The rally over the last two years has helped investors forget that markets also go down. After two +20% consecutive years, a sudden 8% drop from recent highs has investors panicking. Bear in mind, no pun intended, that the S&P 500 is only down 4% for 2025. Consider the graph below. It shows that the running five-day put volume set a record. So the question is whether we are now in a topping process with more losses to come or on a short break from the bull market. To rephrase the question, should we buy the dip or sell the rip?
Buying the dip implies the market is nearing a bottom. This presumes investors will get comfortable with tariffs and fiscal spending cuts. Possibly, it also means that Trump’s other plans, like lower taxes and looser regulations, generate optimism. We can’t rule out a more dovish Fed to boost optimism. Moreover, earnings expectations do not decline much despite signs of slowing growth.
Conversely, selling the rip implies the market is in a topping process. Furthermore, it likely means below-average growth or even a recession.
So are we buying the dip or selling the rip? The answer may be both. We do think the market is very oversold. However, the macroeconomic landscape is deteriorating, and we believe it will be hard for earnings to match current expectations. However, we rely heavily on technical indicators. This helps keep a level head when bad decisions are more likely to get the best of us. We are leaning toward a rally but eventually selling the rip. In other words, let the market’s oversold condition normalize a bit. Moreover, if economic conditions continue to deteriorate and our important long-term indicators turn bearish, we may reduce exposure.
Should we buy the dip or sell the rip? Explore whether it is time to trade the fluctuations and investor panic.
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