Jim Paulsen is bullish on stocks again and says it's time to 'buy the dips'

• It's time to go back to buying the dips when stock prices fall and the market is "dying," says Jim Paulsen of Leuthold.
• The strategist expects the recent market volatility to last for a few more weeks, but says there's no sign of a recession, which is making him bullish again.
• "Buy the dips" is a strategy that has been popular during most of the more than 9-year-old bull market, but investors abandoned it in droves during the recent stock market correction.

Jim Paulsen

Cameron Costa | CNBC

The stock market is likely to remain highly volatile, but the economy is unlikely to fall into a recession and that makes it a good time to "buy the dips" again when stocks fall, said Jim Paulsen, chief investment strategist at Leuthold.

"If there's no recession, to me it's a buyable correction. They don't tend to get super deep and they tend to reverse. The whole key is the recession," he said in a telephone interview.

Paulsen agrees with many Wall Street forecasts that 2019 will see a slower pace of growth in the low 2 percent range, but no recession.

"That's one of the reasons I'm bullish again here. I'm betting we don't have a recession. I think if we didn't see the low, we saw something pretty close to it," he said. "On days when it's really dying, it's a good time to buy ... on days, when it's rallying hard, just stand pat. That's what I would look at doing."

The S&P 500's closing low was 2,351 on Monday, after a sharp drop in the half-day Christmas Eve session, giving it a 19.8 percent decline from its September high. Since Monday, it has swung hard in both directions, but was up about 3 percent for the week as of Friday morning.

"I think sometime in 2019, if you buy down here in this area, you'll probably be happy," he said.

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Technical strategists said the market could continue to chop around for weeks or months before it finds a definitive floor, even if it is at recent lows.

"We're just into volatility now. You're going to see ups and downs now at least for a while," he said. "I don't think it's going to be months, but for the next couple of weeks it's going to be volatile."

Paulsen said that after the sell-off and with strong earnings growth this year, valuations have become much more attractive. The forward price-earnings ratio for the S&P 500 is now 14.4, compared with 18.4 at the beginning of the year.

"We took valuations from the upper quintile to the lower quintile in less than a year. Then if growth slows, that will put a pause on the Fed and bond vigilantes," he said. "If the economy doesn't go into a recession, then it can be revived again without rate pressure and from a much lower valuation level that has room to run."