Yesterday, for the first time in 14 trading days, the stock market dropped.
The bad news? This drop isn’t over yet. There’s more short-term pain to come.
The good news? When all is said and done, this drop will be short and small.
And the best news? We’re confident that in the next two to three weeks, this incoming drop will offer the buying opportunity of a lifetime.
That’s the conclusion of our latest technical work, which we think provides the best guide for what may happen to stocks in the short term.
Here’s the situation…
This Stock Pullback Is an Opportunity
We’re in a new bull market, and stocks will go meaningfully higher over the next few months and even years. But stocks don’t go up in straight lines, not even in bull markets. And currently, the market is overheated. It needs to consolidate a bit. After that pullback, we can take the next leg higher in this rally.
The S&P 500 has now closed more than 4.5% above its 50-day moving average for 12 straight trading sessions. And in fact, during that stretch, the market’s relative strength index has never dropped below 67.
In other words, we’ve gone through 12 consecutive trading sessions wherein the S&P 500 traded more than 4.5% above its 50-day moving average and reported an RSI of 67-plus.
Those are incredibly extended technical conditions. It turns out they are pretty rare, too. Indeed, since 1968, we’ve only seen similar technical conditions 21 times before.
Now, here’s the important part: Whenever we see these uniquely extended technical conditions, stocks usually retreat over the next month, then soar over the next one to three years.
Specifically, around 76% of the time, stocks dropped in the month after the market hit these exact extended conditions. The average size of the pullback? Just over 2%.
More than 85% of the time, stocks rose over the following year, for an average return of 16%. And more than 95% of the time, stocks were higher three years later, with an average return of 27%.
In other words, the data says that when the market hits the same stretched conditions it hit yesterday, stocks tend to drop about 2% before rallying big over the next one to three years.
The investment implication?
Let stocks drop over the next few weeks. Then, buy the dip with confidence.
The Final Word
But make sure you buy the right stocks going forward.
One great prospective investment is the very company that started this whole stock boom – OpenAI, the creator of ChatGPT.
Since ChatGPT’s launch in November 2022, the company’s valuation has already doubled!
But that’s just the start.
I truly believe OpenAI could be one of the world’s largest companies in the near future – if not the largest.
OpenAI represents the potential investment opportunity of a lifetime.
Too bad it is a startup that you can’t buy on a public exchange like a big stock.
Though I did unearth an investment “loophole” that allows you to take a stake in OpenAI now – before its highly anticipated IPO.
This is your chance to invest in the next big thing. Like investing in Apple (AAPL) in the 1980s or Amazon (AMZN) in the 1990s, this is an opportunity you can’t afford to miss.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
