"Buy The Dip" Works Best For Deep Cyclicals & When The LEIs Are Weak

Research evidence excerpt

"Buy The Dip" Works Best For Deep Cyclicals & When The LEIs Are Weak

USA | Chemicals EquityMayResearch17, 2026

"Buy The Dip" Works Best For Deep Cyclicals &

When The LEIs Are Weak

Chemicals are highly volatile, as macro narratives are amplified by lumpiness,

seasonality, and execution risk. "Buy the dip" works, but with a twist: buying

severe sell-offs works better for macro-sensitive cyclical, when the LEIs are

.

under pressure, and when the sell-off is evaluated relative to what is typical for

peers. Commodity chemicals, for example, typically rally ~38% over the year

after a severe sell-off when the global LEIs are negative YoY.

A Simple Approach...: When investors start fresh on January 1, there is one certainty: chemicals

will sell off at some point in the next 12 months. For each chemical company, we identified the

drawdown that happened at least once every year. We identified company-specific thresholds,

and also calculated subsector thresholds as the average of the peers. We then evaluated two

approaches: buying the day each drawdown threshold is hit, and buying every day the drawdown

was more severe than that threshold.

... Improves Results...: Buying dips based on company thresholds improved both average returns

and Sharpe ratios over the next 3, 6 and 12 months. The crossover provides a clean "event" signal,

but returns improve when scaling in over the course of each drawdown. On each time frame using

the subsector thresholds improved average annualized returns 170-380bps: this could be because

the company that tends to sell off the most also tends to rally the fastest, and a selective cyclical

capitulation strategy favors the highest beta proxy.

... Amplified By The Macro Backdrop...: In the near-term, buying dips works better when the macro