Your Personal Trading Game Plan → 52 Times Per Year

The Weekly Market Timing Forecast is based on our timing indicators which give strong signals. Every Sunday, all signals get reviewed in our Weekly Market Timing Forecast in a highly systematic way. This results in explicit long & short trading recommendations on the outlook for the S&P 500.

Our report is helping members capitalize on strong trends, identify major inflection points in a timely manner and it provides a clear game-plan for the week. It also prevents members taking high risk trades (leveraged positions such as futures, options, short-volatility …) during unfavorable market conditions.

As the S&P 500 sets the direction for other risky assets, our timing report is also highly recommended to non U.S. equity focused investors.

Track Record of our WSC Market Timing Forecast

Since its first publication, our Weekly Market Timing Forecast has constantly produced outstanding timing results and has, therefore, become the most sought-after service of WallStreetCourier.com

The chart above shows the percentage gain or loss for each timing recommendation on the S&P 500 since 2013. The results are arranged by gains (highest to lowest). The x-axis shows the publication date of the initial trading recommendation in our Weekly Market Timing Forecast, whereas the y-axis shows the percentage gain or loss for that specific recommendation. Since we are specialized in identifying major inflection points, a trading recommendation could last from several days up to several months. In order to prove the ability to identify both, bullish and bearish inflection points, we have color coded them separately.
For example, a green bar with a positive percentage number shows the gain from a buy recommendation, since the S&P 500 rose by that specific percentage number afterwards and until we changed our recommendation. A green bar with a negative percentage number shows the loss from a buy recommendation, since the S&P 500 fell afterwards. A red bar with a positive percentage number shows the gain from a sell recommendation, since the S&P 500 fell afterwards, whereas a red bar with a negative percentage number shows the loss from a sell recommendation.
Results are non-leveraged, meaning that subscribers can even boost results by using options, futures or other leveraged products. All historical Weekly Market Timing Forecasts are available in our member section for your convenience.

The Philosophy behind the WSC Market Timing Forecast

Choose a profitable investment strategy, stick with it, minimize the drawbacks, and make the same decision based on the same information day by day.

Step 1: Choose a Proven Investment Strategy

Why are some traders more successful than others? There are probably as many answers as there are traders out there. You will undoubtedly agree that most of the money is being made in a trend, especially as far as options and futures are concerned. In options trading your biggest enemy by far is time. You need to have the patience and discipline to wait for a trend in the market in order to succeed in the long run.

Not surprisingly, empirical literature examining the effectiveness of the trend (momentum) factor is vast. For example, the research paper “A Century of Evidence on Trend-Following Investing” published in the Journal of Portfolio Management in 2017 shows that trend investing as investment strategy had been consistently profitable throughout the past 134 years. This is a fact, we are have been telling our subscribers since 1999, the year we went online. As a result, exploiting trends on the S&P 500 is one of the main building blocks of our Weekly Market Timing Forecast.

Step 2: Identify the Drawbacks

A trend is the tendency of a stock market to move in a particular direction over time. Since a trend must establish itself first before it can be measured, trend investing is not as easy as it may sound. The problem is that a fast trend reversal can often lead to higher losses. These are frustrating situations that you may have experienced multiple times in your trading career.

Another challenge is being able to distinguish between volatile non-trending markets and trends accompanied by increased volatility. If this is not done properly, you will get constantly whipsawed out of your trades because your stop losses are too close. At the end of the day, the trading fees and the slippage costs have outpaced the gains, although you might have initially had the right view of the underlying trend. Does this sound familiar to you?

Step 3: Apply a Rational Decision Making Process That Minimizes the Drawbacks

To identify strong trends and major inflection points in a timely manner, we apply a sound and rational decision making process that has been proven over time. The outcome minimizes the drawbacks of trend investing and ensures consistent timing results across all market environments. A fact, we have impressively demonstrated so far. Of course, we are not right 100% of the time, but if you are searching for the Holy Grail of the stock market, Reddit might be a better place for you to search. For those who are serious about efficient market timing, we offer a highly systematic process that shifts the odds of trend investing in our favor. To succeed in the long run, we therefore just have to make the same decisions based on the same process over and over again.

In order to do so, the readings of our entire indicators are reviewed in our Weekly Market Timing Forecast in a highly systematic way. Our indicators do not only measure and identify the price trend of the S&P 500, but also the aggregated trend information of its underlying constituents on multiple time frames, as well as the investment behavior of Smart and Dumb Money. This enables us to identify the “real trend” by measuring underlying trend-participation on a daily basis. With this information, we are able to gauge if the current price trend of the S&P 500 is backed by a broad basis or if it is just driven by a few heavy-weighted stocks in the index. If the second one holds, a reversal in these stocks could easily trigger a trend break since there is no safety net around it to cushion such a move. This often coincides with the time Dumb Money goes in big, whereas Smart Money is already taking the opposite side of the trade

In such a situation, we recommend our subscribers to exit the trade although the price trend of the market still might be intact (and vice versa). This approach gives our subscribers a competitive timing edge, as it enables them to enter or exit a trend slightly before it starts or ends. This explains why our winning recommendations are outpacing our losers by such a large extent.

Step 4: Focus on a Market Where Your Investment Strategy Works the Best

Why do you only provide trading recommendations on the outlook for the S&P 500 in your Weekly Market Timing Forecast? A question we have heard many times since we first went online in 1999. The answer is quite simple: it’s all about the odds. Although the trend factor is remarkably consistent across different asset classes, our unique approach of measuring “the real trend” works most effectively on heavily concentrated indices like the S&P 500.
Did you know that with the S&P 500, the largest 50 stocks (out of 500) account for approximately more than 50 percent of its total weight? As a result, the cap-weighted S&P 500 is heavily concentrated on a relatively small scale of stocks! This imbalance could give a wrong impression of the “real underlying trend”, especially when these few heavy weighted stocks move in the opposite direction compared to the remaining market. In such a situation, the odds that the current price trend will continue decreases significantly. This often correlates with Dumb Money going in big, although Smart Money is usually taking the opposite trade at the same time.

