Panic selling and oversold extremes gave way to a rip higher last week. Stocks are poised to open strong on Monday as the market reacts positively to tariff news. Last week’s bounce is considered an oversold bounce within a bear market. Thrust signals are setting up, but strong follow through is needed to trigger actual signals. This report will first review the panic indicators and the short-term oversold condition, and then show what it would take to move from a bear market bounce to a bullish breadth thrust.

3 Standard Deviation Decline

The chart below shows SPY dipping below the lower Bollinger Band (200,3) on April 4th. This means SPY was more than 3 standard deviations below its 200-day SMA, which is an extreme oversold condition. For reference, SPY has reached this extreme 27 times in the last 25 years. Such a move reflects panic selling pressure that often gives way to a bounce, which we got on Wednesday, April 9th.

TrendInvestorPro highlighted this 3 standard deviation move and extreme oversold conditions in our reports on April 7th and 8th. Click here to learn more and gain immediate access.

Oversold Extremes for Long-term Breadth

The next chart shows S&P 500 Percent Above 200-day SMA ($SPXA200R) dipping below 20% on April 7th to become extremely oversold. This means more than 80% of S&P 500 stocks were below their 200-day SMAs as traders sold pretty much everything. Extremely oversold readings in long-term breadth foreshadowed bounces June 2022, September 2022 and April 2025.

NYSE Zweig Breadth Thrust Sets Up

The NYSE Zweig Breadth Thrust is setting up as it finished below .40 on Friday. Actually, this indicator has been below .40 for four of the last five days. Readings below .40 reflect a short-term oversold condition that could give way to a bounce. The indicator first dipped below .40 on April 4th and stocks rebounded last week.

This indicator is also setting up for a possible Zweig Breadth Thrust. Currently, stocks are in the midst of an oversold bounce within a bigger downtrend. This would become a bullish Zweig Breadth Thrust should we see follow through and surge above .615 with 10 days. The countdown begins.

The Zweig Breadth Thrust indicator is the 10-day EMA of Advances/(Advances + Declines). Why did Zweig use a 10-day EMA? I believe he wanted to separate 1-5 day bear market bounces from bounces with follow through. The current bounce is just a bear market bounce and we need to see follow through within 10 days for a Zweig Breadth Thrust to trigger.

It is important to monitor more than one breadth indicator for thrust signals because you never know which one will trigger. The NYSE Zweig Breadth Thrust might miss, but the S&P 500 or S&P 1500 Zweig Breadth Thrust indicators may catch the signal, especially if Nasdaq stocks or small and mid caps lead. TrendInvestorPro monitors thrust indicators based on the percentage of stocks above their 20 and 50 day SMAs, and we have a breadth thrust index that aggregates thrust signals in over a dozen breadth indicators. This analysis continues for subscribers to TrendInvestorPro. 

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I pay attention to technical support levels as the combination of price support/resistance is always my primary stock market indicator. We’re in a downtrend and, in my opinion, the trading range is very, very clear on the S&P 500 right now:

I think most everyone can agree that much of the selling and fear and panic can be attributed the trade war – at least much of the weakness occurred with startling tariff news. So I figured I’d take a look at Q4 2018, which also experienced a 2-3 month bear market with the S&P 500 just barely reaching the prerequisite 20% drop. Here’s what that looked like:

The chart pattern during Q4 2018 was quite similar. The VIX more than tripled from under 12 to above 36. The VIX also more than tripled in 2025, after starting from a much higher level near 15. In both 2018 and 2025, that initial selling episode saw a drop of roughly 10% before consolidating. Then the next drop was another 10% or so. We don’t know if the selling for 2025 has ended, though, as that’s the wild card.

Here’s what we do know about sentiment. The VIX, with a value in the 50s, is signaling a potential S&P 500 bottom. Historically, surges in the VIX to this level or higher, have coincided either with stock market bottoms or they at least they suggest that any future selling in the S&P 500 is likely to be minor. Here’s a long-term monthly chart of the S&P 500 and the VIX, showing this relationship:

Extreme fear marks bottoms and I believe this is a great visual to support this belief. History tells us that when the VIX tops, we’ve either bottomed or we’re very close to bottoming.

Late last week, we saw both the March Core CPI and March Core PPI come in well below expectations, which was a good result for those hoping for rate cuts to begin again later this year. On Friday, a lot of folks were talking very bearish after the University of Michigan consumer sentiment plummeted to a near 50-year low. The problem with that bearish line of thinking is that sentiment is a contrarian indicator. Bearish readings tend to be quite bullish for stocks, while bullish readings can mark significant tops. Don’t believe me? Check out this chart and then provide me your best bearish argument:

The low readings in the green-shaded areas are actually very bullish. You can’t argue with history and facts. When the general public is feeling despair, it’s the time to buy stocks, not sell. And for those who believe this time is different, let’s check back in one year from now and let’s see where we are.

