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Yes, Buy This Dip


  • It's been several weeks since I wrote about "bubbles" developing in various sectors.
  • Despite an S&P 500 correction of only around 6%, many areas in the market declined by 30% or more during the recent meltdown.
  • Some of the most heavily-sold sectors likely represent some of the best deals right now.
  • We're looking at EVs, lithium providers, alternative/solar energy, China and more right now.
  • This idea was discussed in more depth with members of my private investing community, Albright Investment Group . Learn More »

stock marketSource

It's been several weeks now since I put out my "Yes, Of Course, There Is A Bubble" article. While discussing the idea that there are "bubbles" in various areas of the market, the segments that we put most emphasis on in the article were EVs, alternative energy, and digital assets. Now that a few weeks have gone by, these areas as well as others have deflated by quite a bit. After seeing significant corrections in various areas of the market we see some notable buying opportunities materialize at this time.

Looking Back on Some Pullbacks

Several specific names we discussed as being substantially overbought included Tesla (TSLA), NIO Limited (NIO), Plug Power (PLUG), iShares Global Clean Energy ETF (ICLN), and Dogecoin (DOGE-USD). Yet, the argument wasn't designed to single out these names. Rather the discussion was meant to shine a light on the extremely overbought nature of several particular sectors as well as other frothy areas in the market.

From recent peak to trough:

Tesla declined by 40%.

TSLASource: StockCharts.com

Tesla's correction has been ongoing for about two months now, and the stock has given up approximately 40% of its value. We also see the relative strength index RSI at about 27, a level indicative of extremely oversold market conditions. Furthermore, Tesla has a very solid technical support level around $550.

NIO gave up 52%.

NIONIO, much like Tesla, is also notably oversold here. The stock was down by more than 50% from its highs, the RSI is around 27 as well, and the stock hit a level consistent with a major technical support level in recent sessions.

PLUG lost 56%.

PLUGPLUG, along with many other solar/alternative energy names, has gotten crushed lately. This stock filled some key gaps, and also hit a very key technical level in recent trading sessions.

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This article was written by

Victor Dergunov profile picture

Victor Dergunov is an independent investor and author with 20 years experience. He preaches diversification and shares investment ideas across all market sectors. Victor aims to help readers build portfolios that perform well in all economic conditions.

He runs the investing group The Financial Prophet where he covers all market sectors and shares strategies for well-diversified investing. Features include: the All-Weather portfolio, trade alerts, technical analysis, daily reports with his latest updates, covered call strategies, and direct access in chat. Learn more.

Analyst’s Disclosure: I am/we are long TAN, CNRG, PBW, ACES, NIO, TSLA, BIDU, CHIQ, LAC, SQM, LIT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (242)

Now nearly a month later and here's how we're doing, G/L%:
TSLA 3.44
LIT 3.15
LAC -0.32
QCLN -0.51
ACES -0.51
ICLN -1.29
CHIQ -1.39
SQM -1.97
TAN -2.41
BABA -3.84
PBW -4.38
NIO -4.86
BIDU -12.88
PLUG -21.92

Average G/L has shot up to -3.55%.
@dlsbrk Here we are on May 6, 2021, a few days shy of 2 months on, and the group is now down, on avg, 13.89%. All but one (LIT) are in the red. PLUG leads the plunge at -47% followed by BIDU (-24.7%) and LAC (-22.9%) and PBW (-22.1%).
Victor Dergunov profile picture
@dlsbrk What about DOGE? It's up like 10x since then...
@Victor Dergunov What about DOGE? You literally wrote yourself "While we do not invest in Dogecoin, the correction pattern is largely emblematic of the digital asset industry in general." There isn't a single endorsement of DOGE in your article. You wrote "buy the dip" but the things you suggested to buy are down on average. You can't get every call right, just accept it and move on.
A faulty premise falling for the fake bargains, but can work like any other style.
Now ~14 days later, and the group is down a collective 8%, PLUG in the lead at -22%. Looks like the dip wasn't quite over for these gems.
Excessive volatility = heart attacks for the uninitiated.
Illuminati Investments profile picture
I don't always say buy the dip, but when I do I prefer to buy things that have run up 600% before the recent "correction"...
How about THIS one?
Pyraminsider profile picture
Volume seems to be a little lighter for the major stock indices so I imagine the algorithmic computer traders might try some different patterns to increase investor appetite for risk. Even 10% dips get returned in just a couple weeks if they are on light volume.
Rex Rode profile picture
Semiconductors are going to have a big surge this week (for several key reasons.) Just keep in mind QCOM, TSM, and Intel pay a dividends that rival the big banks. This interest rate rise effecting high tech has been completely overblown. AMD will hit $90 this week. Massive options expiring by Friday.
As interest rates rise, tech stocks suffer since most don't offer dividends. Maybe they need to begin offering them.
Dergunov knows his stuff. What an awesome article. Points made crystal clear with charting.
With two weeks left Moderna and Pfizer are not going to deliver 100 million doses on time. Joe better kick em in the butt again.
Don't miss the final wave. It's the big one.
From your article: "The 10-year has exploded higher, essentially going vertical recently after tripling from its August 2020 lows. Now, I don't think that such sharp moves are sustainable from an intermediate or longer-term perspective. The U.S. simply has too much debt for Treasuries to continue to move notably higher from here.