As a result, this flaw works extremely well in our favor. Since our timing indicators not only measure the price trend of the S&P 500, but also the aggregated trend information of its underlying constituents, as well as the investment behavior of Smart and Dumb Money, we are able to identify the “real underlying trend”. Given its strong imbalance, our approach works extraordinarily well on the S&P 500. Thus, we are able to identify major trend-reversals in a timely manner, giving our subscribers a competitive timing edge.

Another main advantage is that the S&P 500 is still setting the pace for risky assets worldwide. Thus, stronger trend-reversals in an important benchmark like the S&P 500 often lead to corresponding shifts in risky assets worldwide. This is another advantage that is often utilized by our savvy subscribers.

Step 5: Use Artificial Intelligence to Leverage the Technology Alpha

Technology has always been ubiquitous for us. Starting as a provider of timing indicators only, we pioneered the field of quantitative backtesting as early as 1999. As technology continued to evolve and computing power increased, new use cases to increase the “technology alpha” had been identified. After publishing several whitepapers in the field of quantitative portfolio optimization, we started to offer rule-based ETF Model Portfolios and ETF Momentum Heat Maps to our subscribers in 2011.

Perhaps most importantly, we implemented an advanced database infrastructure in 2013, being able to secure data quality and enhanced computing power. Since then, all Weekly Market Timing Forecasts plus all information from our timing indicators get stored in our database. That process enables us to compare the current signal combinations of our timing indicators with historical ones, improving the rational decision making process behind the Weekly Market Timing Forecasts enormously.

Over the years, we finetuned that process and in 2019, we finally migrated to the cloud. Since then, we use Artificial Intelligence to write a “raw” version of our Weekly Market Timing Forecast based on the current and historical timing signal combinations, historical text snippets and the forward looking hit ratio. This AI draft is reviewed, discussed and analyzed before acting as the basis for the “final” Weekly Market Timing Forecast. After publication, the latest Weekly Market Timing Forecast is then also stored in the cloud, acting as an improved blueprint for the future. This infinite loop will systematically improve and strengthen our ability to deliver superior timing recommendations for our subscribers across different market environments.

Finetune Your Trading → Anticipate Our Calls!

Apart from providing top-notch timing recommendations, one of our goals is to make you a self-sufficient, successful investor. As a result, we think that publishing well-tested timing indicators is just as important as demonstrating a proven method to apply and combine the indicators in a very systematic fashion.

By reading our Weekly Market Timing Forecast on a regular basis, you will soon be able to anticipate the outcome of our weekly recommendation by reviewing our daily updated indicators. Besides showing that you fully understand the basic principles of our successful market timing, it also enables you to finetune your trading during the week.

Still Not Convinced? Check Out The Examples Below:

Example 1: Have You Sold the Big Market Top in 2018? How Come?

Correction risk is increasing at a fast pace! Further selling pressure ahead!

October 7th 2018

Market Review

The weak tape structure had its designated impact as U.S. stocks finished the week with losses. The Dow Jones Industrial Average fell 0.4 percent in five trading days to end at 26,447.05. The S&P 500 recorded a 1.0 percent loss over the week and closed at 2,885.57. The Nasdaq slumped 3.2 percent for the week to 7,788.45. The technology-laden index recorded its worst week since March. Among the key S&P sectors, energy was the best weekly performer, while technology dragged. The Chicago Board Options Exchange Volatility Index (VIX), the gauge of S&P 500 options known as the VIX, traded near 14.08.

Short-Term Technical Condition

Not surprisingly, the short-term oriented trend of the market clearly turned bearish last week. This is due to the fact that the S&P 500 closed 14 points below the bearish threshold from the Trend Trader Index. Consequently, the short-term oriented price trend of the market remains bearish as long as the S&P 500 does not close above 2,917 (upper threshold from the Trend Trader Index). Also from a pure structural point of view, the short-term oriented up-trend of the market started to deteriorate, as both envelope lines of the Trend Trader Index are about to form a rounding top. The situation looks similar if we analyze the underlying momentum of this short-term oriented price trend. This becomes quite obvious if we focus on the Modified MACD, which continued its bearish ride, signaling that further selling pressure can be expected. Basically, the same is true if we focus on the Advance-/Decline 20 Day Momentum Indicator as its gauge plunged deeper into bearish territory last week! Additionally, we can see that our entire short-term oriented trend indicators formed a huge bearish divergence as the S&P 500 fell just 1 percent over the week. But as already mentioned a couple of times, the short-term oriented trend of the market is only a limited picture of the current technical condition of the market (as it is not unusual that some/all of our short-term oriented trend indicators tend to deteriorate after a strong wash-out day). In such a situation, short- to mid-term market breadth will give guidance as to whether the current short-term oriented bearish trend will lead to further stronger losses, or if it was only caused by a handful of a few heavy weighted stocks in the index. So if short- to mid-term market breadth remains strong, the impact of a short-term oriented trend-break should be quite limited.

