Now What?
Igor Manukhov - May 03, 2024
Short term correction in a bull market tends to be the best time to buy. Focus on long term.
A few weeks ago, I sent out a brief overview of the market selloff and where things could go from here. I wanted to circle back on that topic and provide an update on what happened, what to expect, and most importantly, what to do about it.
At present time, the market is trading below its 50-day moving average (the black line is below a flattening green line). In addition to that, the Relative Strength Index (RSI at the bottom panel) is below 50. That is the first sign that this market is taking a breather. At the same time, the 50-day moving average (green line) and the market itself (black line) are trading above rising 200-moving average (pink line). That is a sign that the longer-term bull market is still intact. 10% corrections during bull markets are not uncommon. We had one back in September of 2023 (blue circle). It lasted until the end of October and was followed by one of the best 5-month rallies since 2009.
History does not repeat itself precisely, but if we are in for a 10% correction, it might take us down to 4700 – 4800 level, which is only 5-7% down from here. If we get there while the RSI is near 30 or below, I would recommend buying.
