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Buying the Dips Is Alive and Well

Nearly 63% of down SPY ETF days in last 252 days were followed by up days. The maximum was close to 68% in the golden times of “buying the dips” in the start of 2017. Also, a FAANG stock where “buying the dip” has had a dominant effect.

In this article “buying the dips” is associated with reversals from a down day to an up day. There are many other definitions of “buying the dips”. The daily chart below shows the percentage of down days followed by up days in a 252-day rolling window since SPY inception.

The maximum ever was 67.56% of down days followed by up days in early 2017 when “buying the dips” was dominant phenomenon and constantly mentioned in financial social media. The current reading is 63.1%, which is much above the mean of 56.61% since inception. Therefore, “buying the dips” is alive and well. It is also the main mechanism that enforces micro mean-reversion in daily returns to the upside.

As a comparison, below is the same indicator in AMZN.

Note that despite the strong uptrend in this stock that accounts for a large percentage in the gain of S&P 500 year-to-date, the percentage of down days followed by up days is just 50.9%. For this stock, the gains come mainly from up days followed by up days to the tune of 64.9% in a 252-day period, which is an all-time high, as shown below.

This is not surprising at all. Now take a look at FB.

After 2016, the percentage of down days followed by up days has stayed above 56%, which is quite unusual. Actually, in no other FAANG, or even Dow, stock this is the case. This means that investors have been buying consistently down days in FB.

I hope you found this analysis interesting.


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