If we focus on short-term market breadth, we can see that the broad market has taken a hard hit during the last couple of trading sessions. Especially, the short-term gauges from the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily continued to show major signs of exhaustion and/or plummeted significantly. This indicates that the underlying momentum and volume of advancing stocks on NYSE literally collapsed. This picture is now also widely confirmed by the NYSE New Highs – New Lows Indicator, as we saw an outright strong spike in the number of new lows, whereas the number of new yearly highs dropped significantly! Consequently, the High-/Low-Index Daily rocketed to the highest bearish level for months. Thus, the chances for a healthy (and sustainable) rebound are extremely low at the moment. On top of that it also tells us that the latest decline was driven by the whole market and was not only caused by a few large-caps within the S&P 500! Consequently, it was also not a big surprise that the percentage of stocks which are trading above their short-term oriented moving averages (20/50) slumped deeper into bearish territory. To be more precise, right now there are only 16/27 percent of all NYSE listed stocks that are trading above their 20/50 days moving average! So in the end, most of the selling pressure was coming from the broad market rather than from a few large-caps. Consequently, the main reason why we have not seen a stronger pullback in the S&P 500 yet is due to the fact that a few heavy-weighted large-caps are still holding up quite well. So all in all, the S&P 500 looks like it is on the brink of a strong correction at the moment (although it just trades slightly below its all-time high)!

On the contrarian side, we can see that the market is slightly oversold and, therefore, a smaller (non-sustainable) rebound might be possible. Apart from that fact, the picture still looks quite grim. The WSC Capitulation Index is still indicating a risk-off market environment, whereas the Smart Money Flow Index is far away from confirming the current levels from the Dow Jones Industrial Average. Another concerning fact is that the option market remains quite complacent, although the current technical condition of the market looks quite damaged. This is in-line with the AII Bulls & Bears survey, as the amount of bulls on Wall Street increased last week. We doubt that this purchasing power will drive the market fundamentally higher from current levels.

Mid-Term Technical Condition

Another reason why we believe that the market is highly at risk for further disappointments is due to the fact that the mid-term oriented condition of the market continued to deteriorate last week. This is mainly because the gauge from the Global Futures Trend Index dropped almost 14 percentage points for the week and closed at 25 percent! This is at the lower end of the bearish consolidation area and very far below the important threshold of 60 percent. In such a case, the technical condition of the market is highly at risk for a stronger pullback; of course only in combination with weak or bearish readings in mid-term oriented market breadth. As this is already the case, it is definitely time to establish a cautious stance. So even if we do not see a stronger pullback immediately, as long as the gauge of this indicator remains near or below 60 percent (in combination with weak mid-term market breadth), the upside potential of the market should be limited as well! This means that any upcoming relief rally might just be part of a larger distribution top. As we have not seen a stronger pullback so far, the pure price driven mid-term oriented uptrend of the market remains intact. This can be seen if we focus on the WSC Sector Momentum Indicator, which is trading at the highest level for months. This indicates that most sectors within the S&P 500 are still outperforming the riskless money market on a relative basis. This can be also observed by looking at our Sector Heat Map as the momentum score of all sectors continues trading above the riskless money market sector (currently at 0.0 percent).

Another bearish ingredient for our market top scenario is the fact that our entire mid-term oriented breadth indicators continued to deteriorate last week. Especially, our Modified McClellan Oscillator Weekly dropped significantly and widened its bearish gap. Also the percentage of stocks which are trading above their mid-term oriented simple moving average (100/150) continued to drop and are trading below their bullish threshold. This indicates that the underlying trend momentum of the market is clearly bearish, plus most of all NYSE listed stocks are definitely not in an uptrend anymore. In addition, our entire advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line) dropped significantly last week. However, the most concerning signal is coming from the Advance-/Decline Index Weekly, as it clearly turned bearish last week. It is also a question of time as to when our Upside-/Downside Volume Index Weekly turns bearish. These facts indicate that a lot of purchasing power was pulled out of the market last week and, therefore, the market internals have now a clear bearish tilt at the moment.

Long-Term Technical Condition

The long-term oriented trend of the market shows the same picture as in previous weeks. After 9 weeks in a paralyzed status, the WSC Global Momentum Indicator dropped last week to 18 percent, indicating that just 18 percent of all local equity markets around the world (which are covered by our Global ETF Momentum Heat Map) are still trading above their long-term oriented trend lines. This is a clear signal that the current global bull-market is outright fragile at the moment. On the other hand, our Global Futures Long Term Trend Index has been increasing for 11 weeks, signaling that the long-term oriented trend of U.S. equities remains intact (compared to the rest of the world). Our WSC Global Relative Strength Index shows that the relative strength of all risky markets was holding up quite well last week, but all markets (except one) are trading below the one from U.S. Treasuries. This is a sign that indicates a slow growth period. Looking at our long-term oriented tape indicators reveals that the Modified McClellan Volume Oscillator Weekly, the percentage of stocks which are trading above their 200 day moving average and especially the High-/Low Index Weekly weakened last week (which is another red flag on the horizon).

Model Portfolios

If we have a closer look at our Model Portfolios, we can see that there have been no changes in the allocation advice from the WSC Sector Rotation Strategy, the WSC Inflation Proof Retirement Portfolio, the WSC All Weather Portfolio and the WSC Global Tactical ETF Model.

Bottom Line

Our base call remains unchanged compared to last week. Although the S&P 500 is trading slightly below its new all-time high, we still remain outright cautious at the moment. Because our indicator framework shows that it is only due to a few mega-caps that the S&P 500 is holding up quite well (although the broad market is already faltering at a very fast pace). In general, such a large-cap driven rally is quite dangerous to play (hardly sustainable in its nature). Because if we see a trend-reversal in these mega-caps, there is literally no safety-net around them to cushion such a move. In such a situation, the risk of a strong and sharp trend-reversal remains high. Given the outright bearish tape structure at the moment, we think there are two scenarios possible. Either, we see a longer-lasting consolidation period (where we see a healthy rotation back into small caps) or the market is heading into a stronger correction within the next weeks (preferred scenario). Consequently, it might be a bit too early to pull the trigger immediately (as we would like to see some negative price action first). As a matter of fact, we would advise our conservative members to keep/place their stop-loss limit around 2,850. This stop loss limit should be in place until our mid-term indicator framework turns positive again! Aggressive traders should go short, if the S&P 500 drops below 2,850 and should increase their exposure if we see further down testing below 2,790/2,750.

