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Time to buy the dip again?

Is the market telling us to buy the dip again? If you are a subscriber to our newsletter, last week I posted my expectation about the market sliding further down due to technical damage to the chart. My expectation was to reach a 200-day moving average at a 4,150 level (or around it). My exact target was $4,230. But overall, I was still bullish about this market. I wrote:

“We still need to put this selling into perspective. This is just a pullback in the context of a secular bull market and that is completely normal behavior. To determine whether you should respect this selling or ignore it, you need to look at earnings estimates. And as you could see […], earnings estimate for the rest of the year and next year are still positive… We are still in a secular bull market and people tend to mix secular and cyclical markets together. They confuse a cyclical bear market with a secular bear market and predict catastrophic outcomes. But it takes time for the secular market to show its end and when it happens, we will be able to recognize it and adjust our portfolio accordingly.”

And here is the chart, I posted in our newsletter:

S&P 500 rebound

Today, we have received some economic reports that changed the narrative, significantly. The jobless claim came in indicating significant improvement in unemployment – 320,000 claims were expected but only 293,000 new claims were reported. On top of that, banks earnings reports topped expectations setting an exciting tone for market participants that the earnings are really still within expectations and beating those expectations (again, something I have been writing in my newsletter for weeks that no one was revising their earnings outlooks yet, only a handful of companies issued warnings due to supply chain issues, but overall, EPS estimates remained same).

This is what the market is displaying today:

S&P 500 buy the dip

After a series of lower lows (LL) and lower highs (LH), the market broke above the downward sloping trend creating its first higher low (HL). It still can fail but the candle is pretty much convincing that we are experiencing a reversal (market up +1.39%). And if more companies come out with better than expected earnings reports, this market will resume its rally. And that is a very high chance of it to happen as I wrote in my newsletter that:

“Heading into the end of the third quarter, 103 S&P 500 companies have issued [positive] EPS guidance for the quarter. This number is above the 5-year average of 100.”

If on Friday, we see a confirmation, it will be a good opportunity to return to the bullish case again and buy the dip.

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