Another stock market dip ahead, BofA tells investors to buy

Source Cryptopolitan

Analysts at BofA noted that stocks have fallen in recent days because of worries over the U.S. budget outlook. They see the S&P 500 as overbought and likely to pull back again soon, but they say any drop is a buying opportunity.

On May 16, the S&P 500 hit a TD Combo sell signal, a technical sign that a short-term fall may follow. The analysts wrote on Wednesday that its relative strength index, a tool that measures how fast prices are moving, also points to a pullback. “The S&P 500 isn’t moody, just a little overbought and wary of rates. Dip due, buy it,” they said.

Business Insider reports that BofA sees solid support for the S&P 500 at about 5,580, roughly 5% below its current level. If stocks slide to that point, buyers would get in at a lower price. On the upside, the analysts expect the index to rise back toward 6,000 to test its record high and even reach 6,266 later this year.

Stocks seem to follow the 2015 – 2018 trajectory

The bank said there are two main reasons that could push stocks higher. First, the market’s path looks a lot like what happened from 2015 to 2018, closely after a presidential election. At that time, stocks gained about 7% before peaking.

Another stock market dip ahead, BofA tells investors to buy
S&P 500 chart. Source: Google Finance

Back then, the S&P 500 later fell around 10% in 2018 from its post-election peak. “If this plays out in 2025, the SPX could hit 6,266 this summer. As Newton’s third law says, for every action there is an equal and opposite reaction,” the analysts wrote.

Second, there is an increasing number of winning stocks as compared to losing stocks. Over 50% of S&P 500 stocks now trade above their 200-day simple moving average, a sign that gains are spreading across the market.

So far this month, the S&P 500 is up, wiping out its losses from the start of the year. However, it has slipped over 1.6% today and has been since last Friday, when Moody’s cut its U.S. debt rating and raised fresh worries about the growing budget gap.

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