An interesting–and I think important–post by Ethan Wolff-Mann on Yahoo Finance yesterday (https://finance.yahoo.com/news/retail-traders-arent-buying-the-dip-like-normal-analysts-201817959.html). According to Data from Vanda Research, individual investors haven’t been buying the September dip.
The 2.1% drop in September through September 14 has led to only $657 million in retail buying of U.S. equity ETFs. That comes to the $1.39 billions buying in July’s 2.9% drop. While there was a small uptick in inflows in the types of ETFs usually seen in dip-buying this week, “the magnitude has been a little underwhelming relative to previous sell-offs,” Vanda analysts wrote. Vanda’s analysis pins the blame on crypto currencies. “A sudden revival in cryptocurrencies is partly to blame,” the analysts wrote. “After the sudden washout in leveraged crypto positions last week, we have noticed a modest pick-up in the open interest of BTC perpetual swaps.” In other words, as crypto interest went up, stocks interest dropped.
I’ve got my own alternative explanation. Given the history of September slumps–since 1950 September is the worst month for stock market performance–and the history of big market drops in October–stocks haven’t dropped enough to lead individual–and other invests–to buy on the dip. A 2.1% retreat isn’t enough to offset the increased risks at this time of year. And any potential buy-on-the-dippers are waiting for bigger bargains.
Which would mean, if I’m right, that the buy-on-the-dip support for stocks is still in place. It’s just waiting for a bigger drop before showing itself.
I’d be looking to see if buying on the dip emerges if we get a 5% drop in stocks. We haven’t seen one of those for a long, long time. On the average, since 1927, the Standard & Poor’s 500 has suffered a 5% or greater drop every 71 days. We’re now at 200 days plus and counting since the last 5% retreat.
I’ll be revising the Dip-O-Meter on JubakAssetManagement (JubakAM.Com) just to be prepared in the early part of next week.