The S&P 500 ended September by retesting lows from August, but has since rallied to advance in seven of the last eight sessions, for a gain of about 7 percent as investors continue to assess the timing of an interest rate hike from the Federal Reserve and brace for quarterly earnings season.

"From a technical perspective it looks like we are pretty far along the bottoming process," said Bruce Zaro, chief technical strategist at Bolton Global Asset Management in Boston.

"The short-term factors have started to bottom and reverse up. Some of the longer-term factors are starting to gain some traction and slowing their decline," he said.

The S&P 500 has climbed above its 50-day moving average. The number of S&P stocks trading above their 50-day moving average is at the highest since June and seven of the 10 S&P sectors are now back above their 50-day moving average.

"The re-taking of the 50-day is a first step in breaking the short-term downtrend that had formed," Bespoke Investment Group analysts said in a note on Thursday.

The improved conditions are also noticeable in the daily lists of stocks on major exchanges hitting new 52-week highs compared with 52-week lows. Beginning in mid-August, fewer than 10 issues were hitting new highs on a daily basis; on Thursday and Friday, more than 50 names on the New York Stock Exchange had reached new highs.

By comparison, between Sept. 1 and last week, an average of 174 stocks were hitting new lows every day on the NYSE; this week, that figure had dropped to just seven on Friday.

The sharp rally in the market, however, brings its own problems.

"The market is pretty overbought over the short term," said Frank Cappelleri, technical market analyst and trader at Instinet LLC in New York.

"I’d be more comfortable in seeing a few days of digestive activity so that the market catches its breath and hopefully sets itself up for a better effort here as opposed to what happened a few weeks ago," he said.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Chuck Mikolajczak; Editing by Dan Grebler and Meredith Mazzilli)

By Saqib Iqbal Ahmed