We’ve already done the hard part.

A couple weeks ago, we walked through the “Hold Your Nose and Buy” setup.

Not a prediction, a process.

Then we followed it up with “Set the Stop and Chill.” 

Entry defined, risk defined, now let price do the work.

That’s the progression.

That’s the progression.

Analysis begins with logical frameworks we can measure data against.

Not cherry-picked data points to fit a narrative.

That’s what the signal that got us back in the market is showing.

And it’s what this recovery framework is built to track.

A way to consistently evaluate whether the market is actually transitioning… or just reacting.

Because getting the entry right is one thing.

Staying aligned with what comes after is where this either compounds or gets fumbled.

Let’s get into it.

Markets typically bottom through a sequence:

Capitulation, thrust, follow-through.

We’ve started that process. But the quality of each step matters.

We got the washout.

Breadth reached oversold levels and reversed.

That’s what triggered the entry.

The reversion from oversold, not the oversold condition itself.

But zooming out, this wasn’t a true panic.

Prior major lows saw a surge in new lows and forced selling.

This time, that level of pressure just wasn’t there.

So while we had enough capitulation to create opportunity, we didn’t fully clear the deck.

That leaves the door open for overhead supply and a more gradual recovery process.

We saw the same thing in volatility.

The VIX spiked, then began to reverse. That’s constructive. You don’t buy fear, you buy the reversion from fear.

But it’s not fully resolved.

Volatility is still elevated relative to calmer environments.

Ideally, we continue to see it compress and undercut recent lows.

That would signal a more stable backdrop.

For now, it’s improving. Not complete.

Short-term breadth has improved. That’s clear.

But when you zoom out across timeframes, it’s still lacking:

Participation hasn’t meaningfully expanded into the 50-day, 100-day, and 200-day measures…that follow through piece is key…

Under the hood, it’s still mixed:

• Semis are strong but Software is weak…

• Discretionary is bouncing, not leading.

• Financials are messy.

• Healthcare is breaking down.

• Industrials are my favorite right now….but it’s selective.

That’s not broad confirmation.

That’s a market still working through a reset.

This is the phase that matters now.

We’re no longer trying to catch a bottom.

We did that.

Now the market has to prove it.

Follow-through is what separates a tradable bounce from a durable recovery.

What we want to see:

• Higher lows on pullbacks

• Continued expansion in breadth

• Strength spreading across sectors, not just isolated pockets

• Fewer failed breakouts, more sustained moves

Right now, we’ve had good progress.

But it’s been good, not great.

And that typically leads to a more bumpy, back-and-fill type recovery, not a straight line higher.

The bulls got off the mat.

That matters.

But they’re not winning the fight yet.

We didn’t get full capitulation.
We didn’t get a powerful breadth thrust.
And the follow-through is still developing.

So we stay in process.

If the market continues to prove it, we can do more.

If it doesn’t, we already know where we’re wrong.

That’s the game.

Anyway, that’s my two cents.

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The Sunday Stalk List

Tomorrow, I’ll break down more of what I’m buying in the Sunday Stalk List.

If you want clean charts, clear setups, and tactical insights, this one’s for you.

It hits your inbox every Sunday so you know exactly what to stalk for the week ahead.

Go check out last week’s post and get on the list.

Cheers,

Larry Thompson, CMT CPA

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