The Big Picture Indicator

Overview:

• Category: Summary
• Update Schedule: Daily & Weekly

Description/Construction:

• The WSC Big Picture Indicator identifies the current position within an ongoing stock market cycle. It shows the cyclical relationship between the most important signals from our short- and mid-term oriented timing indicators (trend, market breadth and sentiment/contrarian) in a six-quadrant diagram (Path View). This Path View is then translated into a line chart (normal view).

Regimes:

1. Bullish
   • Description: Positive market regime accompanied by low volatility. The uptrend is packed by a high trend quality since the upside participation within the stock market is broad-based. Sentiment is neutral to fearful. Risk of a sustainable trend reversal is outright low.
   • Strategy: Build up or hold long positions, increase exposure/leverage on weak trading days, sell volatility, buy high beta stocks, sell puts or buy calls.
2. Bullish Consolidation
   • Description: Positive market regime accompanied by increased volatility. The uptrend is slowing down, or might even turn neutral, but the trend quality remains moderate to high. At the beginning of that regime, sentiment is typically greedy and at the end fearful. Although negative trading days are likely, the risk of a sustainable trend reversal remains low. Ignore these negative trading days, as they are just part of a healthy breather.
   • Strategy: Hold long positions (no usage of leverage), sell covered puts, buy calls as speculation.
3. Bearish Consolidation
   • Description: Capped upside potential together with an increasingly high risk for waterfall declines. Expect high volatility in that regime. The trend is neutral to bearish biased and the downside participation within the index starts to increase. The trend quality starts to confirm the negative trend of the index. Sentiment is typically neutral or even still greedy. Weak trading days are often just the starting point for stronger selling pressure or even a correction.
   • Strategy: Take profits, reduce leverage and high risk/beta trades, and define a hard stop level to exit.
4. Bearish
   • Description: Negative market regime accompanied by extremely high volatility. The trend is negative and packed by a broad basis. Thus, the trend quality is high. At the beginning of that regime, market sentiment is typically neutral and at the end fearful. The market is also hitting the ultimate low in that regime (since at the end nobody is left to push prices lower).
   • Strategy: Although prices might appear cheap, do not start bottom fishing or build up speculative long positions unless typical signs for a stabilization regime are visible.
5. Stabilization
   • Description: Stabilizing market regime accompanied by declining volatility. The downtrend is slowing down or turned even neutral. The quality of the downtrend is low since the upside participation in the index starts to increase from low levels. Sentiment is typically neutral to fearful. In that regime it is difficult to differentiate if the stabilization/
     recovery process is sustainable or just part of a stronger bear market rally.
   • Strategy: Build up tactical/selective exposure, buy calls as speculation and use close stops in that regime.
6. Recovery
   • Description: Increasingly positively biased market environment accompanied by high volatility. The uptrend is getting increasingly broad-based in its nature, whereas sentiment is typically fearful.
   • Strategy: Build up selective exposure, buy calls as speculation and use close stops in that regime.