Example 2: Did You Had the Guts to Buy the Bottom Of 2019? Why Not?

Important low in place as bounce was broadly confirmed by market tape!

January 6th 2019

Market Review

U.S. stocks closed the first week of the year with solid gains. The Dow Jones Industrial Average added 1.6 percent over the holiday-shortened week to end at 23,433.16. The S&P 500 recorded a weekly 1.9 percent gain to close at 2,531.94. The Nasdaq advanced 2.3 percent from last Friday’s close to finish at 6,738.86. Among the key S&P sectors, energy was the greatest gainer for the week, while utilities was the only negative sector for the week. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, dropped to 21.4.

Short-Term Technical Condition

From a purely price point of view the short-term oriented trend condition of the market turned quite neutral, as the S&P 500 closed in the middle of both envelope lines of the Trend Trader Index. Nevertheless, we should not forget that both lines of the Trend Trader Index are still decreasing and, therefore, the recent gains can still be categorized as a bounce rather than the start of a new and sustainable up-trend at the moment. But apart from this fact, we can see many positive developments within our remaining short-term oriented trend indicators. The gauge from the Advance-/Decline 20 Day Momentum Indicator clearly confirmed last week’s rally as it showed a strong recovery/spike last week. Another quite encouraging signal is coming from the Modified MACD, as we saw a solid surge in the short-term oriented trend line, which finally led to a small bullish crossover signal within this reliable indicator. Consequently, any upcoming weakness would most likely just produce a bullish divergence in its readings, as extremely heavy losses would be necessary to bring this short-term oriented gauge back to its former low! As a matter of fact, we can be pretty sure that the bounce will continue for a while as it could easily turn out to be quite strong in its nature.

This setting is also confirmed by our short-term oriented breadth indicators as they showed some stronger signs of recovery last week. The most encouraging signal is coming from the High-/Low-Index Daily, as its bearish gauge dropped significantly last week. The main reason for this quite supportive signal is the fact that we have recently seen a very strong reduction in the number of new lows, in combination with a minor increase of new highs. Worth mentioning is the fact that this was the first increase, since mid-December. Even on Thursday, there was hardly any increase in the number of new lows, although the S&P 500 plunged 2.47 percent on that day! As a matter of fact, it was not a big surprise at all that markets strongly rallied on Friday. Anyhow, this is an outright encouraging tape signal telling us that the market internals strengthened on an extremely broad basis. To be more precise, the sell-off on Thursday was mainly driven by a few heavy-weighted stocks in the index (e.g. Apple), although the broad market was holding up quite well. Such strong tape signals are absolutely essential for our aggressive traders, as they give a clear indication when to reduce or to increase any outstanding positions. Anyhow, as long as this pattern continues, the overall tone should be supportive. This can also be observed if we focus on the percentage of stocks which are trading above their short-term oriented moving averages (20/50). Both gauges recovered significantly last week and in particular, the 20 days’ time frame gauge jumped to the highest level for months. This is another indication that the market hit an important intermediate low last week. The same applies for the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily. Both indicators recovered significantly last week and the first one even succeeded in flashing a bullish crossover signal. This is telling us that the short-term oriented momentum of advancing issues and advancing volume finally turned positive. This is telling us that the latest recovery was mainly driven by a strong demand, rather than being just a short-squeeze. Consequently, we strongly believe that the latest bounce marked the beginning of a longer-lasting bear-market rally. The main reason why we still talk about a bear-market rally is due to the fact that the absolute readings of our indicator framework are still a bit too weak-kneed at the moment. However, as long as we do not see a stronger spike in new lows (or other typical short-term oriented tape deterioration signals), the bounce will not be at risk of fading out – at least for now.

On the contrarian side, we can see that the market is quite overbought (Advance-/Decline Ratio Daily and the Upside-/Downside Volume Ratio Daily) and, therefore, it could be possible that some rocky sessions are seen on a very short-time frame. However, the most important contrarian signal is still coming from the options market. As already mentioned last week, with such bearish readings within the Daily Put/Call Ratio All CBOE Options, it is quite likely higher or at least stable prices will be seen until 18th of January (when the options expiry date is due). Moreover, such bearish readings often indicate an important (intermediate) low (as long as we see additionally a stronger recovery within short-term market breadth). Another reason that we think the latest bounce has the potential to mark an important intermediate low is due to the fact that market sentiment is outright bearish at the moment. So if the latest rally will continue, a lot of money managers will be forced to get back into the market. This purchasing power could, therefore, additionally act as a strong driver for higher prices into early Q1. Another interesting fact was, that our Smart Money Flow Index did not confirm the sell-off on Thursday, indicating a lot of smart buying on that day. The only negative signal is coming from the WSC Capitulation Index, which is still indicating a risk-off market scenario.

Mid-Term Technical Condition

The main reason, why we believe the market has just hit an intermediate and not a final low, is due to the fact that the technical condition of the market still looks very vulnerable at the moment. Although our Global Futures Trend Index increased by nearly 10 percentage points last week and, therefore, confirmed the latest gains of the S&P 500, the gauge is still too far away from passing its important 60 percent bullish threshold! As already mentioned a couple of times – from a formal point of view – the current correction cycle will not be over as long as its gauge keeps trading below that important threshold! In consequence, the latest recovery can still be classified as a bounce rather than a new sustainable uptrend. Also the WSC Sector Momentum Indicator has not succeeded in improving recently and even dropped to its lowest level for years! This fact reveals that the momentum score of most sectors within the S&P 500 are underperforming the momentum score of riskless money market. This circumstance is also proven by our Sector Heat Map as the momentum score of riskless money market continued to increase (by 10.3 percentage points during the week) and jumped to 93.5 percent. Already, nine sectors are now trading below the riskless money market sector! As already pointed out in our previous outlooks, this is just another indication for our preferred scenario that the recovery will just turn out to be a bear-market rally instead of being the start of a new bull-market!

