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November 6th 2021

Market Review

U.S. stocks rallied for another week, with all three main benchmarks scoring all-time closing highs. The Dow Jones Industrial Average posted a weekly increase of 1.4% to finish at a record of 36,327.95. The S&P 500 rose 2% for the five days to a record closing of 4,697.53. On Friday the broad index booked its seventh straight positive day and pushed its 2021 gains to 25%. The Nasdaq rallied 3.1% during the week to 15,971.59, a record high as well. In addition, its best weekly performance since early April. Nearly all key S&P sectors ended in positive territory for the week, led by the discretionary sector. Financials and health care were the only decliners. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded around 16.5

Short-Term Technical Condition

In line with our latest Market Timing Forecast, the market continued to push higher last week. More importantly, this advance was fully confirmed by our entire short-term oriented trend indicators (as all of them remain very bullish for the time being). If we analyze the purely price driven trend, we can see that the S&P 500 is now trading 180 points above the bearish threshold from the Trend Trader Index. Consequently, this purely price driven uptrend of the market remains intact as long as the S&P 500 keeps trading above 4.517. Given the fact that we saw higher highs and higher lows within the past 20 days, both envelope lines of this reliable indicator are also still drifting higher and even gained more momentum in the past days. Hence, the resistance/support levels for the S&P 500 are increasing as well, which is another quite constructive technical trend signal at the moment. If we focus on the underlying trend momentum, we can see that the Modified MACD also strengthened its bullish status considerably last week. Therefore, it fully confirmed the latest all-time high of the S&P 500. This view is also confirmed by the Advance-/Decline 20 Day Momentum Indicator which also closed at the highest levels for months. So, form a purely momentum point of view, the uptrend of the market remains well in force for the time being.

More importantly, short-term market breadth reveals that the current upside participation within the ongoing short-term oriented uptrend looks also very broad based. In such an environment, we argue against acting contrarian (by taking any kind of short-selling activities) since the chances for a stronger and sustainable momentum-crash (trend-reversal) should remain extremely low. First of all, we saw a solid number of stocks which hit a fresh yearly high (especially on Friday), whereas we hardly saw any stocks which were pushed to a new yearly low. Thus, the gauge of the High-/Low-Index Daily widened its bullish gap significantly. This tells us that the latest gains were definitely driven by the whole market instead of being just the result of a large-cap driven rally. Another positive tape signal is coming from the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily. Both indicators are not only trading at their highest levels for months, but they also widened their bullish gaps last week. This is telling us that the momentum of advancing issues and advancing volume has enough positive momentum to support the current uptrend. A fact which 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 booked a solid surge in the past week and are trading in solid bullish areas. This indicates that the current uptrend is supported by the majority of all listed U.S. stocks. Also short-term up-volume (Upside-/Downside Volume Index Daily) was holing up quite well last week. With such solid signals all across the board, it is highly unlikely that the current year-end rally will run out of fuel soon – at least from the current point of view.

On the contrarian side we can see that the level of complacent continued to increase. Especially our entire option based indicators (WSC Dumb Money Indicator, AII CBOE Put-/Call Ratio, Equity Options Call-/Put Ratio Oscillator, WSC Put-/Volume Ratio and the WSC Put-/Volume Ratio Oscillator) are signaling that the majority of market participants are betting on further gains. As a result, sentiment driven washout-days cannot be ruled out yet. However, given the current trend quality such washout-days do not have the power to trigger a sustainable trend reversal. Moreover, we can see that the WSC Capitulation Index is still signaling a risk-on market environment since Smart Money continued to build up positions. Therefore, any upcoming weaknesses should turn out to be limited in price and time.

Mid-Term Technical Condition

The mid-term oriented up-trend of the market looks outright healthy for the time being. Hence, it is a way too early to get bearish from a purely strategically point of view. To be more precise, the gauge of the reliable Global Futures Trend Index increased by another 2 percentage points to 85%. Additionally, the mid-term oriented uptrend remains also well intact since the WSC Sector Momentum Indicator keeps trading sideways at outright bullish levels. This is telling us that the majority of all underlying sectors within the S&P 500 remains in a powerful mid-term oriented uptrend. This can also be seen if we examine our Sector Heat Map as the momentum score of all sectors remains above the one from riskless money market, which remains at 0%. These facts are another indication that the risk appetite among investors remains quite high.

Another reason why we remain so bullish is based on the fact that mid-term oriented market breadth also improved considerably over the past sessions. After weeks of decline, our Modified McClellan Oscillator Weekly finally bottomed out last week and started to increase, narrowing its bearish gap. Hence, it is about to flash a bullish crossover signal soon. This indicates that the underlying tape momentum is improving. And all our advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line Weekly) improved or even rocketed (Advance-/Decline Volume Line) for the week and have reached their highest readings for months. Therefore, they have fully confirmed the latest record of the S&P 500! Another encouraging signal is coming from the percentage of stocks which are trading above their mid-term oriented moving averages (100/150), as both gauges grew to very solid levels. Thus, the quality of the current mid-term oriented uptrend looks broad-based at the moment. Also mid-term oriented advancing issues as well as mid-term oriented up-volume succeeded to increase last week, which is another important mid-term oriented breadth signal. With such strong readings all across the board, we remain outright bullish at the moment (since any potential sentiment driven weaknesses should turn out to be limited in price and time).

Long-Term Technical Condition

The long-term bullish status of the market remains unchanged. Our WSC Global Momentum succeeded to increase by 7 percentage points and indicates that 65% of all local equity markets (which are covered by the Global Momentum Heat Map) are trading above their long-term oriented trend lines. Even though our Global Futures Long Term Trend Index slightly declined for the week, it was still holding up quite well, indicating that the long-term oriented uptrend of U.S. equities remains intact. The relative strength of all risky markets slightly decreased compared the previous week. In addition, 4 markets are trading below U.S. Treasuries. If we examine our long-term oriented tape indicators (SMA 200, Modified McClellan Volume Oscillator Weekly and the High-/Low Index Weekly) we can see that all of them improved.

Model Portfolios

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 Model Portfolio Composite, the WSC All Weather Model Portfolio, the WSC Sector Rotation Strategy and the WSC Inflation Proof Retirement Portfolio reached a new all-time high last week.

Bottom Line

Our bullish outlook remains unchanged compared to the previous week. Even though sentiment driven washout days cannot be ruled out, there is no fundamental reason to change our strategic bullish outlook for the time being. The market has been exactly following our expected path so far and given the outright bullish tape structure, we expect further gains on the horizon. A fact, which can also be seen if we focus on our Big Picture Indicator, which is still moving around within its bullish quadrant. As long as this is the case, we think it might be a bit too early to take the chips from the table. For that reason, we think it would make sense for our conservative members to remain invested, whereas aggressive traders should stick in the bullish camp.

Stay tuned!