Stocks recovered on Friday from their biggest selloff of the year, and market watcher Nick Colas has a suggestion for investors who may be anxious about another pullback.
Convergex's chief market strategist suggested that instead of running away from the market whenever stocks fall, investors should instead keep buying the dips until a sudden 2 percent drop. In a note released Thursday morning, Colas mentioned that if investors are wondering if it's safe to buy another dip in the market, they only need to look for three key trends.
"[We would have to see] more of the same of what we've seen over the past couple of days that led to [Wednesday's] selloff," said Colas this week on CNBC's "Trading Nation."
First, the CBOE Volatility Index (VIX) needs to remain below 20. The so-called "fear index" plunged after Donald Trump's election victory in November, and has since stayed low —even hitting its lowest level in over 20 years earlier in the month.
Second, the tech rally needs to continue. The tech sector has been the main driver of the market's stellar run this year so far, and Colas believes that as long as the big tech names like Amazon, Facebook and Alphabet, to name a few, can hold on, the market should be on its way up again.
Finally, Colas also believes that as long as consumer stocks continue to outperform, it would be an indication that the market still has momentum to move up. However, Colas also emphasized Thursday political drama could still derail the rally in the long run, with investors beginning to fret whether President Donald Trump will have the political capital necessary to press ahead with his agenda.
"A kind of churning news cycle about Russia, and the FBI, and Trump...begins to take confidence out of the market that we will get tax reform in 2018," Colas said.
Even with political turmoil out of D.C., there's no question in Colas' mind that until that sudden 2 percent drop happens, buying every dip in the market would be an ideal strategy.
