If the essence of stock investing is to buy low and sell high, then buying not just low, but at a steep discount, optimizes your potential returns. This strategy is what’s popularly called “buying the dip.”
Aside from avoiding falling knives, buying the dip as a general approach requires three things:
- Finding tools to identify a broad range of declining stocks.
- Selecting only those strong stocks on the verge of rebounding.
- Formulating a market entry setup.
This article covers the first two steps, though I’ll guide you through all three. I’m emphasizing the first two because there are numerous tools—more than I can cover in a single article—to help you identify a wide range of tradable stocks.
Finding Declining Stocks Amid a Rallying Market
As the markets recovered on Wednesday from a steep two-day decline, my first step was to check the Market Movers tool on my Dashboard to see which stocks were getting hit the hardest.
FIGURE 1. MARKET MOVERS % DOWN. Crowdstrike took the top spot for the biggest percentage loss on Wednesday morning.
Crowdstrike (CRWD) was the biggest decliner, down at the time by nearly 9%. To get a broader picture of the sector action, I switched to MarketCarpets’ tech sector view. It turns out that CRWD was the worst-hit stock amid an otherwise mostly greenish landscape.
FIGURE 2. MARKETCARPETS TECH SECTOR VIEW. This tells you that CRWD was among a few tech stocks experiencing a significant drop, while others were potentially rebounding.
If you check the StockCharts’ Symbol Summary page, you can see CRWD’s earnings and revenue history. While the company recently missed earnings estimates despite beating revenue expectations, the real driver behind the decline was weak earnings guidance.
Let’s switch to a weekly chart for a broader view of CRWD’s price action.
FIGURE 3. WEEKLY CHART OF CRWD. Despite the two sharp drops, the broader trend, which is bullish, is still intact.
CRWD’s uptrend began in 2023 but tumbled sharply in July 2024 after a faulty software update triggered a global IT outage. The stock rebounded later that month, rising sharply only to fall again in February due to disappointing fiscal guidance, insider selling, regulatory scrutiny, and broader macroeconomic concerns that pressured growth stocks.
Nevertheless, the uptrend, as volatile as it is, remains arguably intact. Using the Bollinger Bands® to gauge the trending action, you can see that CRWD has fallen below the middle band to rebound (you see this on the daily chart) at $340. Traders found this to be a favorable spot for entry, and I’ll show you why in the next section when analyzing the price action from a closer perspective.
Meanwhile, CRWD’s StockCharts Technical Rank (SCTR) score remains above 70 (my strength indicating threshold) though falling below the ultra-bullish 90-line. What does this look like from a broader sector perspective? Relative performance shows that CRWD is outperforming the broader tech sector (represented by XLK) by over 36%, though its lead has narrowed.
Let’s switch to a daily chart to see the price action up close.
FIGURE 4. DAILY CHART OF CRWD. Accumulation appears sharp, despite the dip.
The current pullback can be effectively measured by historical support, as shown by the green highlight and a Fibonacci Retracement from the August (2024) low to the February high. I included both since traders may analyze them separately or together, especially as their proximity suggests a potential convergence.
As you can see, bullish investors jumped in at the support level of $340, though, technically, a decline to the range between $300 and $330 would still be considered a favorable dip for those looking to go long. After the initial bounce, price appears to be falling back toward $340. If it drops below the green support range, expect a deeper pullback toward the 50% and 61.8% Fib levels.
The Relative Strength Index (RSI) has declined and, although it isn’t signaling oversold conditions, if CRWD does recover soon, the indicator suggests there’s plenty of room on the upside to run (though momentum doesn’t appear to be picking up yet).
On the volume side of things, the picture looks brighter. The Chaikin Money Flow (CMF) has declined slightly but still indicates strong buying pressure. But what pops out is the Accumulation/Distribution Line (the orange line overlaid on the price chart). While the price was falling, this ADL was rising, suggesting that buyers might have been absorbing shares sold by weaker hands.
At the Close
Although I took a deep dive into CRWD, the main takeaway here is how I used Market Movers and MarketCarpets to spot potential buy-the-dip opportunities. These tools help identify stocks experiencing sharp declines while also providing a sector-wide perspective to gauge their position among peers.
If you’re looking to widen your dip-buying strategy, test these tools under different market conditions and across various stocks and sectors. The more you use them, the better you’ll become at distinguishing between a real opportunity and a falling knife.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