Mid-term market breadth, in contrast, showed quite strong signs of recovery and, therefore, we received further confirmation for our short-term bear-market rally scenario. Our entire advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line) increased significantly last week, indicating that the bounce might continue for a while. Moreover, mid-term oriented advancing issues and mid-term oriented up-volume continued to gain more bullish ground. Also the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) showed some improvements, although on very low levels compared to the increase of the broad index. This indicates that the market remains supportive on a short-term time frame, but too weak on an absolute basis. However, we can see that the Modified McClellan Oscillator Weekly continued to decrease, indicating that overall tape momentum remains quite poor at the moment. Consequently, if any upcoming rally will not be able to get our mid-term oriented tape indicators back on track, we can be pretty sure of seeing another significant correction cycle later this year!

Long-Term Technical Condition

The long-term outlook of the market still shows a quite grim technical picture at the moment. Although our WSC Global MomentumIndicator increased last week, it is still trading at a very low level. This indicates that only 20 percent of all local equity markets around the world (which are covered by our Global ETF Momentum Heat Map) are trading above their long-term oriented trend. Also our Global Futures Long Term Trend Index continued to decrease and dropped to the lowest level for years. In addition, our WSC Global Relative Strength Index did not show any improvements last week and the relative strength of all risky markets is trading below the one from U.S. Treasuries. This is a clear indication that the market still remains in a technical bear-market at the moment. Focusing on our long-term oriented tape indicators reveals that the Modified McClellan Volume Oscillator Weekly also weakened, while hte percentage of stocks which are trading above their 200 day moving average and High-/Low Index Weekly slightly improved.

Model Portfolios

If we have a closer look at our Model Portfolios, we can see that there have been no changes in the allocation advice from the WSC Sector Rotation Strategy, the WSC Inflation Proof Retirement Portfolio and the WSC All Weather Model Portfolio. The WSC Global Tactical ETF Portfolio is switching from cash into treasuries.

Bottom Line

From a purely strategic point of view, the market remains in a technical bear-market. This is mainly due to the fact that our entire mid- to long-term oriented indicators remain quite bearish for the time being. However, on a short-term time perspective, the picture looks quite different. Despite the fact that we expected some kind of stronger bounce, the recovery within our short-term oriented indicators turned out to be quite strong last week. As a matter of fact, we strongly believe that there is a good chance that the latest bounce will turn out to be the start of a stronger and longer-lasting bear-market rally into early Q1. The main reason why we mentioned bear-market rally is due to the fact that the latest correction cycle has definitely left its mark on our mid- to long-term oriented indicator framework. Normally, it is not quite unusual to see some stronger and longer-lasting recovery periods within a technical bear market, which are then just followed by further waterfall declines. In such a situation, our mid-term oriented indicator framework is a key area of focus (e.g. Global Futures Trend Index). So in other words, if the upcoming counter trend rally is not accompanied by strong improvements within our mid-term oriented market breadth indicators (within the next couple of weeks), another correction leg in mid Q1 can be expected (preferred scenario for now). Anyhow, with extreme brightening readings within our indicator framework, the risk-/reward ratio of playing the upcoming bear-market rally looks quite attractive from the current point of view.

Consequently, after our conservative members successfully side-stepped the recent turmoil, we think it is time to get back into the market (by buying into weaknesses rather than chasing the market too aggressively on the upside) as the risk-/reward ratio for such a bet looks quite attractive at the moment. If capital preservation is an absolutely key motivation, we would advise you to wait another week for further confirmation. Aggressive traders should focus on buying into weaknesses rather than selling into strength. Moreover, we think it makes sense for our conservative members to place a stop-loss limit (closing price) around 2,455 which should act as a final safety net (during the week).

Example 3: Have You Side-Stepped the Corona Bear Market in 2020? Why Not?

Expected bounce in place, but …

March 8th 2020

Market Review

The market was in bounce mode last week. All three major U.S. averages eked out weekly gains after a wild roller-coaster week that saw the Dow swing 1,000 points or higher twice. For the week, the Dow Jones Industrial Average succeeded to gain 1.7% to close at 25,864.78. The S&P 500 managed to eke out a weekly gain of 0.6% to close at 2,972.37. The Nasdaq advanced 0.1% for the week to end at 8,575.62. Among the key S&P sectors, utilities was the best weekly performer, while energy dragged. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 41.9.

Strategy Review

In our last week’s market forecast we highlighted the fact that – on a very short time frame – we should not be too far away from an important short-term oriented low, which could act as basis for a stronger bounce. Moreover, we said that the quality of the upcoming bounce would give further guidance as to whether the recent sell-off represented a great buying opportunity or just relieved oversold conditions, which would then of course lead to further selling pressure. In fact, the market entered a stabilization phase since we saw stronger bouncing during the week. As a matter of fact, the impact of the recent stabilization on our indicator board remains a key area of focus right now.

Short-Term Technical Condition

If we focus on our short-term oriented trend indicators, we can see that the short-term down-trend of the market remains well in force and even gained more bearish ground last week. Purely from a price point of view, we can see that the S&P 500 closed 209 points below the bearish threshold from the Trend Trader Index. So from a purely price point of view, the S&P 500 is a considerable distance away from getting back into a short-term oriented uptrend. The same is true if we focus on the Modified MACD, which remains in a bearish free fall and reached the lowest level for months. Additionally, its gauge shows a widening bearish gap and has, therefore, refused to confirm the bounces that we saw last week. The case is the same if we focus on the Advance-/Decline 20 Day Momentum Indicator, which plummeted to the lowest level for months and has, therefore, also not confirmed the bounce we saw last week. So purely from a price point of view, the latest bounce can be still described as corrective rather than being healthy in its nature.

