When to “buy the dip?”

Some "morning crash" musings on my portfolio, plus another triggered sell.

By Travis Johnson, Stock Gumshoe, August 24, 2015

When looking into “buy the correction” ideas, a key problem is getting your head around when a stock has finally “blown off” any excess valuation — fundamentals aren’t falling for most stocks, at least not for the stronger, growth-oriented names in the market, but the stocks are falling anyway… why? Well, obviously we have the external factors that freak everyone out — primarily this fear that China’s stock market collapse and the next wave of “currency wars” mean that the real economy in China will crash and bring down with it all the companies who are relying on China to supply growth (Apple, Starbucks, etc.) — but there’s no indication of real problems with the results of any of these companies in China.

As you probably noticed, Apple CEO Tim Cook even went so far as to “go public” by emailing Jim Cramer about the fact that their fundamental business performance in China, as of this month and last month, is still strong and growing… that seemed to help the stock avoid a complete washout this morning, since it was prepping for another huge loss in premarket trading and briefly was down by more than 10% right at the open. Like the broad market (of which it is the biggest driver) AAPL stock bounced back quickly from that crazy open where the rush of weekend panicked “sell” calls to brokers took half an hour or so to absorb (AAPL was down by well over 10% for a few minutes before bouncing back).

But we won’t get that kind of detail or reassurance from most companies over these next weeks, so how do we ground ourselves and think about the price of those stocks you’ve wanted to own for a long time but couldn’t buy because they were too expensive? I’ve been going through stocks that I’ve long wished I had substantial long-term positions in, like Starbucks and Disney and Boeing, and in every case the stock chart gives a pretty clear indication right now, as the market is seemingly in free-fall, of a share price that is just making up for the fact that it “got ahead of itself” in outpacing revenue and earnings growth.

I’m not a technician and I don’t rely heavily on charts, but I think these are interesting — revenue, net income, and stock price changes over five years, all expressed in their percent ...

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