Proceed With Caution, and Buy When You See This Signal

This is the first real test after big believers jumped on board.

A few weeks ago, I entered the “belief phase” of stocks; just like many others.

And I firmly believe we are in a “buy the dip” era.

As of now, any dip will get bought up and fast.

This new theory of mine - that we are in a “buy the dip era” - is being put to the test right now. The market has sold off, and I will be looking for signs to buy.

How to Buy the Dip

The Volatility Index (VIX) is trending up, and it’s a great indicator of when to buy.

Understanding the Volatility Index is imperative to timing the market.

So when do you buy? When the VIX exceeds its Upper Bollinger Band. In almost every instance, the market rallied when VIX extended beyond the Upper BB on the daily chart.

As you can see, we are NOT quite there yet, which means prices could go lower before higher. But once VIX retreats (preferably intraday) from the highs, that’s a good time to go long stocks.

Strategy to Buy the Dip: Buy Into Fear

Save for any dramatic news to markets, expect investors to buy the dip. Wait for VIX to exceed the Upper Bollinger band, only to retreat. Intraday reversals are amazing trade set-ups.

Peak Fear is evident in the chart above (every red arrow). Sell fear when you see it at these extreme levels (i.e., buy stocks).