After falling for nearly seven sessions straight, the market roared in what was a big day for bulls. The Dow, S&P, and Nasdaq Composite rose 5.09%, 4.60%, and 4.49%, respectively. It was the biggest single-session gain for the Dow since 2009.
That doesn’t mean the coronavirus is contained. Nor does it mean the economic impact of the outbreak will be any less severe.
But today’s lift may have signaled the start of a post-dip rally.
A rally that investors are ready to “panic buy” less than one week after they “panic sold,” most likely around the same price.
And for the “buy and holders” who bought during the last significant dip (back in October 2019 when the trade war sent stocks lower) a portfolio “fire sale” last week would’ve slashed their returns via capital gains taxes.
All while short-term traders went short on stocks that absolutely cratered.
Analysts are now telling investors to resist the urge to buy. Last Monday, they said “buying the dip” was a good idea right before the market plunged.
This time, they’re not so convinced that the correction is over.
“I wouldn’t put too much into this,” Peter Cardillo, chief market economist at Spartan Capital Securities, said.
“Although I think we’re getting close to putting in a bottom, I still think we need to drop another 2% to 3% to have some sort of capitulation.”
Other analysts, like GLOBALT’s portfolio manager Keith Buchanan, sees investors as overly bullish.
“The market has been conditioned to buy on any weakness. I think we’ll look back at these past few years at some point as some level of complacency,” he said.
“Buying the dip takes more bravery now.”
Making the bold decision to “sell the dip” last week turned out swimmingly for short-term bears. Buying tomorrow, as scary as it may be, could be a no-brainer.
For a few specific stocks, at least.
Take Alibaba Group (NYSE: BABA), for example, a company that managed to stave off a major coronavirus slump.
In the daily candlestick chart above, you can see that BABA, despite falling last week, didn’t completely sink. In fact, the stock managed to set a double bottom on Friday (and hit the lower Bollinger Band), which typically forms before trend reversals to the upside.
And today, BABA broke out above its minor bearish trend (represented with the yellow trendline). If BABA trades above today’s high, it might make sense to go long on the stock with a trade trigger of $212.17.
Even if the market doesn’t rally over the next day or two, BABA still has a shot at rising. The technical indicators are there to suggest that a descent below the double bottom is unlikely.
And, if the market does go higher, BABA would be poised to soar.
Potentially to a higher high.
