If you are a regular reader of Money Morning Buzz and our daily 3 Stocks to Watch article you’ve no doubt heard the term “Buy the Dip”. The represents a simple and usually effective approach to buying stocks that are in long-term bull market trends.
"Buying the dip" is another way to say purchasing a stock after it's fallen in value. As the stock's price "dips" it may present an opportunity to pick up shares at a lower price with the goal of increasing your future gains, when the stock rebounds to continue its rally.
The concept is a well-known strategy, especially in markets that are at all-time highs, like we’ve seen in 2024.
We’ll look at NVIDIA since the stock is one of the most popular “buy the dip” names out there.
Let’s just say that I’m an investors that decided that I want to own 300 shares of NVIDIA after the company hit new all-time highs in March, but I don’t want to buy at those highs.
This is where a “buy the dip” strategy would be ideal.
The week of March 4, shares were trading just below $100 at $97. You could simply purchase the stock at that price and then hold through today and your investment would currently be worth 34.7% more than you paid.
But let’s say that you hold off on buying at the highs and instead draw a line at the price where you want to buy the shares on a dip.
You’ll need to determine how much of a “dip” you want the stock to make before you buy your 100 shares. That is usually determined by the volatility of that stock.
In NVIDIA’s case, the stock averages multiple 20% declines in an average year as the stock is one of the more volatile in the Nasdaq 100. Fortunately, investors are always looking for opportunities to buy the dip on NVIDIA, 20% is a fair target price for a dip.
If you used that target – to buy the dip after 20% - you would have targeted a price of $77.60 back in March.
A little over a month later, on April 19, NVIDIA indeed dropped to that price and a little lower, activating your “Dip Price Trigger”. That would have resulted in an investment of $7,760 for your 100 shares of NVIDIA.
Now, fast forward to today. 100 shares of NVIDIA are worth $13,068 at Thursday’s close. The Buy the dip strategy posts current returns of 68% compared to 35% if you had bought the shares at the March highs.
Given the current “froth” in the market, there are several stocks that have been leaders that are currently trading at or near their all-time highs.
Let’s look at a few of the stock that I talk about often here on Money Morning for “Buy the Dip” opportunities and Trigger Prices.
What stock would it be better to start with other than our example stock, NVIDIA? Likely none.
NVIDIA’s shares have already endured a 13% decline from their closing highs of 148.87 on November 7, 2024.
As I already indicated, NVIDIA stock experiences multiple 20% corrections over the span of 12 months. Each of those corrections often serves as a healthy rest for the stock to continue its path higher. We call them “Healthy Corrections”.
Using the 20% trigger for NVIDIA would generate a Dip Trigger Price of 119.09 but we’ll round that up to an even $120.
As it would happen, the $120 price was a critical level that served as a consolidation level for NVIDIA stock as shares traded through the summer. This makes it more likely that the market will see a price of $120 as an opportunity for the stock to post a tradable bottom.
In addition, NVIDIA’s 200-day moving average is currently trading just above $115 in a bullish trend higher. The 200-day is a widely watched trendline, meaning that we’ll see support for NVIDIA shares if they move below our Dip Price Trigger of $120.
Here’s the chart of NVIDIA along with the Dip Price Trigger of $120.
Palantir stock has rallied more than 300% in 2024, making it the top performing stock in the Nasdaq 100 in 2024.
Looking forward to 2025, Palantir looks to benefit from more contracts with the Government and private sector clients. That alone puts Palantir on the short list of stocks that many investors want to own in 2025.
The stock has stubbornly remained in a trading range near its December 6 all-time high of $76.34, but a break below $70 will likely begin a decline that will offer an opportunity to buy Palantir on a dip.
Using 20% as the pullback target, the trigger price to buy the dip would come in at $61.00.
Now, unlike NVIDIA, Palantir has only seen two 20% drops during 2024. One reason for this is that investors are more actively looking for opportunities to buy the dip on this popular stock.
For that reason, you may want to think about setting a10% trigger price at $68.50.
If you want to get a little more active with this strategy, use two trigger prices – 10% and then 20% - and allocate half of your investment at each price.
Here’s the chart of Palantir with both trigger prices.
Shares of Marvell Technology are among the top performers in the technology space for 2024. The stock is trading more than 80% higher in 2024 and ready to continue after the company’s recent earnings report. (link here)
Last week’s earnings sent Marvell to their new all-time highs at $124.78.
This example is a little more interesting that Palantir and NVIDIA since Marvell shares just completed a 15% decline from last week’s highs.
Today, the stock is already trading 5% higher after that 15% drop, indicating that Marvell is a “Buy the Dip” candidate at its current price of $111.00.
Investors that want to get a little more engaged here might consider a purchase at current prices and then another if the stock pulls back again to $100.
Marvell has been known to trade in wide ranges through 2024, so an opportunity may become available at $100.
This is the chart of Marvell with the Dip Trigger Price.
