The market may be pulling back, but for contrarian investors, that pullback is often where opportunity begins.
Major indexes are only modestly off their highs, but many individual stocks are down 20% to 50%—a disconnect that’s created fertile ground for selective ‘buy the dip’ strategies.”
Asked about what’s driving the current selloff, Jeff Clark of TradeSmith pointed to a sharp shift in market leadership. Last year’s momentum-driven rally, dominated by technology, semiconductors, and artificial intelligence, has given way to rotation. Capital is moving out of last year’s favorites and into areas that were largely ignored.
That rotation, Clark argues, is exactly where contrarian investors should be looking.
Clark believes three stocks are deeply oversold and poised for a snapback—and that investors should avoid one popular trade, at least for now.
A Market Defined by Rotation, Not Collapse
While the S&P 500 remains only modestly below its highs, Clark noted that many former market darlings have suffered far steeper declines. Stocks that investors “couldn’t get enough of” just months ago are now down 30%, 40%, or even 50% in a matter of weeks.
That divergence is a classic setup for reversion to the mean.
Rather than a one-direction market, Clark sees a more two-sided environment emerging, where oversold stocks rebound while previously overextended names cool off. This dynamic, he explained, favors disciplined contrarian strategies over momentum chasing.
“Buy the Dip” Opportunities
On the question of what separates a genuine opportunity from a value trap, Clark emphasized technical extremes.
Using the 50-day moving average as a benchmark, he looks for stocks and sectors trading far below their historical norms. When a security that typically trades 5% to 8% below its 50-day average suddenly finds itself 20% or more beneath that level, the downside risk often becomes limited while the potential for a sharp rebound increases.
That framework led Clark to three specific contrarian ideas.
1. Software Stocks: Oversold to an Extreme
Clark’s first pick may surprise investors who still associate software with last year’s crowded trade.
Software stocks have been “beaten up like crazy,” he said, even as many companies continue to report solid fundamentals. Large-cap leaders such as Oracle Corporation (NYSE: ORCL), ServiceNow, Inc. (NYSE: NOW), and Microsoft Corporation (NASDAQ: MSFT) are all well off their highs, with some trading dramatically below recent levels.
Clark stressed that not every software stock will recover equally, but as a group, the sector appears historically oversold.
A move back toward the 50-day moving average alone could generate returns in the 25% to 30% range over a relatively short time frame.
For investors who don’t want to manage individual positions closely, Clark highlighted the iShares Expanded Tech-Software Sector ETF (BATS: IGV) as a broad way to capture a rebound across the sector.
2. Bitcoin: A Contrarian Setup Amid Capitulation
Few assets illustrate contrarian psychology better than Bitcoin. Clark noted that sentiment has flipped dramatically from last fall, when bullish commentary was everywhere. With Bitcoin now trading near $68,000, far below its prior highs, bearish sentiment has become dominant.
That shift, in Clark’s view, is precisely what makes the setup interesting.
He described the current selling as “exhaustive,” driven by margin calls, forced liquidations, and panic rather than fundamentals.
Historically, Bitcoin rarely trades more than 10% below its 50-day moving average, yet current levels are closer to 25% beneath that mark.
To gain exposure, Clark pointed to the ProShares Bitcoin Strategy ETF (NYSEARCA: BITO) as a straightforward option.
Even a partial reversion toward the mean could produce meaningful gains over the next six to eight weeks.
While acknowledging that Bitcoin could dip further, Clark argued that today’s prices are far more attractive than when enthusiasm was at its peak. His approach: start small, remain flexible, and lean into the fear rather than the hype.
3. Albertsons: A Defensive Contrarian Play
Unlike the prior two ideas, Clark’s third pick is not a bottom-fishing trade.
Albertsons Companies, Inc. (NYSE: ACI) operates in the grocery sector, an area that lagged badly last year but is beginning to show signs of life.
As one of the largest supermarket chains in the U.S., Albertsons trades at a relatively modest valuation and benefits from steady, non-discretionary demand.
Clark highlighted the company’s efforts to improve margins, grow revenue, and expand its customer base, even after a failed acquisition attempt due to antitrust concerns.
From a contrarian perspective, groceries represent a defensive rotation play. As economic uncertainty increases, investors often gravitate toward businesses that sell necessities. Albertsons has already bounced off its lows, but Clark believes there could still be 20% to 30% upside as the sector regains favor.
One Area to Avoid: Gold and Precious Metal Miners
While many investors see gold as a safe haven, Clark offered a clear warning.
He believes the precious metals sector has already put in an intermediate-term peak. Gold and silver mining stocks enjoyed a strong run, fueled first by geopolitical uncertainty and later by public enthusiasm. That enthusiasm, he argued, is exactly the problem.
When gold becomes a popular conversation topic, contrarian investors should pay attention and consider stepping aside.
Clark specifically cautioned against chasing miners such as Newmont Corporation (NYSE: NEM), Barrick Gold Corporation (NYSE: GOLD), and Agnico Eagle Mines Limited (NYSE: AEM), along with silver names like Wheaton Precious Metals Corp. (NYSE: WPM). ETFs such as the VanEck Gold Miners ETF (NYSEARCA: GDX) also appear extended.
Rather than shorting the sector, Clark prefers patience. A pullback toward key support levels and a noticeable shift toward bearish sentiment would create a more favorable entry point.
The Contrarian Takeaway
Across all four views, Clark’s message remained consistent: opportunity emerges when emotion runs high.
Oversold software stocks, deeply discounted Bitcoin, and overlooked grocery chains all reflect areas where pessimism may be overdone. At the same time, popular trades like gold miners can carry more downside risk than many investors expect.
In a market defined by rotation rather than collapse, disciplined contrarian strategies may offer some of the most compelling setups.
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The article "3 Contrarian "Buy the Dip" Picks—and One Area to Avoid" first appeared on MarketBeat.