Note one more thing. The absolute highest consumer sentiment reading was at the beginning of 2000, just before the dot com bubble burst. Everyone felt great back then and the S&P 500 didn’t make a meaningful new all-time high for 13 years. So you tell me, would you rather see sentiment strength or weakness?

I know it sounds awful to hear that consumer sentiment readings are among the lowest in history and it likely makes little sense to many why the stock market would go higher while sentiment is so negative. But you have to remember that the stock market looks 6-9 months ahead. It’s not concerned with the news coming out now. It’s much more concerned about what the market environment will look like later this year.

Here’s my last point for today. We’ve begun to see more bullish rotation among sectors and between growth and value. Let me show you one final chart that highlights the rotation into growth as the S&P 500 continues its descent:

Notice the S&P 500 made its final high in February as money rotated quickly from growth to value in the two months prior. That was Wall Street exiting the riskier areas of the market, when everything still looked fine. It was one of the many reasons why I turned cautious and moved to cash in late January. Now the opposite is occurring. The S&P 500 is downtrending and the news just keeps getting worse. Meanwhile, Wall Street is happily buying all the risky shares you’d like to sell.

Listen, I’ve been wrong before and maybe I’m wrong and the S&P 500 continues to decline throughout 2025. But I trust my review of the market and my signals that have worked so well for me in the past. I’m perfectly fine owning stocks right now.

Tomorrow morning, in our free EB Digest newsletter, I’ll be showing everyone the extreme manipulation that’s been taking place in the stock market the past 4 weeks or so. Market makers are stealing (legally) from all of us. I spotted this manipulation back in June 2022, which helped me to go against the grain and call the market bottom then and I’m seeing it again now. To learn more, be sure to CLICK HERE and sign up for our FREE EB Digest newsletter, if you haven’t already. There’s no credit card required and you may unsubscribe at any time.

Happy trading!

Tom

One of my favorite market breadth indicators remained in an extreme bearish reading through the end of last week, standing in stark contrast to growing optimism after last Wednesday’s sudden spike higher.  Monday’s session saw the Bullish Percent Indexes cross above the crucial 30% level for both the S&P 500 and Nasdaq 100.  While I remain skeptical of meaningful upside without further confirmation, this bullish rotation does seem to confirm a short-term tactical rally for stocks.

Bullish Percent Index Shows Improved Breadth for S&P 500

The Bullish Percent Index uses point & figure charts to analyze the percentage of stocks in a universe that are in uptrends.  By looking at the most recent buy or sell signal on each individual point & figure chart, the indicator can help validate when a critical mass of stocks have rotated from a bearish phase to a bullish phase.

At the end of September 2024, the S&P 500 Bullish Percent Index showed a reading just above 80%.  By early December, the indicator was down to around 70%, and at the February 2025 high had reached 55%.  Last week, the S&P 500 Bullish Percent Index was just above 10%.  Indeed, almost all of the S&P 500 members were in confirmed point & figure downtrends.

Breadth Surge Similar to Previous Lows

The Bullish Percent Index for the Nasdaq 100 as well as the S&P 500 both spiked higher by the end of last week following the latest changes to US tariff policy.  As of Monday’s close the Nasdaq 100 Bullish Percent Index had reached 39%, up from 6% a week earlier. 

We can see four other times in the last two years where the Bullish Percent Index has touched the 30% level, and in three of the four times this reversal marked a significant low for the Nasdaq 100.  The most recent observation was last month, which saw a brief upswing before the latest downturn for the major equity averages.

So for both the Nasdaq 100 as well as the S&P 500, a move back above the 30% threshold appears to indicate a decent chance at a tradable move higher.  But will that upswing necessarily lead to sustainable gains?

Long-Term Review Yields Mixed Results

Let’s take a longer look back to the year 2000 and see what has happened following a move below the 30% level for the S&P 500 Bullish Percent Index.  Now we can see that while major lows often coincide with the indicator moving back above 30%, we can also see plenty of times where an initial bounce higher was eventually met with further selling.

Note the extreme low readings in June 2022, August 2015, and January 2009.  Even though there was an initial swing higher in all three cases, the market made a new swing low before achieving an eventual bottom for the bear cycle.

With the Bullish Percent Indexes rotating back to a more neutral reading this week, we are seeing plenty of signs of a tactical rally.  We may even see our Market Trend Model turn bullish on the short-term time frame as early as this Friday.  But with the major averages still making a clear pattern of lower lows and lower highs, we feel further confirmation is necessary before declaring any sort of “all clear” for US stocks.

