The stock market suffered a big drop on Friday.
The Dow Jones Industrial Average fell 279 points... the S&P 500 had 29 points erased... and the Nasdaq saw 55 points vanish.
This has many folks wondering if the bull market is over.
It isn't. Not yet, anyway...
The bull market that started in March 2009 is now six years old. That's an aging bull market by just about any measure. And when you consider we've gone the past three years without so much as a 10% correction, it's reasonable to expect that each big decline could be the start of the next bear market.
Make no mistake about it. We're close to the end. But this old bull market still has at least one more rally left in it. So the big drop that happened on Friday may be our last chance – for a few years – to "buy the dip."
You see, March and April are seasonally bullish months for the stock market. And even after Friday's large decline, price momentum remains bullish. On Friday, the S&P 500 was only down 2.4% from its all-time high. That's hardly a reason to start running for the exits, let alone to start betting aggressively on the short side.
After Friday's drop, many technical indicators are also reaching extreme oversold levels.
And while the decline did cause some technical damage, it wasn't enough to change the overall trend of the market. Take a look at this chart of the S&P 500...
The chart is tracing out a giant rising-wedge formation. Resistance is at about 2,135 and support is near 2,050.
But we're a long way from seeing the apex of the wedge. It's going to take a few weeks of back-and-forth action to bring the support and resistance lines together and create the potential setup for either a breakout or breakdown from the pattern.
The most recent rally never made it up to the resistance line at 2,130. So we're probably not going to get a move all the way down to support at 2,050-ish to set the stage for a bounce.
It's more likely that the S&P 500 will find support near the 50-day moving average (DMA) at about 2,063, and then bounce. And with the seasonal bullishness typical of this time of year, we'll likely get one more move up toward the resistance line of the wedge before this bull market finally ends.
Also... notice how there was no negative divergence on the Moving Average Convergence Divergence (MACD) momentum indicator at the most recent highs. This tells us the uptrend is strong and any pullback is a buying opportunity. If, on the next rally attempt, the S&P 500 manages to make a higher high but the MACD indicator makes a lower high, we'll have the negative divergence necessary to indicate a final top is in place for the broad stock market.
That's when we can take some aggressive short positions.
Right now, there are better trades on the long side as the S&P 500 approaches support. That's where I'm looking to buy in anticipation of a short-term bounce.