Days like today, when futures had indicated a much lower opening for the major indices, suggesting that stocks will trade lower all day, are worrying when we are at all-time highs. However, as I pointed out yesterday, they are part of a long-running pattern and should be viewed in the context of support offered by continued easy monetary policy. The point I made yesterday was that unless something dramatically changes, investors should be buying the dips.

Obviously, that advice prompts the question of what to buy, and in that regard, the answer isn't quite so simple this time around.

If you look at the above chart for the S&P 500 so far this year, the "dip and recover" pattern is obvious, but in general, it looks as if stocks have been in a steady upward grind all year. What that hides, however, is some significant swings in both styles and sectors. We have seen a rotation out of growth stocks and tech and into more cyclical value plays, then a rotation back the other way again. We have seen previously underperforming sectors such as traditional energy and financials soar, while some things that outperformed in the second half of last year, such as solar stocks and biotech, have pulled back.

Given that, buying a broad market ETF such as SPY is still an option but to maximize the opportunity and minimize the risk of a “buy the dips” strategy, but it may pay to be a bit more selective.

If you look at the reasons for underperformance for some of the Year-to-Date laggards it is, more often that not, a microcosm of the reasons for worry on these corrections. It was clearly the view of traders that the strength we saw in those areas in the second half of last year had been a bit overdone, with a lot of potential good news priced in. That is how a lot of people feel about the market in general at this point, and yet we keep grinding higher. The longer that continues, the more it looks like it is the fear that is overdone, not the optimism. And the more that is the case, the more likely it is that the first stocks to reflect that fear will be the first to bounce back.

That means that buying those laggards offers more upside potential, but it also reduces risk in some ways. The very issue that is causing a selloff has already been accounted for in industries such as solar and biotech, so if the downward trend does turn out to be more sustained than I think it will, the negative impact should be less pronounced in those areas.

So, that is where I will be looking for bargains in this pullback.

White it will pay to look beyond broader markets and concentrate on specific industries and styles in that situation, drilling down any further than that would not be a good idea. The idea here is to increase potential but also to control risk, and industry ETFs will do that better than individual stocks. Solar stocks can still benefit from changes to energy policy made by this White House, even if some individual companies have problems monetizing opportunities. And the biotech industry as a whole can grow, even if some individual companies face setbacks with specific therapies.

That is why I prefer ETFs and I would use the larger, better known funds in this instance; things like TAN (top chart) for solar power and IBB (bottom chart) for biotech.

As I said, buying an index tracker is still a viable option, and it is also never wrong to allocate some capital to proven mega-cap growth stocks with a tech-y edge like Apple (AAPL) or Alphabet (GOOGL). However, the aim of buying the dips is to find value. Even if you don’t want to go all in on buying the dip, allocating some funds to this strategy might juice returns and lower risk in your portfolio, and should therefore be considered.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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