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.
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.