Tags: Worth | buy | the | dip

Sterne Agee's Worth Sees End to Investors' 'Buy the Dip' Psychology

By    |   Tuesday, 14 October 2014 07:55 PM

While buying into stock market declines has paid off handsomely over the past three years, as the S&P 500 hasn't dropped as much as 10 percent, that strategy is likely to stop working at some point, says Sterne Agee's chief market technician, Carter Worth.

"We know that last week we had that huge [upward] ricochet day. We know on Friday, which was a horrible day, at some point we were green [up]. We know yesterday [Monday], we were green at one point," Worth told CNBC.

"As long as it keeps doing that, there's no way it's over. Someone's in there thinking, 'Aha! This is an opportunity. Buying the dip's the right thing to do.'"

But investors are being lulled into a false sense of security, Worth said. An end to the buy-the-dip mentality is "ultimately what I think is coming," he said. "Enough people are going to get hurt where they're not going to play that game anymore."

Worth calculates that the S&P 500 may fall to about 1,765 from Tuesday's close of 1,877.70,

The index has dropped 7 percent since hitting a record high Sept. 19, and some market participants think the selling has been overdone.

"It has been a pretty fierce sell-off, and investors reached an extreme risk aversion," Thomas Thygesen, head of cross-asset strategy at Skandinaviska Enskilda Banken, told Bloomberg.

"You can’t keep that selling momentum forever. Concerns that slower global growth would affect the U.S. have been overdone. We know the Fed will only adjust interest rates once the time is right."

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While buying into stock market declines has paid off handsomely over the past three years, the strategy is likely to stop working at some point, says Sterne Agee's chief market technician, Carter Worth.
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2014-55-14
Tuesday, 14 October 2014 07:55 PM
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