Unfortunately, the same is true if we focus on our short-term oriented market breadth indicators (since all of them have not shown any signs of positive divergences yet). In particular, the short-term gauges from the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily both continued to show major signs of exhaustion and plummeted significantly to their lowest levels for months. This indicates that the underlying momentum and volume of advancing stocks on NYSE literally collapsed. This is an outright negative signal if we consider the fact that the market showed some stronger rally days last week. This picture is also fully confirmed by the NYSE New Highs – New Lows Indicator, as we saw a strong spike in the number of new lows, whereas the number of new yearly highs was nearly zero! Consequently, the High-/Low-Index Daily remains outright bearish at the moment. Thus, the chances of a healthy (and sustainable) rebound are extremely low at the moment. On top of that it also tells us once again that the latest declines were driven by the whole market and were not only caused by a few heavy weighted stocks within the S&P 500! As a matter of fact, it was also not a big surprise that the percentage of stocks which are trading above their short-term oriented moving averages (20/50) has not shown any signs of recovery yet (since both gauges are trading at their lowest levels for months). Consequently, the latest bounce had hardly any positive impact on the current technical condition of the market. Therefore, it is too early to bet on fast and sustainable bullish trend-reversal (since the short-term down-trend of the market is well backed by short-term market breadth). That does not necessarily mean that we see fast and stronger declines immediately but it tells us that the chances for a fast and sustainable V-shaped recovery are literally zero.

The main reason, why it could be possible to see further stabilization/volatile sideways trading on a very short-time frame is due to the fact that our entire set of contrarian indicators remain bullish or have even strengthened their bullish signals last week. This becomes quite obvious if we focus on our option based indicators (Daily Put-/Call Ratio All CBOE Options, All CBOE Options Put-/Call Ratio Oscillator, Equity Options Put-/Call Ratio Oscillator and the WSC Put-/Volume Ratio), as all them indicate a broad-based capitulation within the market. This capitulation can also be seen if we focus on the CBOE Volatility Index, which spiked even higher on Friday although the S&P 500 is still trading well above its previous intra-day low at 2,850. On the other hand, we can see that our Smart Money Flow Index continued to show a bullish divergence to the Dow, whereas the gauge from our reliable WSC Capitulation Index continued to drop. These are typical ingredients on the contrarian side when the market enters a bottom building process. This bottom building process would be even supported by a seasonal point of view (Presidential Cycle and the Decennial Cycle), since the market often hit an important intermediate low in early March. However, if we consider the relatively grim tape signals at the moment, any stabilization phase should turn out to be corrective on a mid-term time horizon. As a matter of fact, we remain quite cautious at the moment.

Mid-Term Technical Condition

Another reason why we believe that the market is at risk of further disappointments is due to the fact that the latest bounce had no positive impact on the mid-term oriented technical condition of the market at all. This is mainly because the gauge from the Global Futures Trend Index dropped 33 percentage points during the week into the bearish area. Currently the gauge is trading around 11% and, thus, far below the very important threshold of 60 percent. In such a case, the technical condition of the market is highly at risk for further disappointments, of course only in combination with weak or bearish readings in mid-term oriented market breadth. As this is absolutely the case now, it is definitely time to maintain a cautious stance. So even if we do not see a stronger pullback immediately, as long as the gauge of this indicator remains far below 60 percent or does not show any signs of positive momentum (in combination with weak mid-term market breadth), the upside potential of the market should be limited as well! This means that any upcoming relief rallies (even stronger ones) are highly likely to turn out to be corrective in their nature. Another negative fact is that the gauge from the WSC Sector Momentum Indicator also dropped significantly for the week, although it is still trading far above its bearish threshold. Nevertheless, this is also a sign that the mid-term oriented (purely price driven) uptrend of several sectors within the S&P 500 has started to break down recently. A fact that can also be observed if we focus on our Sector Heat Map, since the momentum score of riskless money market spiked to 36% last week. This is another indication, that it might take some time until the market will get back into a strong and sustainable risk-on mode.

This picture is widely confirmed by mid-term market breadth. Especially, our Modified McClellan Oscillator Weekly widened its bearish gap last week and has, therefore, not confirmed the latest bounce we saw. Also the percentage of stocks which are trading above their mid-term oriented simple moving average (100/150) has not shown any momentum recently and continued trading at its lowest levels for months. This indicates that the underlying trend momentum of the market is clearly bearish, as most of all NYSE listed stocks remain in a strong downtrend at the moment. However, the most concerning signal is coming from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly, as both indicators clearly turned bearish last week. This indicates that a lot of purchasing power was pulled out of the market last week, and therefore, we would not be surprised to see further selling pressure ahead!

Long-Term Technical Condition

The long-term oriented trend of the market continued to weaken last week. The WSC Global Momentum Indicator dropped to the lowest level for weeks, indicating that the correction was global in scope as all local equity markets around the world (which are covered by our Global ETF Momentum Heat Map) dropped below their long-term oriented trend-lines. This global risk-off market environment can also be observed if we focus on the WSC Global Relative Strength Index since all risky assets lost momentum last week. Only the Global Futures Long Term Trend Index was holding up quite well, although it also looks like it had peaked  last week. Another concerning fact is that our entire long-term oriented tape indicators (High-/Low Index Weekly, Modified McClellan Volume Oscillator Weekly and the percentage of stocks which are trading above their 200 day moving average) also weakened significantly last week, which is just another piece of evidence that the current bull-market is highly at risk at the moment.

