Breakdown or Buyable Dip? Pullback Depth Can Help

As a common adage says, “the market doesn’t move in a straight line.” But when prices have fallen, it’s not always clear whether buying makes sense. That’s where today’s script may help.

Most traditional indicators judge movement based on price. That’s obviously important, but time can also be helpful. After all, there’s a big difference between probing a low from 2-3 weeks ago versus a low from months or even years in the past.

Pullback Depth clearly illustrates this by answering the question: “Today’s low is the lowest in how many bars?”

The resulting integer is plotted in a simple histogram. Values are always negative because bars with higher absolute values (meaning more negative, or further below zero) are potentially more bearish.



The study also has a maximum lookback period to avoid overwhelming the study with too many bars. Its default setting of 125 bars includes enough history to illustrate the trend.

The stock market’s recent run has seen only shallow pullbacks. Most dips have probed 1-2 weeks in the past, while Friday’s selloff only turned back the clock a month.

Consider two other previous moments.

First, the great bull run of 1995 saw only shallow pullbacks. (None exceeded 50 days.):


In contrast, early 2022 saw the S&P 500 test levels more than 100 candles into the past. It soon fell into an official “bear market:”


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