March 31st 2019
U.S. stocks wrapped a quite volatile week and all three major U.S. averages finished the week with decent gains. The Dow Jones Industrial Average added 1.5 percent from last Friday’s close to 25,928.68. The blue-chip index just eked out a roughly 0.1 percent gain for March, and an 11.2 percent charge higher in the first quarter. The S&P 500 advanced 1.2 percent during the week to 2,834.40. The broad index only booked a 1.8 percent monthly rise and a first-quarter advance of 13.1 percent, the best quarterly performance since the third quarter of 2009. The Nasdaq closed at 7,729.32 and added 1.1 percent for the week. The heavy-tech index is up 2.6 percent for the month and advanced 16.5 percent for the first three months of the year. Nearly all key S&P sectors ended in positive territory for the week, led by industrials. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended near 13.7.
Short-Term Technical Condition
Not surprisingly, the readings from our entire short-term oriented trend-indicators slightly strengthened last week. This is mainly due to the fact that the S&P 500 managed to close slightly above the bullish envelope line from the Trend Trader Index. This is telling us that the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 2,790. In addition, we can see that both envelope lines of this reliable indicator are still slightly increasing, which is another positive short-term oriented price driven trend-signal. On the other side we can see that the underlying time-series momentum of the market remains quite weak-kneed as the Modified MACD has not managed to close its bearish gap so far. Above all, we can see that the gauge from the Advance-/Decline 20 Day Momentum Indicator closed at quite low bullish levels, although it slightly increased last week. This is another indication that the current bullish biased slow-growth period might continue for a while (at least from a pure trend-point of view).
Basically, the same is true if we evaluate the underlying time-series momentum condition of the market. Despite the fact that the S&P 500 increased for the week, the readings within our short-term oriented breadth indicators were developing moderately last week. Consequently, the signals from most of our short-term oriented tape indicators can be described as somehow supportive, but not really confirmative at the moment. As a result, further volatile range-bound trading looks quite likely as the tape condition is too weak to justify another stronger and sustainable rally from current levels (at least from the current point of view). 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 signalling that the underlying tape momentum of the market is still outright negative. This view is also supported by the percentage of stocks which are trading above their short-term oriented simple moving averages (20/50). Although both gauges increased for the week, they are still trading in bearish territory. This is telling us that last week’s gains were only driven by a few heavy weighted stocks rather than by a broad basis! Hence, the current break-out attempt of the market looks quite fragile in its nature and, therefore, we would not be surprised to see some increased selling pressure ahead. Nevertheless, any upcoming selling pressure should be also remained capped on the downside as long as we see more new highs than new lows (which is the case right now). If we have a closer look at the NYSE New Highs – New Lows Indicator, we can see that the number of stocks hitting a fresh yearly high outpaced the new lows. As a matter of fact, the High-/Low-Index Daily keeps trading at solid bullish level. So all in all, the current tape condition is telling us that it is highly likely that the market remains within its bullish biased but volatile side-ways trading set-up for a while.
Unchanged compared to last week, this view is still confirmed by most of our contrarian indicators. Our reliable Smart Money Flow Indexkeeps trading sideways, indicating further range-bound trading ahead. However – from a pure contrarian point of view – the slow growth period has at least a bullish tilt as the fisher transformation from the WSC Capitulation Index dropped significantly last week. From a pure cyclical point of view (Presidential Cycle), the current consolidation period is highly likely to end soon as the market should face stronger tailwinds in May. This is another indication, that the current consolidation period still has a bullish tilt (even from a contrarian point of view).
