However, with the exception of a foreign ETF, I have resisted "buying on the dip" for beaten down stocks. Here are my reasons for holding back:
- Still more bad news coming. Credit market issues, once limited to home builders, subprime mortgage originators and mortgagees, continue to expand. Recently, retailers, financial institutions and even insurance have been pulled into the mess. Unfortunately, it seems to be trickling further to manufacturing. I don't believe any company yet understands their full potential exposure to the credit market issues.
- Market strength and breadth is poor. I continue to be unimpressed with market strength based on the comparison of new lows new highs. The number of new lows is often close to or exceeding new highs, sometimes even on up days. It appears only a few stocks are driving up the market indices.
- 2002 broke my habit of buying on the dips. I profited from buying on the dips in the late nineties through 2001. Unfortunately, in 2002 stocks just kept going lower, and my "buy on the dip" investments created significant losses. After that experience, I stopped buying on the dip.
To note, I am extremely tempted by some financial and housing stocks which have had significant declines. But I continue to resist.
However, I am considering small purchases in three areas, foreign ETFs, commodities, and farm equipment, all of which have remained relatively strong during this correction. As I have written in before in Fed Rate Cut Signal and my 10/15/07 Stock Buy List Update, FXI(bought on Friday 11/9/07), BHP, and CNH are selections which I may buy at these levels. I will also give PCU consideration if it further declines below its $114.07 close on November 9, 2007.
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This is not financial advice. Please consult a professional advisor.
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