December 8th 2019
Last week, all three major U.S. averages finished a volatile week nearly unchanged. The Dow Jones Industrial Average lost 0.1 percent during the week to close at 28,015.06. Friday’s performance was the Dow’s best since Oct. 4, when it rallied 1.4 percent. The S&P 500 managed to eke out a weekly gain of 0.2 percent to close at 3,145.91. On Friday the broad index booked its biggest one-day gain since Oct. 15. The Nasdaq lost 0.1 percent for the week to end at 8,656.53. The benchmarks also closed just below their record highs reached Nov. 27. The S&P 500 was just 0.3 percent away from hitting an all-time high. The Dow and Nasdaq are both 0.6 percent off their records. Of the 10 sectors in the index, the energy sector led decliners, while industrials led advancers. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 13.6.
Short-Term Technical Condition
Despite the fact that the market finished nearly flat for the week, the pure price driven short-term oriented uptrend of the market remains in place so far. This is due to the fact that the S&P 500 managed to close 42 points above the lower (bearish) envelope line of the Trend Trader Index on Friday. As a matter of fact, the market remains bullish biased (from a pure price point of view) as long as the market trades above 3,103 (lower envelope line of the Trend Trader Index). Unchanged compared to last week, we can see that both envelope lines of this reliable indicator are still increasing, which is another positive short-term oriented price driven trend-signal at the moment. On the other side we can see that the underlying trend momentum of the market still remains quite weak-kneed as the Modified MACD has not managed to close its bearish gap so far. This indicates some form of short-term exhaustion, a fact which can be also observed if we focus on the Advance-/Decline 20 Day Momentum Indicator. Although its gauge finished the week in bullish territory, its overall level is far away from confirming the current level of the S&P 500. As a result, the current short-term oriented trend of the market can be described as supportive but not really confirmative at the moment.
Basically, the same is true if we focus on our short-term oriented tape indicators. Despite the fact that the S&P 500 is trading slightly below its all-time high, the readings within these indicators were developing moderately last week. Consequently, the signals from most of our short-term oriented tape indicators can be described as weak-kneed, although most of them still remain bullish from a pure signal point of view. As a matter of fact, most of them are still showing a quite concerning bearish divergence if we consider the current levels from the S&P 500! This applies in particular to the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily as both indicators have not shown any signs of strengths recently! This is signaling that the underlying tape momentum of the market is still outright weak. Consequently, it could be possible that the market might face a bullish biased but volatile consolidation period soon. The main reason, why we still mention bullish biased here, is based on the fact that the readings from the percentage of stocks which are trading above their short-term oriented simple moving averages (20/50) still remains quite bullish at the moment. Moreover, we have not seen a negative spike in new lows yet, which would be one of the first indications for a stronger trend-reversal. On the other hand, the overall numbers of new highs still remains too low (apart from the spike on Friday), to justify further (sustainable) rallying ahead. Consequently, the bullish gauge from the High-/Low-Index Daily has not shown any stronger confirmative moves recently and is, therefore, still forming a quite bearish divergence to the current levels from the S&P 500. So all in all, the underlying tape condition can still be described as bullish biased, whereas we should not forget that this tilt could transform into a more corrective setup literally within days.
The situation on the contrarian side looks relatively calm as most of our option based indicators (Daily Put/Call Ratio All CBOE Options, AII CBOE Put-/Call Ratio Oscillator, Equity Options Put-/Call Ratio Oscillator, WSC Put-/Volume Ratio and the WSC Put-/Volume Ratio Oscillator) as well as market sentiment (amount of bulls/bears on Wall Street) are giving no reason to worry right now. The only mid-term red-flag on the horizon is coming from the Smart Money Flow Index, which still has not confirmed the latest high from the Dow Jones Industrial Average. Moreover, we can see that the WSC Capitulation Index is also showing some stronger signs of momentum (at quite low levels), which was historically also often the case when the market entered a bullish biased consolidation period.
Mid-Term Technical Condition
Another main reason, why we believe that any upcoming consolidation should have a bullish tilt is due to the fact that the mid-term oriented up-trend of the market still remains intact. Currently, the gauge from the Global Futures Trend Index is trading well above its bullish 60 percent threshold and has, additionally, not shown some stronger signs of negative momentum so far. This can be interpreted as a quite bullish technical trend signal as such readings (in combination with bullish mid-term oriented tape signals) have never led to any stronger correction/trend-reversal in the past! Also the gauge from our WSC Sector Momentum Indicator is still trading at quite confirmative bullish levels, indicating that many sectors in the S&P 500 remain in a mid-term oriented uptrend. These bullish facts are also supported by our Sector Heat Map as the momentum score of riskless money market (from our Sector Heat Map) decreased to 6.5 percent last week! Based on these facts, we strongly believe that it is a bit too early to bet on a major trend-reversal now.
On top of that, we can see that the current mid-term oriented time-series momentum of the market is still mostly confirmed by mid-term oriented market breadth. Especially, our entire advance-decline indicators (Advance-/Decline Volume Line, Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly) increased in the last couple of trading sessions or were holding up quite well. Thus, they are clearly confirming the recent level of the S&P 500! Moreover, mid-term oriented advancing issues and mid-term oriented up-volume also showed some signs of recovery, which is another bullish fact. Above all, the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) has not shown any signs of weaknesses yet, indicating still a quite strong underlying demand. The only negative signal is coming from the Modified McClellan Oscillator Weekly which has narrowed its bullish gap recently and is, therefore, about to flash a bearish crossover signal soon. This is telling us that the underlying tape momentum of the market is slowing down a bit. Apart from that fact, the mid-term oriented tape condition of the market still looks quite healthy at the moment.
Long-Term Technical Condition
The long-term oriented trend of the market shows nearly the same picture as in the previous weeks. The WSC Global Momentum Indicator remains quite bullish, as its gauge still shows that 67 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. Moreover, we can see that the gauge from the Global Futures Long Term Trend started to bottom out at quite confirmative levels, indicating that the long-term trend of the market is re-gaining momentum. On top of that, we can observe that the relative strength of nearly all risky markets improved once again last week (whereas U.,S. equities are leading the race), which is another indication for the current risk-on market environment. In addition, long-term market breadth in the U.S. still remains constructive and is confirming the current long-term oriented trend of the market. This view is supported by the fact that the Modified McClellan Volume Oscillator Weekly increased its bullish gap last week and that the percentage of stocks which are trading above their long-term oriented moving averages (200) and also the High-/Low Index Weekly were holding up quite well or even strengthened.
Last week, there were no changes within the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio, the WSC Sector Rotation Strategy and the WSC Dynamic Variance Portfolio. Moreover, we are proud to announce that the WSC All Weather Model Portfolio reached a new all-time high last week.
With quite stretched/non-confirmative signals within our short-term oriented indicators, a period of consolidation/volatile sideways-trading with a bullish tilt looks quite likely. Right now, any upcoming consolidation can be still categorized as non-corrective as most of our mid- to long-term oriented indicators remain quite supportive at the moment. A fact which can also be observed within our Big Picture Indicator. Thus, our strategic bullish outlook remains unchanged and, therefore, we think it is still a way too early for our conservative members to take the chips from the table. Nevertheless, if we consider all these short-term divergences in addition with the fact that the readings within our indicators could change quite quickly during the week, we think it would also make sense to place a stop-loss limit at 3,065 (intraday basis). This stop-loss should just act as additional safety net and should remain in place as long as these divergences have not been sorted out. Aggressive short-term traders should also remain in the bullish camp (although they should not use too much leverage/use close stops at the moment).