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice.  The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.  

The author does not have a position in mentioned securities at the time of publication.    Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

The market has been overvalued for some time but how overvalued is it? Today Carl brings his earnings chart to demonstrate how overvalued the market is right now. We have the final data for Q4 2024.

The market continues to show high volatility but it did calm down somewhat Monday. Carl reviews the market charts you need to see going into this week. He covered not only the market in general, but also covered Bitcoin, Yields, Bonds, Dollar, Gold, Crude Oil and more.

After his market overview, Carl walked us through both the daily and weekly charts of the Magnificent Seven to determine if there is any strength visible. Clue: Not much.

After his review of the Mag 7, Carl discussed Altria (MO) and his strategy to buy high dividend stocks like this one after the market finishes declining from this bear market or beyond. He’s looking for a 50% drawdown eventually.

Erin then took over to talk about sector rotation. Defensive groups are leading as we would expect with Technology trying to stage a comeback. Erin dives into these sectors under the hood to determine participation readings and the ability of them to continue to rally.

Next up Carl brought out his earnings chart to discuss how overvalued the market currently is. He shows his estimates for future movement and discusses where we are right now.

The pair finished the program with a look at viewers’ symbol requests.

00:58 DP Scoreboards

03:33 Market Overview

15:26 Magnificent Seven

20:56 Dividend Discussion

23:34 Sector Rotation

33:29 Earnings Chart

36:41 Questions

40:13 Symbol Requests

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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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Healthcare Re-Enters the Top 5

After a wild week in the markets, the sector ranking got quite a shake-up. Although only one sector changed in the top 5, the entire top 5 changed positions. In the bottom half of the ranking, only two sectors remained stationary.

The Healthcare sector re-entered the top 5 after dropping out two weeks earlier. This happened at the expense of Energy, which dropped to #7. Consumer Staples jumped from the #4 position and is now leading, followed by Utilities. Financials and Communication Services dropped to #4 and #5, down from #1 and #2.

In the bottom half, Real-Estate jumped to #6 from #9. Energy, dropping from the top 5, is now at #7, and pushed Industrials and Consumer Discretionary down to #8 and #9.

Materials and Technology remain on positions #10 and #11.

1. (4) Consumer Staples – (XLP)*
2. (5) Utilities – (XLU)*
3. (1) Financials – (XLF)*
4. (2) Communication Services – (XLC)*
5. (6) Healthcare – (XLV)*
6. (9) Real-Estate – (XLRE)*
7. (3) Energy – (XLE)*
8. (7) Industrials – (XLI)*
9. (8) Consumer Discretionary – (XLY)*
10. (10) Materials – (XLB)
11. (11) Technology – (XLK)

Weekly RRG: Strong Tails for XLU and XLP

On the weekly RRG, Financials and Communication services remain at high JdK RS-Ratio levels, but have started to roll over while still inside the leading quadrant.

XLV dropped on the JdK RS-Momentum axis, but is still moving higher on RS-Ratio. The two strongest tails are for XLP and XLU, which are pushing further into leading at positive RRG-Headings.

Daily RRG: Communication Services Drops into Lagging

On the daily RRG, XLP and XLU are starting to lose relative momentum, but it is happening at high RS-Ratio levels. This is combined with the strong weekly tails, which keep both sectors comfortably in the top 5.

XLV and XLF are rotating through the weekly quadrant, while XLC has crossed over into lagging.

Consumer Staples

XLP dipped back to support near 75, but recovered strongly back into its previous range. As a result, the raw RS-Line is challenging its overhead resistance, dragging both RRG-Lines sharply higher. This is now clearly the strongest sector.

Utilities

During the week, XLU dropped below support but managed to come back within the range at Friday’s close. Just like Staples, raw RS is about to break its upper boundary, away from its range. Both RRG-Lines are accelerating higher, pushing the tail deeper into leading.

Financials

XLF tested support around 42, but the bounce stopped near its old support level of around 47.50. RS has steadily moved higher within the boundaries of its rising channel.

Communication Services

A big price drop was caught just above horizontal support near 83. The recovery, so far, has not reached overhead resistance at 95, the old support level. This makes XLC the most vulnerable sector inside the top 5. Relative strength remains stable at high RS-Ratio readings and flat RS-Momentum.

Healthcare

The Healthcare sector re-entered the top 5 after one week of absence. This brings all three defensive sectors back into the RRG portfolio. On the price chart, XLV is battling with the former horizontal support area, now resistance, around 136. Relative strength continues to rise, putting the XLV tail well inside the leading quadrant.

Portfolio Performance Update

Last week’s volatility was a bit too much for the portfolio to keep up with, and it is now lagging the S&P 500 by almost 2%.

#StayAlert –Julius