Model Portfolios

Last week, there were no changes within the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio, the WSC Dynamic Variance Portfolio and the WSC Sector Rotation Strategy.

Bottom Line

From a pure contrarian- and seasonal point of view, further stabilization/bouncing/bottom building into early March cannot be ruled out at the moment. However, given the fact that the latest stabilization phase had literally zero positive impact on our indicator board (especially within short-term market breadth), the recent stabilization phase can be still described as outright corrective rather than being healthy in its nature. This fact can also be seen if we focus on our WSC Big Picture Indicator which is now showing a bearish consolidation scenario at the moment. Consequently, the market is highly at risk for further disappointments. So in other words, as long as we do not see fundamental improvements within our indicator framework (especially within short-term market breadth), the risk-/reward ratio of being invested is outright depressed at the moment. Consequently, we think it would make sense for conservative members to change the stop loss limit at 2,840 from a daily closing price perspective to 2,890 (intra-day basis). The main rationale for why we think a stop-loss makes sense here is the fact that there might still be a small chance that if a further bounce was to occur next week, it would have a positive impact on our indicator framework (although this is not the preferred scenario).

Example 4: All In at the Bottom of the Corona Crisis? Of Course, Right?

Bounce successfully corrective! Time to raise exposure soon!

March 22nd 2020

Market Review

U.S. stocks attempted to rally on Friday, but failed, finishing another volatile and bruising week with sharp losses. After rallying more than 400 points earlier on Friday, the Dow Jones Industrial Average finished the week at 19,173.98. The blue-chip gauge dropped 17.3% for the week, its biggest one-week fall since October 2008, when it slid 18.2%. The S&P 500 closed the week at 2,304.92 and lost 15% week to date. The Nasdaq fell 12.6% from last Friday’s close to end at 6,879.52 (after jumping more than 2% on Friday). Both the S&P 500 and Nasdaq also had their worst weekly performances since the financial crisis in 2008. The 30-stock Dow Jones Industrial Average is now 35.2% below its all-time high level from February, while the S&P 500 is 32.1% below its high. All key S&P sectors ended once again in deep negative territory for the week, led by energy. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 66.

Strategy Review

In our last week’s comment, we warned our members not to go on a bargain spree since we expected to see another significant down-leg of the S&P 500 towards or even below its latest correction low at 2,478. In fact, the S&P 500 had its worst week since the financial crisis as it lost another 15% within a week. As a matter of fact, the market has followed our projected path exactly so far. The main rationale behind the bearish call that we made was the fact that the bounce two weeks ago had literally zero positive impact on our indicator board back then. Moreover, we said we needed to see some typical bottom building pattern within our indicator framework first, before we would expect to see some form of stabilization process. To be more precise, we said that it was extremely important to monitor the expected down-leg quite carefully as it would give us further guidance as to where the market is heading! In this context we also said that if such a down-leg was accompanied with quite strong positive divergences in market breadth (shrinking downside volume and/or declining issues, decreasing new lows …) in combination with persistent buy signals and positive divergences within our contrarian/fear indicators (lower CBOE Volatility Index, spike in amount of bears on Wall Street, spike on put options …) we would receive the first signs that the market might not be too far away from an ultimate low. Otherwise further renewed waterfall declines could be expected and the process starts all over again. As a matter of fact, we put a strong focus on these patterns within our indicator framework right now.

Short-Term Technical Condition

Focusing on our short-term oriented trend indicators reveals that the short-term down-trend of the market remains well in force and even gained more bearish ground last week. From a pure price point of view, we can see that the S&P 500 closed 442 points below the bearish threshold from the Trend Trader Index. In addition both envelope lines from this indicator are in a free fall. So from a purely price point of view, the S&P 500 is a considerable distance away from getting back into a short-term oriented uptrend. The same is true if we focus on the underlying trend momentum as the Modified MACD reached the lowest level for years. Moreover, we can see that this indicator also remains in a bearish free fall and is, therefore, far away from showing any signs of positive divergences yet. The situation is slightly different if we focus on the Advance-/Decline 20 Day Momentum Indicator. Although its gauge also plummeted to the lowest levels for years, we saw at least some minor positive divergence on Friday. Despite the fact that this divergence can be interpreted as some green shoots of recovery, we should not forget that this bullish divergence is still a little too small to be taken very seriously at the moment.

From an absolute point of view, our entire short-term market breadth (tape) indicators remain outright bearish at the moment. The short-term gauges from the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily continued to show major signs of exhaustion as they plummeted to their lowest levels for years. This tells us that the underlying momentum of advancing issues and advancing volume on NYSE literally vaporized last week. This fact can also be seen if we focus on the Upside-/Downside Volume Index Daily, which is still showing an outright negative volume flow at the moment. Another outright bearish signal is coming from the percentage of stocks which are trading above their short-term oriented moving averages (20/50). Both indicators were hardly able to drop deeper for the week as both of them languished near zero percent. As a matter of fact, the current tape condition can be described at outright bearish at the moment. This picture is also confirmed by the NYSE New Highs – New Lows Indicator, as we saw strong spikes in the number of new lows during the whole week, whereas the number of new yearly highs was nearly zero (with a very, very small exception on Friday)! Consequently, the High-/Low-Index Daily is far away from flashing a bullish crossover signal at the moment and the current tape condition can still be described as outright bearish. Although these signals do look quite grim on an absolute level, we have also seen some small positive divergences, which do normally occur if the market is about to hit an important low, or is entering a stabilization phase. First of all, we only saw 299 daily new lows on Friday, although the S&P 500 plummeted to a new bear market low. Even on Thursday, we already saw less new lows than the day before. This is telling us that the latest down-leg was driven by a smaller basis (or by a few heavy weighted-stocks in the index), which is an early but typical pattern when the market is about to stabilize. As a matter of fact, the High-/Low-Index Daily has not fully confirmed the low on Friday. Another quite typical bullish divergence is coming from the Upside-/Downside Volume Index Daily as its bearish gauge has lost some momentum recently (indicating a decreasing downside participation/volume). These are quite surprising facts, if we consider that the S&P 500 faced its worst week since the financial crisis in 2008. On top of that we saw a spike in NYSE volume, which also often occurs near important lows. So all in all, the ingredients for an important low/stabilization-/bottom building process are definitely accumulating at a very fast pace.

