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April 3rd 2022 |

Key Takeaways

  • We stick to our strategic bullish outlook for the S&P 500 from January 20th.
  • Quality of the current uptrend continued to improve (even on a mid-term time perspective)
  • On a very short-term time perspective a sentiment-driven consolidation cannot be ruled out.
  • We decided to stop publishing the long-term section in our Weekly Market Timing Forecast since it has no impact on our forecast.

Market Review |

Last week, all three major U.S. averages finished a turbulent week nearly unchanged. The Dow Jones Industrial Average lost 0.1% during the week to close at 34,818.27. The S&P 500 managed to eke out a weekly gain of 0.1% to close at 4,545.86. The Nasdaq gained 0.7% for the week to end at 14,261.50. Among the key S&P sectors, real estate was the best weekly performer, while the financial sector dragged the most. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 19.6.

Short-Term Technical Condition

The purely short-term-oriented price trend of the S&P 500 remains intact as the broad-index closed far above (178 points) the bearish threshold of our Trend Trader Index. In addition, the resistance/support levels for the S&P 500 are increasing as well since both envelope lines of this reliable indicator continued to drift higher and even gained more momentum within the last week. This is based on the fact that we saw higher highs and higher lows on a rolling 20 days basis, which is a typical pattern for a healthy price driven up-trend. This strong momentum is also confirmed by the fact that the Modified MACD and the Advance-/Decline 20 Day Momentum Indicator closed at their highest levels for weeks. So, from a purely trend point of view, the uptrend of the market remain well in fore for the time being.

More importantly, the underlying quality of this short-term-oriented uptrend reflects a very solid picture at the moment. In other words, the current up-trend is driven by a broad basis and, therefore, the risk for a sudden trend reversal should remain low. First of all, the momentum of advancing stocks (Modified McClellan Oscillator Daily) and advancing volume (Modified McClellan Volume Oscillator Daily) remains positive and continued to improve considerably. Thus, the current short-term-oriented up-trend is still well supported by improving volume and advancing stocks. A fact, which can also be observed if we focus on the percentage of stocks which are trading above their short-term-oriented simple moving averages (20/50) and the Upside-/Downside Volume Index Daily. Consequently, the current up-trend is still driven by a board basis. Also, the number of stocks hitting a new yearly high outpaced the ones hitting a new yearly low. As a consequence, our High-/Low Index Daily finally succeeded to flash a bullish crossover signal indicating that the market internals are improving. Based on this given solid upside participation, we expect further gains on the horizon.

Sentiment-wise, we can see that most of our option-based oscillators remain quite bearish at the moment (WSC Put-/Volume Ratio, Equity Options Call-/Put Ratio Oscillator and the AII CBOE Call-/Put Ratio Oscillator). This indicates that short-term greed is still a bit elevated and, therefore, further volatile but short-lived sideways trading cannot be ruled out at the moment. Such a sentiment driven consolidation is quite typical after a strong rally. On the other hand, we can see that the recent volatile week had already a dampened effect on sentiment as we saw a spike in the Daily Put-/Call Ratio All CBOE Options on Friday. Moreover, we can see that Smart Money continued to confirm the latest advance (Smart Money Flow Index), whereas the WSC Capitulation Index is still indicating a risk-on market environment. So even if we see further sentiment driven volatility (consolidation), there are no major clouds on the horizon visible at the moment.

Mid-Term Technical Condition

This view is also supported by a strengthening mid-term-oriented trend. The most important indication is coming from our Global Futures Trend Index, which continued to improve and nearly got back into the bullish consolidation area. Although it has not yet succeeded to pass the 60% threshold, it showed a strong positive momentum in the past sessions. Another indication for a strengthening mid-term-oriented trend is coming from our WSC Sector Momentum Indicator. This gauge, which measures the purely mid-term-oriented price trend of the underlying sectors of the S&P 500, showed also strong signs of improvements last week. These positive signals can also be observed if we analyze our Sector Heat Map. It reflects that the momentum score of riskless money market dropped by 4 percentage points last week to end at 13.7%. In addition, only one sector (consumer discretionary) is now trading below the riskless money market. Consequently, we think it is a way too early to change our strategic bullish view.

The quality of this mid-term-oriented trend also showed a solid improvement last week. This means in more detail that we saw a strengthening upside participation and robust underlying demand. These facts can be seen if we analyze our advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line Weekly, Advance-/Decline Volume Line). Also, the up-volume (Upside-/Downside Volume Index Weekly) and the momentum of mid-term-oriented advancing issues (Modified McClellan Oscillator Weekly and Modified McClellan Volume Oscillator Weekly) improved. Only the percentage of stocks which are trading above their mid- (100/150) and long-term-oriented simple moving averages (SMA 200) could be a bit stronger. Even though our mid-term-oriented trend quality indicators are not fully confirmative at the moment, nearly all of them improved last week. With such stronger signs of improvements, we think the current recovery is not at risk of fading out at the moment.

Model Portfolios

Last week, there were no changes within the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio and the WSC Dynamic Variance Portfolio. Since the momentum score of materials rose above average and above the one of the S&P 500 within our Sector Heat Map, we received a buy signal for that ETF in our WSC Sector Rotation Strategy.

Bottom Line

The situation remains unchanged compared to last week. Even though further sentiment-driven consolidation cannot be ruled out on a very short-term time frame, the current recovery of the S&P 500 is still driven by a broad basis. Thus, the quality of the latest gains still look quite high. A fact which can also be observed if we focus on gauge of the Big Picture Indicator, which is now indicating a “Recovery” market regime which is definitely another upgrade compared to the previous “Stabilization” environment. Thus, we are expecting further gains on the horizon, although volatility should remain high. Reversely, this means that the risk for another major correction leg should remain low – at least for the time being. So all in all, given the current readings/development of our indicators, we stick to our strategic bullish outlook.

PS: We decided to stop publishing the long-term section in our Weekly Market Timing Forecast since it has no impact on our forecast.

Stay tuned!