Let’s Give a Round of Applause to the Dip Buyers

The fearless dip buyers have been pushing this market higher and higher for years, while the timid rally sellers have been hunkering and bunkering.

Some rally sellers have gotten religion and switched sides. "Come on over," the dip buyers say. "It's more fun over here."

Exhibit 1. The last three dips

The chart below illustrates the fine work that the dip buyers have done since the most recent low in August of 2019. It's not unlike footage from a CCTV camera where the cops are trying to figure out the movements of a crime suspect. In the dip buyers' caper, the evidence is plain to see.

Exhibit 2. The last serious dip

The dip buyers were put to the test in the 4th quarter of 2018. Those who bought the first dip in October were too early and paid a price for their premature jump. Those who waited until late October fared better, but they still paid a price for buying too soon.

The Elite dip buyers who waited until Christmas Eve to jump in were handsomely rewarded. The next chart shows how it all worked out. 

Exhibit 3. The 2018 Christmas Rally

Behold the gift from on high that was bestowed upon the dip buyers who had the foresight to wait until Christmas Eve to buy the dip. It's a thing of beauty. And it encouraged other, more meek dip buyers to join the congregation.

Exhibit 4. The 2019 Stock Market Rally

Now we come full circle and see the fruits of the dip buyers' labor. 2019 was an exceptional year in the stock market. The dip buyers got it right. The rally sellers got burned.

What will happen in 2020? Nobody knows. I guess it depends on whether the rally sellers will grow a pair and show up. 

Final Thoughts

This article is loaded with irony, as most of you know that I'm a skeptical bull. I believe that the end of this magnificent bull run is closer than the dip buyers think. It could continue for months, or all throughout 2020. 

But I think the gains ahead will be small, and the downside risk is great. When the economy finally rolls over, and the stock market begins a serious decline, will you keep buying the dips? Which stocks will you buy?

Will you buy the next Enron? Way back in 2000 Enron was the darling of the stock market. They were making so much money that investors couldn't get on board fast enough. Turns out it was an accounting Ponzi Scheme and investors lost everything. 

Especially the dip buyers, who saw Enron as the king of the energy market. They bought every dip, starting at $80, then $70, then $60 and so on until the stock went belly-up at 12 cents a share. 

Exhibit 5. Enron

Enron traded on the New York Stock Exchange under the ticker symbol ENE, and later under the symbol ENRN when it traded on the NASDAQ.

Shares of Enron stock reached their highest price on August 23rd, 2000 when shares reached a price of $90.75. The high share price gave Enron a market cap of about $70 billion, enough to make it the 7th largest publicly traded company.

At the time, the company was trading at a price to earnings multiple of over 70.

However beginning in September 2000, the company’s stock began declining. Beginning around this time, analysts and investors began to scrutinize Enron’s financial statements. Specifically, how the company recognized revenue and its use of mark-to-market accounting.

Less than 2 years later, on January 11th, 2002, Enron’s stock price would be $0.12.