Wednesday, October 7, 2026

This signal could hit tomorrow🚨

Buy the Dip? Why This Market Keeps Bouncing Back

From The Editor

Managing Editor’s Note: Every four years, something strange happens in the market. Our colleague Jeff Brown calls it “the million-dollar cycle.”

You definitely won’t hear about it on the evening news. Most financial advisors couldn’t explain it if you asked. And yet, like clockwork, it’s shown up again, and again, and again.

Most people don’t notice until it’s already played out. But a small group of investors knows exactly what to watch for. And each time this shift has taken hold, they have had the chance to turn a single $1,000 stake into six figures…

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The 10-year yield just hit a 24-year high, yet the Nasdaq set another record. Here’s why every dip gets bought – and the warning signs to watch.
Larry Benedict
Written by
Larry Benedict
Published on
Oct 7, 2026
Just about every time this market looks like it’s ready to roll over, buyers come charging back in. We saw that again this week.
The 10-year Treasury yield climbed to its highest level in 24 years. Higher yields make it more expensive for tech companies to borrow to fund AI. They also make future profits look less valuable today.
Instead of falling, however, the Nasdaq punched out another all-time high.
This market has an insatiable appetite for buying. Every pullback – no matter the cause – is met with another wave of money looking for somewhere to go.
It’s a powerful phenomenon – you can’t just blindly bet against it because you believe stocks are way overpriced.
But it can also become dangerous when investors start believing that every dip is going to recover…
(If you enjoy this e-letter, I’d be very grateful if you recommended it to a friend. You can click here to forward it. Thank you!)

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Why Investors Keep Buying the Dip
Several factors are driving this relentless buying demand.
Clearly, the first is the enthusiasm around artificial intelligence. Investors still believe tech leaders like Microsoft and Meta can grow fast enough to pay for their huge AI spending.
Then there’s good old fear of missing out (FOMO).
When a market repeatedly recovers from selloffs, traders start to become conditioned to buy each dip. Some traders wait for a bigger drop before buying. Then they watch the market rally without them. So they’re eager to jump on the next pullback.
That can create a self-reinforcing loop. The rally attracts more money into index funds, which then direct those inflows toward the market’s largest companies.
Then, of course, there are options. When traders pile into call options in anticipation of a rally, market makers may need to buy the underlying shares to hedge their exposure. That buying can help drive prices even higher, encouraging others to start chasing the move.
Before long, investors aren’t buying because stocks have become cheaper or their fundamentals have improved. They’re buying because doing so in previous pullbacks has been repeatedly rewarded.

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Respect the Trend, But Don’t Chase It
The biggest trap right now is assuming the market has to fall just because the risks seem obvious.
Sure, Treasury yields are high and rising, stock valuations are stretched, market breadth is narrow, and geopolitical risks clearly remain.
But these factors aren’t enough to trigger a sell signal on their own.
The price action ultimately tells us whether these concerns matter to the market. Until the leading stocks start breaking support and selling pressure gains traction, fighting the prevailing trend can become very expensive.
At the same time, that doesn’t mean blindly buying every pullback simply because the previous ones have recovered.
The danger comes when traders stop assessing each setup on its merits and assume that every dip is another buying opportunity.
I’ll be watching closely how the major technology leaders respond to the next setback. If they break support and can’t bounce back even after the selling eases, that’s a sign buyers may be running out of steam.
Market breadth is also something I’ll keep close tabs on. If the indexes keep climbing while fewer stocks participate, the rally will become increasingly dependent on a shrinking group of companies.
The overarching lesson is to respect the trend without becoming complacent.
Don’t fight the market simply because you believe it appears overvalued. And don’t buy every pullback purely because the strategy has worked multiple times.
For now, the market is swallowing every piece of bad news thrown at it. But that’s not something that lasts forever.
Our job as traders is to look for evidence that buyers are finally starting to lose their appetite – and be ready to act decisively when the price action confirms it.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict

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Air Jordans Won't Ensure a Comeback

This sportswear giant isn't creating the fresh styles that made it special in the first place...
 
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Air Jordans Won't Ensure a Comeback

By Joel Litman, chief investment officer, Altimetry


Sportswear giant Nike (NKE) has reported that sales will shrink a lot more than Wall Street expected...

The company's revenue could fall by up to 9% this fiscal year, which ends in May 2027. Analysts had been bracing for just a 2% drop.

The rest of Nike's earnings report wasn't much better...

Sales in China plunged 26% in the latest quarter – the ninth straight quarterly decline. Nike also announced another round of job cuts.

On top of that, French soccer superstar Kylian Mbappé ended a two-decade partnership with Nike in September. He's pivoting to Swiss running-shoe upstart On (ONON).

In October 2024, Nike brought longtime executive Elliott Hill out of retirement to take over as CEO and fix the business. That was supposed to be the start of a comeback.

Instead, Nike's market value and earnings both plunged by more than half.

The headlines focus on China and Nike's job cuts. But more importantly, the company isn't creating the fresh styles that made it special in the first place.

If that changes, Nike investors could get a real bargain in today's market.

A strong brand is one of the best advantages a business can have...

Folks will pay up for sneakers with the iconic Nike "Swoosh," even when a cheaper pair is made from similar rubber and foam.

Both sneakers cost about the same to make. But Nike's famous brand allows it to charge higher prices. That's what made Nike so profitable for decades.

Its Uniform return on assets ("ROA") topped 20% nearly every year from 2011 through 2024. And it still reached 28% in 2024. For reference, the U.S. corporate average is about 12%.

Then, Nike made a bad business move...


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Under former CEO John Donahoe, Nike pulled back from wholesale partners – like Foot Locker and Macy's (M) – to sell more products through its own stores and website.

It also leaned on the same handful of sneaker styles instead of launching new ones. For example, Hill admitted that the company has been churning out too many of its classic Air Jordans.

When shoppers stop lining up for a sneaker, the only way to sell it is to mark it down. And a brand that needs discounts to move its products isn't commanding a premium anymore.

Nike's Uniform ROA fell to 16% in 2025 and 15% in 2026... just above the corporate average.

GlobalData managing director Neil Saunders put it plainly when he spoke to Reuters. The cost cuts may help margins, he said, but they don't fix the "brand problems that are [causing the] decline."

The market is betting that Nike will remain stagnant...

We can see this through our Embedded Expectations Analysis ("EEA") framework.

The EEA starts by looking at a company's current stock price. From there, we can calculate what the market expects from the company's future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

Analysts expect Nike's Uniform ROA to slip to 9% this year, and then recover to 12% by 2028. The market is pricing in slightly lower returns of about 11% through 2031. Take a look...

In other words, investors are betting that Nike will remain an average business for the long term... earning less than half of what it did for most of the past 15 years.

Nike's fate is in its own hands...

If Elliott Hill can revive the brand and Uniform returns bounce back to 20%, today's NKE stock will look like a steal. If he can't, investors are paying a fair price for an ordinary company.

Right now, there's no proof that Nike's business strategy is working... Sales in China are still shrinking, and Nike is still cutting back on Air Jordans to stop the discounting process.

But don't buy Nike shares just because they're down. Wait for signs that the brand is restoring its value...

That means fewer markdowns, full-price sales growth, and a Uniform ROA that exceeds the corporate average.

Regards,

Joel Litman
October 7, 2026


 

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