The HCM-BuyLine® has dramatically improved over the last two weeks. Could we be seeing a bottoming process? We still do not have a buy signal, but optimism is starting to build. We are overbought on a short-term basis, and a pullback will probably start next week; patience is key. There are a lot of wonderful companies out there that are looking great to us, but remember, 4 out of 5 stocks move in the direction of the overall market, and the trend is still down, so don’t jump the gun.

Tuesday’s rally was broad-based, with the S&P 500 gaining 2.8% and the Nasdaq Composite and the Russell 2000 both jumping more than 3%. The total volume of stocks that rose on the day was 17 times the total volume of stocks that fell on the day, the highest ratio since 3/24/2020, the day after the bear market low.

The bottoming process has 4 steps. They are:

1. Oversold

2. Rally

3. Retest

4. Breadth Thrusts

Intermediate-term breadth (% of constituents trading above 50-Day MA), representing trend participation, sharply improved and crossed above 50 for the first time since late April. Another indicator that that has improved is the percentage spread between the S&P 500’s 50-day and 200-day moving averages as it hit a 3313-day low. Used as a mean reversion indicator, it can identify oversold conditions. Even though we are overbought on a short-term basis the longer-term is deeply oversold. It has not been this low in more than a decade – since the end of the Financial Crisis.