Should long-term positions be considered?

Every investor is probably asking the same question right now, should I be buying stocks in my long-term portfolio? Buy the dip or wait? This question should be broken down into several categories. 

All of these should be considered when buying stocks right now: Where can the overall market go from here, what stocks will lead the way back up, and what stocks will not recover from this? Lastly, how are you currently positioned, and how long-term is your long-term portfolio truly?

TG Watkins, Director of Stocks at Simpler Trading, has recently made fascinating comparisons of the market in 2008 and this year. Similarities started to pose the possibility of another drop in the market, as seen in 2008. This mirroring effect led TG to state, “don’t get too excited about buying the dip.” In our recent Instagram post, which can be found here, TG illustrates the possibilities of continuing the pattern seen in 2008. If this pattern plays out, the bottom of the market is not near.

One of the most significant indicators TG will be watching in the coming days is how the price reacts around the hourly 50 simple moving average (SMA). He thinks that if the S&P 500 ETF (SPY) price can stay above the hourly 50-SMA, more market strength can be found. Conversely, more chop and weakness can be seen if the price can’t stay above the hourly 50-SMA.

Using this information to indicate where the market could be headed, the next thing to be considered is what stock you plan to buy. Regarding stocks that may have done well in the past, TG says, “Some stocks are already down about 50%, but they might be dead and unable to come back to life in the next bull run. Wait and see who the leaders are, and be careful about buying past leaders who may not make it this time.” 

Historically, sectors that have led previous bull runs have not returned to be the leader again throughout the years, such as American Tech, Emerging commodities, and most recently, mega caps. These have, on average, dominated a decade, and with this recent sell-off in the market, it could be time for another group of stocks to dominate the next decade. As TG mentions, being patient and waiting for the leaders to emerge may be the best strategy.

Holding Stocks

The last thing to be conscious of when buying a stock is your current position and how long you plan to hold it. Raghee Horner, Managing Director of Futures Trading at Simpler Trading, has recently mentioned that she is a long-term holder of Amazon. In recent Twitter spaces, she talks about Amazon below $100 as a buy for her portfolio as she has a long-term outlook. If you are buying a company that believes in its vision, and can honestly say you have the time to sit on the investment, then the capital allocation at these levels makes more sense. In this case, buying the dip may match your investing plan.

When everyone talks about market cycles, it is easy to mention the straightforward directional moves that trend up or down. The market cycle that many forget to think about is the consolidation period, where the market can go relatively sideways for years.

In the same Twitter spaces, John Carter, Founder of Simpler Trading, has said that “navigating a market can be like walking through the woods, and one path has a clear walkway and another you will need a machete and a hatchet.” Finding the path of least resistance can help lead you in the right direction, and right now, the upside may need your machete and hatchet. 

Some names in the market are trading at a fair price if you are prepared to potentially sit through more downside, have time to hold for long-term recovery, and believe in the company long-term. If you want to be more conservative, waiting for the leaders to reveal themselves can be significantly rewarded. 

If you’re looking for opportunities to identify rising stocks before they make the next big move, consider joining the MEM stocks watchlist!