the next time it happens. But until it fails, I will be buying the dips as well.

On a side note, the inverse correlation between the market upmove and the dollar's downmove had been well documented by many of the media outlets. Just recently in the past few days though, it looks as if the market and the dollar have both been moving in the same direction. This could be a sign of a the end of this correlation. I have provided a link that maps both the market and the dollar: Market vs Dollar.

Feel free to post comments, I will respond and appreciate every one.  Also, if you would like me to discuss a certain topic in my next post, post it in the comment section as well. Until then, never leave home without a stop-loss.