Will buyers return on market dips?
Stocks continue to climb into February after an impressive rally in January. Since the beginning of the year, stocks have rallied across the board, including Nasdaq 100 Index (NDX +17.17%), Nasdaq Composite Index (COMPQ +16.62%), S&P 600 Small-cap Index (SML +12.38%), S&P 400 Mid-cap Index (MID +11.54%), S&P 500 Index (SPX +8.89%), NYSE Composite Index (NYA +5.72%), and Dow Jones Industrial Average (INDU +3.08%).
The above year-to-date returns show the laggards from last year (i.e., Nasdaq, Small, and Mid-caps) dramatically outperforming the leaders from last year (i.e., INDU, NYA, and SPX).
Does this suggest this is a new bull market?
Many on Main and Wall Street continue to be bearish. It may be a good idea that there is an abundance of bearish sentiments.
Why? Bullish or up-trending markets are sometimes said to climb a wall of worry. Stocks continue to rise despite the lack of positive news and numerous economic uncertainties, macroeconomic concerns, and corporate news.
Are the problems of inflation, the Ukraine/Russian war, Fed tightening, China concerns, and others only temporary?
Geopolitical, macroeconomic, and corporate news will continue influencing the stock market. Good and bad news will drive investors and traders in and out of the stock market. Market volatility will continue throughout the year.
Market pullbacks and corrections are regular occurrences, even during structural bull trends. It is difficult to know the magnitude and duration of these market declines.
However, a common aspect of all corrections, whether shallow and brief or deep and prolonged, is sustainable recoveries require buyers to return on stock market dips.
Higher lows and higher highs are often the trademarks of a solid market bottom. Also, a sustainable bull market will show constant and persistent dip-buying on pullbacks.
Buyers who missed the rally will return to buy on previous breakout levels, key moving averages, trendlines, gap-ups, pivotal retracements, etc. Finding support at these critical levels can reaffirm a trend change, possibly leading to the resumption of the structural uptrend.
Enclosed are stock market indexes and pivotal supports on pullbacks.
SPX: Initial support resides near the 2/1/23 breakout at 4,101. The 50-day and 200-day moving averages at 3,962 and 3,947 offer pivotal support on pullbacks.
INDU: The 50-day ma at 33,660 offers near-term trading support. The 12/22/22 low at (32,573) and a higher low on 1/20/22 at 32,949 provides secondary support. The 200-day ma at 32,327 remains intermediate-term support.
COMPQ: The 1/27/23 breakout above 11,547-11,613.5 suggests this will be critical initial support. The 200-day ma at 11,452 and the 50-day ma at 11,053 also offer secondary support on pullbacks.
NDX: The 1/27/23 breakout above 12,115-12,166 turns into pivotal initial support on pullbacks. The 50-day ma (11,947.5) and 200-day ma (11,568) are secondary support.
NYA: The 1/12/23 breakout above 15,819-15,854 provides initial support. The 1/19/23 low (15,504) and 50-day ma (15,555) are secondary support. The 200-day ma 15,064.5 is intermediate-term support.
MID: The recent 1/26/23 and 1/31/23 breakouts above 2,646 and 2,599-2,601, respectively, turn into formidable support on pullbacks. Secondary supports are also available at 2,505 (1/19/23 low) and 2,526.5 (50-day ma). Intermediate-term support remains at 2,442, corresponding to the 200-day ma.
SML: The 1/31/23 breakout above 1,246-1,252 turns into pivotal support on pullbacks. Additional support is 1,188-1,210 (1/19/23 low, 50-day ma, and 200-day ma).