What happened last week, and what it may mean for the market in 2020.
Anatomy of a Dip-Buyer
The bull market that began eleven years ago, on March 9, 2009, has been a dip-buyer's paradise. In the following series of charts I'll show you every dip going back to 2007 and you can see when the dip buyers arrived on the scene to keep this bull market going. I'll begin with the most recent time frame and work my way back to 2007.
Chart 1. The most recent dips
This chart covers the period from January 2019 to today. There have been six dips, and the dip buyers stepped in each time. Note that these are small dips, ranging from -3% to -6%.
The dip buyers have not allowed the market to reach correction territory, which is minus 10%. The last correction came in the 4th quarter of 2018. We'll see that next.
Chart 2. 2018-Today
For the rest of the charts I will use StockCharts.com and raise the bar for dips to minus 10% - the conventional definition of a market correction. This gives us a broader perspective and eliminates the noise of smaller dips.
Note that there has only been one correction since the start of 2018. The market dropped by -19.8% on Christmas Eve 2018. The dip buyers stepped in to save the day. I have respect for their courage in doing so.
Chart 3. 2013-2018
This 5 year stretch includes the 2016 election and has three corrections. The first two came in 2015 as the election season was just getting underway, and the third came in early 2018, which was a precursor to the 19.8% correction later that year.
The biggest dip was -14.2% in February 2016. In each case, the dip buyers stepped in to keep the bull market going. Again, respect and kudos.
Chart 4. 2009-2012
After the market found a bottom in March 2009, it began the historic bull run that continues to this day. From the 2009 bottom until 2012 there were two corrections, and the dip buyers were there to stop both of them.
They showed up in July 2010 and October 2011 to save the market from slipping into bear territory.
Chart 5. 2007-2009
Our last chart is a cautionary tale for the intrepid dip buyers who have enjoyed so much success since the bottom in 2009. This stretch of time from 2007-2009 was especially painful for them because their bravery and tenacity didn't work.
As the market sank further into the depths of recession-fueled bear territory, the dip buyers valiantly stepped in at every bounce and got crushed by the next wave of selling. The selling was relentless.
When it was over, in March 2009, many dip buyers had left the market for good. And who can blame them? In this two-and-a-half year stretch there were 5 consecutive declines of 10% or more. How much pain can a dip-buying investor endure before they say enough is enough?
Final Thoughts
The dip buyers of today have shown that they are willing to step in and buy anytime the market has the slightest hiccup. They don't wait for a 10% correction anymore. So far it's working for them, but one day this market will roll over and take the dip buyers on a painful ride just as it did in 2007-2009.
I don't know when it will start but I have 100% confidence that it's coming.