On the contrarian side, the bullish ingredients for a stronger low are also accumulating on a fast pace. As already mentioned two weeks ago (respectively in many former market forecasts), a typical pattern during an important low is when the CBOE Volatility Index (VIX) decreases even though the market hits a new bear market/correction low in that time period. If we focus on the CBOE Volatility Index (VIX), we can see that it dropped from 82 to 64, although the market dropped to 2,295 on Friday (intra-day basis). Also, our entire option based indicators grew further into bullish territory (AII CBOE Put-/Call Ratio Oscillator, Equity Options Put-/Call Ratio Oscillator and the WSC Put-/Volume Ratio). One specific option based indicator to mention here is the Daily Put-/Call Ratio All CBOE Options Indicators, since its z-score reached a value of 3.7. This is outright bullish, since from a statistical point of view such a number hardly occurs. Moreover, we can see that the amount of bears on Wall Street also spiked to 51. All these facts are telling us that a lot of fear/bad news is already priced in, leaving the market extremely vulnerable for positive surprises. In other words, a spark of good news might be enough to trigger a strong counter trend rally. Anyhow, on the other hand, we can see that the Smart Money Flow Index did not confirm the low on Friday, whereas the WSC Capitulation Index is also showing that it might be time to consider a risk-on market environment soon. So all in all, the typical ingredients for a stronger counter trend rally are accumulating.

Mid-Term Technical Condition

Not surprisingly, the mid-term oriented condition of the market looks quite damaged. The gauge from the Global Futures Trend Index dropped once again and has finally reached the bottom (0.6%), which is the lowest level for years. As a consequence, the technical condition of the market can be still described as outright corrective at the moment – especially if we consider the very weak readings in mid-term oriented market breadth. Consequently, any upcoming counter-trend rally should lead to stronger improvements within this indicator. Otherwise, the previous (bear market low) will be tested or broken again. Anyhow, another negative fact for the time being is that the gauge from the WSC Sector Momentum Indicator also dropped significantly for the week and reached the lowest level for months. This is confirmation that more and more sectors within the S&P 500 are underperforming in relation to riskless money market on a relative basis. This fact is also illustrated in our Sector Heat Map where the momentum score of riskless money market rocketed 28 percentage points last week to end at 82.4%. So as long as we do not see a significant drop in this number, the mid-term technical condition of the market remains quite fragile.

This picture is widely confirmed by mid-term market breadth. Our Modified McClellan Oscillator Weekly widened its bearish gap last week and also the SMA (100/150) has not shown any recovery recently and has continued trading at its lowest levels for months. This indicates that the underlying trend momentum of the market is absolutely bearish and all NYSE listed stocks remain in a strong downtrend at the moment. However, the most concerning signal is coming from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly, as both indicators widened their bearish gaps tremendously. These facts indicate that once again a lot of purchasing power was pulled out of the market last week.

Long-Term Technical Condition

In addition, the long-term oriented trend of the market continued to weaken last week. The WSC Global Momentum Indicator hit rock bottom, indicating that the bear-market is global in scope since all local equity markets around the world (which are covered by our Global ETF Momentum Heat Map) are trading below their long-term oriented trend-lines. This global risk-off market environment can also be observed if we focus on the WSC Global Relative Strength Index since all risky assets lost momentum last week. Finally, our Global Futures Long Term Trend Index also dropped last week (although it was holding up quite well during previous weeks). Another concerning fact is that our entire long-term oriented tape indicators (Modified McClellan Volume Oscillator Weekly, the SMA 200 and the High-/Low Index Weekly) weakened significantly last week.

Model Portfolios

If we have a closer look at our Model Portfolios, we can see that there have been no changes in the allocation advice from the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio and the WSC Dynamic Variance Portfolio. As the underlying risk management indicator (WSC Sector Momentum Indicator) of the WSC Sector Rotation Strategy turned bearish, the portfolio is switching into its predefined bear-market allocation.

Bottom Line

The latest correction leg of the S&P 500 to 2,295 was definitely accompanied with some typical patterns we usually see when the market is about to hit an important bottom. As a matter of fact, the ingredients for a stronger and longer-lasting counter-trend rally are definitely increasing at a very fast pace. The main reason that we describe it as important and not as a final low is due to the fact that the quality of the upcoming rally will need to be examined in order to answer that question. Right now, we are still early in that process, since apart from the positive divergence mentioned above, we have not seen any bullish (crossover-) signals within our short-term oriented indicator framework so far. Consequently, it could be possible that we see some further down-testing ahead, but the chances for an impulsive break-out are definitely increasing (as long as we see a strong decreasing amount of new lows/increasing new highs and an improving short-term oriented indicator framework). Consequently, the best approach for our conservative members (with a strong focus on preservation) is to stay on the sidelines until we see at least some bullish (crossover-)signals within our short-term oriented indicator framework. Aggressive traders should start focusing on the long-side again (or should close profitable short-positions) if we see further improvements within short-term indicator framework (especially within our NYSE New Highs-/New Lows Indicator).

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