After briefly touching bear market territory on an intraday basis, the S&P 500 has rebounded on optimism that the Liberation Day tariffs are little more than a negotiating tactic.
Competing headlines about negotiation progress with China, rumors of trade deals, and statements from President Trump that the full reciprocal tariffs—if and when they’re implemented—won’t be as high as the levels originally proposed have all been enough to stem the bleeding in the market and inspire a general sentiment of cautious optimism.
But for hesitant investors, the question now is, when should we start buying stocks?
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If this ultimately turns out to be a rapid correction that’s quickly reversed because of policy changes, prospective buyers who don’t pull the trigger will have missed out on a brief but significant discount.
But, on the other hand, even the depths of the sell-off failed to bring stocks (especially large-cap stocks) down to “screaming buy” territory.
The Buffett Indicator (the market cap of the Wilshire 5000 to GDP ratio), for instance, remains elevated at 177% (meaning that the Wilshire 5000 commands an aggregate market cap of 1.77x U.S. GDP), which is down from the 200% level we saw just a few months ago.
As you can see from the following chart, that ratio is still well above historical averages:
By that same token, forward PE ratios for the S&P 500 have come down precipitously but still signal rich valuations for large-cap stocks, as you can see in this chart from Yardeni Research.
At a forward PE of 20, the S&P 500 would need to experience a further 15% fall to reach a ratio of 17 times forward earnings, its 30-year average (16.9x to be precise).
Despite the chaos and extreme selling of early April, we remain far from “buy when there’s blood in the streets” territory.
That leaves us in the unenviable position of weighing the risk that the market has further room to fall against the fear of missing out on immediate upside, a fear that is no doubt exacerbated by the pace of recent market gains.
One solution, of course, is to selectively buy smaller positions in stand-out stocks, especially those that have already reported earnings and whose guidance remains strong.
Early in earnings season, software stocks have been a popular target for selective buying, as tariffs on physical goods are a non-factor for digital services companies.
That removes a measure of headline uncertainty vis-à-vis tariffs, but those stocks are as susceptible to recession risk as any others.
Another solution, which we’ll look at below, is to start buying stocks when certain technical thresholds are reached. This is best thought of as a “dial” of exposure, and not an on/off switch.
In other words, start incrementally buying stocks as they show evidence of continued improvement. Don’t pile in based on a single signal.
The 50-day moving average is a good place to start.
The first chart below is a one-year chart of the S&P 500 and includes the 50-day (blue line) and 200-day (red line) moving averages, Bollinger bands (green) and the MACD indicator (below the primary chart).
S&P 500 Chart: Now
As you can see, the S&P 500 is trading below both key moving averages and has shown short-term upward momentum (trending higher while still within the Bollinger bands; MACD cross in mid-April reflects bullish momentum).
But it’s also at the lower end of a zone of resistance (of 150 points or so) spanning the March lows, July/August highs, and the 50-day moving average.
A successful cross of the 50-day line (and a subsequent close above it) would be an excellent approximation of, if not fully clearing that resistance zone, being an easily confirmable step in the right direction.
It is “close enough for Army work,” as the saying goes.
That would presume that the worst is behind us and also be a reasonable first opportunity to start buying stocks.
Part of the rationale behind that thought process is that a true confirmation of a resumption of the bull trend could be weeks away, as the 50-day needs to cross back over the 200-day, and the index should ideally be setting new highs.
We are, in essence, taking a calculated risk that the cost of missing out is greater than the risk of further declines.
Fortunately, the 2022 bear market is an excellent illustration of what that calculated risk entails.
S&P 500 Chart: 2022
The period from mid-March to the beginning of April is an excellent illustration of what a head-fake rally might look like today.
As it is now, the S&P 500 was trending higher within its bands, the MACD was signaling positive momentum (black MACD line over the red signal line; both had also gone above 0) and the index had just experienced a “Death Cross.”
But the rally stalled out, and the bear market continued.
Of course, the pace of the sell-off in 2025 has been much faster than it was in 2022, but the technical pattern is worth paying attention to nonetheless.
Should we repeat 2022’s bear market, a break below the 50-day line would be an appropriate sell signal if you were to start buying stocks on a break above it.
If you’d like to avoid that risk of being quickly whipsawed, there is one additional bit of confirmation that you can look for that doesn’t entail waiting until the next bull market is in full swing.
S&P 500 Chart: 3.5 Years
This weekly chart of the S&P 500 runs three years and six months and includes the Bollinger bands and the MACD.
As you can see, there is a primary downward trend in 2022 and an upward trend from October 2022 through February 2025, both of which are marked by periods of buying and selling along the trend (moving up and down but staying contained within the Bollinger bands).
On this chart, the false breakout from 2022 (breaking above the 50-day moving average) is just an upward swing as part of an ongoing bear market.
What’s notable is that 2022’s false breakout on the daily wasn’t confirmed by the weekly MACD indicator (the black line never broke above the red line; both remained below 0).
This presents us with an intermediate confirmation that we can look for if buying stocks on a 50-day breakout remains too aggressive for your taste: waiting for confirmation on the weekly.
The tradeoff, as always, is balancing an early entry (risk of being knocked out of a position) against a later entry (missing out on some upside).
But if you’re on the fence about when to start buying stocks again, these technical levels and indicators can help take some of the emotion out of the decision.
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