Therefore, the sharp uptick we've witnessed recently is likely a knee-jerk reaction to expectations for higher growth and higher levels of inflation going forward."

So your whole argument for 'buy the dip' is that you don't 'think' that 10 year yields can go higher? That's an extremely weak position. What is going to force yields lower? If investors expect growth to accelerate, why would they buy bonds here and force yields lower? Are you assuming the Fed will intervene with YCC? Why would they when credit spreads remain tight? What assurance do they have that YCC would even work?

Here's the truth: yields can, and most probably will, go higher. Look at how much faster 30-year yields have been rising than 10-year yields. Why is this important? Because 30-year yields reflect inflation expectations whereas 10-year yields tend to reflect growth expectations. While it can be argued that rising 10-year yields reflect rising growth expectations, it is dangerous for equities when inflation expectations are rising much faster because this may have implications for monetary policy. Ultimately, rising inflation expectations crystallizing into actual inflation will force the Fed to tighten way in advance of their presently communicated schedule. Tightening liquidity will be the catalyst for the next >10% correction in the S&P 500.

There is too much focus on the 10-year yield and not enough focus on other interest rates. For example, the spread between 30y and 2y yields hasn't been this overbought on weekly RSI for over 12 years. This is telling you that there is a clear paradigm shift among investors with regards to inflation and growth expectations; this is not a knee-jerk reaction. This paradigm shift will have consequences for monetary policy (liquidity).

It may take a few months before the Fed starts to fret about rising inflation expectations, but now is certainly a time for a much more nuanced analysis . Making a big call ('buy the dip') based on your THOUGHTS about ONE interest rate is, to put it mildly, irresponsible.
Nice solid article and charts!
AAA Investments - PayONLY4Performance profile picture
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Investrava Analytics profile picture
@klonk33 where can I find out more about your investment service? I cannot find anything on SA or elsewhere.
“In bear markets equities return to their rightful owners.” JP Morgan
I am not sure JP Morgan can own all equities.
He's 6 feet under. You can't take bitcoin with you... even on vacation. You can leave home with out it.
Rex Rode profile picture
U left out the biggest future winners.....The semiconductor sector will be the leaders moving from these lows. Expect AMD, QCOM, TSM, NVDA to go 50+% higher in the next 12 months. Plus, some pay a dividend. Revenues and profits will be huge in the 2nd half and all of 2022. Consider this 25% sector dip a gift.
blucrab profile picture
Great title, but where was the insight?

The first half of the article argues that I should buy this dip because prices are nearing their 200 day simple moving averages.

The second half of the article argues that China's economy is growing. To be fair, that's a great point, and a possible hedge against a US bear market. (I don't claim to know how good of a hedge it is.)
@P. Forts Just like the Motley Fool (been around forever) and a host of other ones they will baffle you with bullshit to get your money. If they ever did have good info, the iron has long since cooled off.
Correction is between 10% to 20%
Stock is considered in bear market territories when it goes below 20%
can any body explain why some growth stocks and EV are exception?
11 Mar. 2021
@roseandsong Seems to be rebounding now isn't it? It can't go down forever
@roseandsong Because a stock is not a market?
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