The recovery continues to build. The composite has improved to -2, the closest to neutral since the correction began. SPY holds at $655.24, consolidating yesterday’s gains. The RSI remains at 45 — a neutral reading that suggests the market is no longer oversold but has not yet entered overbought territory. The long-term score has turned notably positive at +17, the strongest long-term reading in weeks, while the short-term continues to hold in CHOP at -10. The VIX has ticked up slightly to 27.5 from 25.1, a reminder that volatility has not yet fully normalized.

Sector Leadership

Sector structure holds steady — 3 RISK ON, 4 CHOP, 4 RISK OFF for the second consecutive day:

💡 What We’re Watching

• Composite approaches zero — the most constructive reading since the correction began — At -2, the composite is nearly neutral. This represents a dramatic shift from -27 on Monday and -90 at the short-term peak of selling pressure. The improvement is being driven by both the short-term holding in CHOP and the long-term turning meaningfully positive at +17.
• Long-term score turns positive at +17 — This is the strongest long-term reading in weeks and a significant development. With 46% of stocks above the 200-day MA and IWM holding above its 200-day, the market’s structural foundation is firming. When the long-term score is positive, it historically signals that the broader trend has not broken down despite short-term damage.
• VIX ticks back up to 27.5 — After dropping to 25.1 yesterday, the VIX has risen back to 27.5. This is the one data point that does not confirm the recovery narrative. Sustained VIX above 25 indicates the options market is still pricing in elevated uncertainty. We would like to see this decline below 22 for a more convincing signal.
• Sector structure holds for second consecutive day — The 3 RISK ON / 4 CHOP / 4 RISK OFF split is unchanged from yesterday. This stability is constructive — it means the improvement is holding rather than reversing. The next milestone we are watching for is a sector transitioning from RISK OFF to CHOP, which would reduce the RISK OFF count below 4 for the first time since mid-March.

The Bottom Line

The recovery is holding. That simple statement carries significant weight after weeks of false starts and sharp reversals. For the second consecutive day, the sector structure has held its improved positioning. The composite continues to improve. The long-term score has turned meaningfully positive.

In our view, the medium-term score at -75 remains the critical variable. It has not improved from yesterday, and with 47% above the 20-day MA but only 28% above the 50-day MA, the medium-term trend is still clearly negative. The VIX ticking back up to 27.5 is a reminder that the market has not yet cleared all the hurdles for a sustainable recovery.

The conditions we continue to watch: medium-term breadth expanding above 35%, VIX sustaining below 22, and additional sectors exiting RISK OFF. Two of the four milestones we outlined last week have been met — the short-term exiting RISK OFF and sectors beginning to transition. The medium-term breadth and VIX milestones remain ahead.