The Technicals Say It's Time to Buy This Stock Dip

 

Since late July, the stock market has been in free fall, dropping as much as 8% in what matches its biggest correction of the year. 

But yesterday, some major technical signals were triggered. And they collectively suggest that stocks have hit a bottom – and that it is time to start aggressively buying this stock dip.

Analyzing This Stock Dip & Its Bullish Technical Setup

For starters, the S&P 500 is now closing in on its 200-day moving average. Last night, the index closed at 4230. And its 200-day moving average sits just above 4200. 

Back in March of this year, the S&P 500 commandingly retook its 200-day moving average. And this is the first time since then that the market has fallen back to the 200-day. 

That’s a bullish technical setup. 

Typically, the 200-day moving average serves as a very solid line of defense during selloffs. That is, stock market corrections tend to bottom at the 200-day moving average. Therefore, this one should prove no different.

Meanwhile, the S&P 500 has also dropped to its major “new bull market” support line. 

Following 2022’s nasty bear market, the market then finally bottomed in October of last year. And since then, stocks have surged higher in a very clearly defined uptrend channel. With yesterday’s selloff, the S&P 500 has dropped to the bottom-side of this channel. 

The last time the market dropped to the bottom-side of this channel? Back in March 2023 – right as the February stock market selloff was ending and right before stocks surged higher from April to July. 

That suggests that stocks should bounce here.

Major Incoming Support Will Help Stocks Move Higher Now, the final big support line coming into play for the markets is 4200.  This level consistently served as a ceiling for stocks in the first few months of 2023. Throughout January, February, March, April, and May, the market tried to break above 4200 several times – but was never able to do so.  Then, in June, the market soared above that ceiling.  Now the S&P has fallen back to 4200. And typically, in healthy markets, former resistance turns into support.  We think it is likely that the former 4200 resistance level now turns into a new support level. Furthermore, the stock market should also receive support here from oversold conditions.  Yesterday, the S&P 500’s relative strength index (RSI) dropped to 28, and readings below 30 are considered oversold. More importantly, though, this marks the second time the stock market has dropped into oversold territory in two weeks.  It’s a “double-dip” to oversold conditions. The last time the market experienced double-dip oversold conditions was in October 2022 – when stocks bottomed in that nasty bear market.

The Final Word on Buying This Stock Dip In other words, while stocks have been in free fall for the past eight weeks, major technical support finally showed up to the party yesterday.  That technical support should prove viable. Stocks should bottom around here, and a massive countertrend rally should follow.