Click to Enlarge The market looks to be suffering its much-awaited “correction,” as stocks have posted two losing weeks in a row, with the broader indices roughly 3.5% from their early-August highs.
And now, some exchange-traded funds and stocks are starting to get attractive for dip-buyers.
The idea of buying the dips is frightening for most investors because it’s counterintuitive to buy when everyone else is selling. But putting the discomfort aside, the art of “buying strength on weakness” is how the big money makes its living.
The first step in this game plan is identifying strength. Our proprietary ETF database does this by filtering the ETF universe for two identifying qualities: relative strength against the market, and a high ratio of new highs to new lows for an outperforming ETF. The first tells us the ETF is performing strongly, while the high/low ratio tells us whether that strength is robust, or just the result of a couple strong companies dragging the group higher.
A scan of the current relative strength data shows that the leadership in the ETF circles has been focused on the regional and larger banks, gold miners, Internet, biotech and restaurant funds, with each of these ETFs besting the market’s returns by more than 5% for the past three months.
Strength among a few of these ETFs have been fueled by more robust positive breadth than others, making them a more attractive targets for buy-the-dip action. The following three are our current favorites: