Summary: Market conditions showed meaningful improvement this week, with stronger breadth, recovering market internals, and low volatility supporting a cautiously bullish outlook despite mixed index performance. However, neutral risk gauges, uneven sector participation, potential topping action in semiconductors, and weakness in international equities suggest some uncertainty remains, making continued improvement in market breadth and support in the major indexes important for sustaining the recovery. 

Risk On

• Major U.S. indexes were mixed with SPY up over +1% and QQQ digesting recent gains, down -0.85%. We are seeing some basing action around the 200-Day Moving Average in DIA and IWM. It's important that they hold these levels.  (+)
• Market internals saw a big improvement this week with the McClellan Oscillator turning positive  (+)
• New high new low ratio seems to have bounced from very over-sold levels. (+)
• Volatility is under its key moving averages and around its lowest levels for the year. (+)
• The percentage of stocks above key moving averages saw a jump off the lows and a big improvement on the week, signalling a potential bottom. (+)
• Growth remains in a bull phase. Momentum in value has been weak, but showing some mean reversion at the lows. (+)
• Seasonal trends tend to strengthen into October and strength in the last part of the year. Gold tends to have a positive seasonal trend during this period as well. (+)
• Risk gauges moved to neutral with weakness in SPY/XLU ratio, though it may not be related to risk-off reading. (+)

Neutral

• Volume patterns were mixed, with no accumulation days in the S&P while QQQ was the strongest with 4 accumulation days and only one distribution day. (=) 
• Sectors showed some broadening participation with most sectors up and technology taking a little breather. (=)
• The color charts (moving average of stocks above key moving averages) are showing improvements on the short time frames. (=)
• The modern family is mixed. Biotech and retail improved. Semiconductors potentially have an island top. (=)
• Soft commodities pulled back off their highs, dipping below its 50-Day Moving Average. Copper is consolidating and compressing at high levels. (=)
• Gold went from looking heavy to more of a neutral reading. Oil is maintaining a bullish stance, but could break below its 50-Day Moving Average. (=)
• The dollar is at its highest levels since April, 2025. (=)
• Rates rebounded slightly off historic lows. May be overdone on a short-term basis and saw a little mean reversion from oversold conditions on momentum. (=)

Risk Off

• EEM and EFA are both now in warning phases despite a big move in Brazil /Latin America. China could quickly change the picture if it has bottomed. (-)

Actionable Trading Plan

Maintain a cautiously bullish stance while looking for confirmation that improving market breadth and internals can support a sustained recovery. Favor selective exposure to growth and other sectors showing improving relative strength, while monitoring semiconductors for signs of a potential top that could signal broader weakness in technology. Watch DIA and IWM closely as they attempt to establish support around their 200-day moving averages, and look for continued improvement in market internals and risk gauges before increasing overall equity exposure. Remain cautious on international equities, particularly emerging markets, until they show signs of stabilization. With volatility near yearly lows and seasonal trends becoming more favorable, look for opportunities to add exposure on constructive pullbacks while maintaining disciplined stops and appropriate cash reserves to manage downside risk.