January 20, 2021

The HCM-BuyLine® is positive, and any pullback should be seen as a buying opportunity. 

Our overall outlook remains unchanged. We are bullish for equities through 2021, while expecting a tactical pause/pullback to develop by the middle of 2021, potentially as early as month-end. Why do we see it this way? Weekly momentum indicators, which are useful to track the 1-2 quarter ebb and flow across markets, have moved from oversold levels in the 3rd quarter, toward overbought levels heading into the middle of the 2nd quarter.  

S&P 500

Price trends remain firmly intact for equity indices, breadth as measured by advance-decline lines remains intact with cyclical/value related equities continuing to show evidence of strength. Short-term, we are expecting the S&P to push toward 3900-4000, at which point short-term trading indicators are likely to be overbought and peak.

Looking at the first quarter, we expect the pullback to be relatively shallow (7-10%), short lived, and dominated by sector and group rotation. This should be a major buying opportunity. There is still a tremendous amount of cash on the side lines, and those who got out last year will be looking to buy back in, which could create a big run-up in equites. 

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