Wealth Watch: Be on the Lookout for the 4-Step Market Bottoming Process

Wealth Watch: Be on the Lookout for the 4-Step Market Bottoming Process

July 22, 2022

From the desk of Vance Howard:

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.

Vance Howard

This communication is issued by Howard Capital Management, Inc. It is for informational purposes and is not an official confirmation of terms. It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to. Opinions expressed are subject to change without notice. Howard Capital Management, Inc. may maintain long or short positions in the financial instruments referred to and may transact in them as principal or agent. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, Howard Capital Management, Inc. does not accept any liability arising from the use of this communication. Howard Capital Management is an SEC-registered investment advisor which only does business where it is properly registered or is otherwise exempt from registration. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability. Past performance is no guarantee of future results.HCM-011222.01

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