Study: the stock market's "buy the dip" mentality is bullish for stocks


The U.S. stock market’s “buy the dip” mentality is very much still alive. The S&P 500 gapped down significantly on yesterday’s open, but then rallied for the rest of the day.
In other words, the S&P opened below the previous day’s LOW and closed above the previous day’s CLOSE. This is called a bullish engulfing pattern.
Here’s the S&P 500’s bullish engulfing pattern.

Here’s the NASDAQ’s bullish engulfing pattern.

The S&P 500 has only made 11 other bullish engulfing candles before. Here’s what happened next to the stock market.

Click here to download the data in Excel.

Conclusion

As you can see, bullish engulfing patterns = a medium term bullish sign for the stock market. When this happens, the S&P 500 tends to go up in the next half year.
There were 2 loss cases (2007 and 1983), and both of those losses were small (-2.5%).
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