The Ultimate Buy The Dip

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In his Daily Market Notes report to investors , while commenting on the ultimate buy the dip, Louis Navellier wrote:

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Q4 2021 hedge fund letters, conferences and more

GrizzlyRock Value Partners was up 34.54% net for 2021. The fund marked 10 years since its inception with a 198% net return, resulting in an annual return of 11.5%. GrizzlyRock enjoyed 14.8% long alpha against the S&P 500 and 26.9% against the Russell 2000. Q4 2021 hedge fund letters, conferences and more The fund's short Read More

• 1. Market Rollercoaster: Buy The Dip
• 2. Retest or Capitulation
• 3. Nibble on Quality
• 4. Coffee Beans

Yesterday's market move was the ultimate“buy the dip.” Opening deeply in the red, by late morning the sell-off was one of the worst down days since shortly after the pandemic began. Most troubling was that there was no clear catalyst of such a severely bearish move. The NASDAQ was down nearly 5% at the bottom, the Dow down 1,150 points. Then the entire market executed a sharp u-turn in the early afternoon and all the Indexes finished the day in the green, much to the surprise and relief of investors.

We witnessed the biggest same-day rebound of the Dow since March 2020, the biggest recovery of the NASDAQ since 2008. That's what the market is stewing on today; those prior volatility records were the fear of the start of the Covid pandemic and the upheaval of the Great Recession, two hard facts driven shocks to the economy.

The current circumstances are far less dire, even encouraging as the US and global economies look forward to reopening and debottlenecking post-pandemic. The primary risk the market is struggling with is the uncertainty of the equilibrium of interest rates and inflation going forward, and the resulting impact on earnings multiple valuations, after the Fed first stops and then pays back the massive monetary support deployed for the pandemic, support that led to record stock market levels and even home prices. This uncertainty of what the new equilibrium will turn out to be won't be solved in the next few weeks or even months, even if the Fed stays on its current declared path.

What yesterday demonstrated was that buyers are standing by for opportunities . Today we will begin to find out if yesterday's bottom will be tested again in the near term, or if the capitulation trade is already over. Either way, we should be near the bottom, though of course, no one should realistically expect to time the bottom with any precision. There may be some hope that the Fed will backpedal its rhetoric tomorrow, though it's probably best, in the long run, to rip that monetary bandaid off sooner rather than later.

It's time to start nibbling on quality names; stocks are on sale, bonds will only get cheaper and yet will still be offering negative real yields (purchase yield less inflation), and there's no recession on the horizon . Keep dry powder handy as we go through earnings season (100 earnings will be announced this week alone) which has been generally produced unimpressive responses so far, in order to make better-informed investment decisions on sector and individual name outlooks. Buckle up; this won't be a smooth ride. The better opportunities rarely are.

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Updated on Jan 25, 2022, 12:34 pm

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