Mid-Term Technical Condition
Another reason, why we believe that the current consolidation period still has a quite bullish tilt is due to the fact that the mid-term uptrend of the market remains more or less unchanged compared to last week. Our reliable Global Futures Trend Index succeeded to stay in its bullish consolidation range which is a quite constructive signal (especially together with a recovery in mid-term oriented market breadth). However, on the other hand side, it has also not really confirmed the latest rally attempt from the S&P 500. As a matter of fact, the overall set-up remains supportive but not overwhelmingly bullish. This view is also confirmed by the WSC Sector MomentumIndicator, which stabilized at quite solid bullish levels, signaling that most sectors within the S&P 500 (38 percent) remain in a mid-term uptrend. This can be also seen if we focus on our Sector Heat Map, where the momentum score from riskless money market dropped to 13.5 percent. And currently there are only 3 out of 9 sectors within the S&P 500 which are having a lower score than that. In our view, this is another indication that the risk appetite among investors is still persistent and, therefore, the risk of a stronger correction remains quite subdued at the moment.
More importantly, the positive mid-term oriented trend of the market is still widely confirmed by mid-term oriented market breadth. Beside the Advance-/Decline Volume Line, our entire advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line in Percent and the Advance-/Decline Line Weekly) continued to strengthen in the last couple of trading sessions. In other words, the recent situation is widely supported by a broad basis (on a mid-term time perspective), which is a quite healthy breadth signal for the time being. Moreover, mid-term oriented advancing issues and mid-term oriented up-volume are still trading far above their bearish counterparts. In such a situation, the risk of a stronger correction is outright low. On the other hand, it is quite common that the market enters a longer-lasting consolidation period, after both indicators start to recede from outright bullish levels. Anyhow, also our Modified McClellan Oscillator Weekly succeeded to increase last week, indicating that the mid-term oriented tape momentum is slightly getting back on track. This can be also seen if we focus on the percentage of stocks which are trading above their mid-term oriented moving averages (100/150). Both gauges increased, and the one on a 100 days frame passed the bullish threshold. So all in all, the current upside participation within the market is still quite supportive and, therefore, we think it is still a bit too early to take the chips from the table (as the underlying tone remains bullish biased).
Long-Term Technical Condition
The long-term oriented trend of the market also continued to show signs of improvements last week, supporting our view that the current consolidation still looks quite supportive in its nature. Our WSC Global Momentum Indicator is trading at quite high levels, indicating that currently 65 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. This is a quite supportive technical signal, as it shows that the current rally still remains global in scope. Also, our Global Futures Long Term Trend Index gained some bullish ground, which can be seen as another quite supportive momentum signal at the moment. Once again, all markets in our WSC Global Relative Strength Index increased last week. Examining our long-term market breadth indicators (Modified McClellan Volume Oscillator Weekly, High-/Low Index Weekly and the percentage of stocks which are trading above their 200 day moving average), reveals that all of them continued to strengthen last week. This is a clear signal that the long-term market internals are also gearing up.
As it was the last Friday of the month, we received a new allocation advice from the WSC All Weather Model Portfolio and the WSC Inflation Proof Retirement Portfolio. As the momentum score from industrials dropped below average and below the one from the S&P 500 (within our Sector Heat Map), we received a sell signal for that sector within the WSC Sector Rotation Strategy, whereas the allocation from the WSC Global Tactical ETF Portfolio remains unchanged.
Our strategic bullish outlook remains unchanged compared to last week and, therefore, we think it is still a way too early to take the chips from the table. To be more precise, given the quite supportive/bullish readings on a mid- to long-term time perspective, the market is not at risk of facing a stronger correction at the moment. On the other hand side, the upside potential of the market still looks quite capped as the current short-term oriented tape condition of the market remains supportive but not really overwhelmingly bullish. As a result, further volatile but bullish biased consolidation work into early May looks extremely likely. However, from a pure cyclical point of view, May tends to be a quite good month in pre-election years. Consequently, it could be possible to see a recovery within our tape indicators soon (which would act as basis for further rallying). But for now, the picture is almost unchanged compared to last week and, therefore, further range-bound trading can be expected. In our opinion, conservative members should remain invested, whereas aggressive traders should stay at the sideline/or reduce leverage as it is quite tricky to trade a range-bound trading market.