June 30th 2019

Market Review

U.S. stocks finished the week nearly unchanged. For the week, the Dow Jones Industrial Average lost 0.4 percent to close at 26,599.96. The 30-stock index rallied more than 7 percent this month and 14 percent for the first half. The S&P 500 recorded a weekly decline of 0.3 percent to end at 2,941.74. For the month, the S&P 500 jumped 6.9 percent, its best June performance since 1955. The broad index is also up more than 17 percent this year. The Nasdaq also lost 0.3 percent for the week to end at 8,006.24 but rallied 7.4 percent this month. Among the key S&P sectors, materials was the best weekly performer, while utilities dragged. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded higher, near 15.1.

Short-Term Technical Condition

In line with our latest call, U.S. stocks consolidated last week. Nevertheless, the bullish trend-status of the S&P 500 remains intact and is, therefore, also in line with our recent outlook. To be more precise, the S&P 500 closed 63 points above the bearish threshold from the Trend Trader Index. Above all, both envelope lines of this reliable indicator are still drifting higher on a very fast pace. This is another indication for a strong short-term oriented uptrend. The same is true if we focus on the readings from the Modified MACD, as they have not shown any signs of a threatening bearish crossover signal so far (although its short-term gauge has lost a bit momentum recently). On top of that we can see that the gauge from the Advance-/Decline 20 Day Momentum Indicator again jumped to its highest level for weeks. As this indicator often reacts before prices do, this jump was definitely an outright confirmative bullish signal, which is telling us that the latest consolidation mode might has come to an end. Therefore, further gains can be expected on a short-term time perspective.

This setting is also confirmed by short-term market breadth as the current trend participation of all NYSE listed stocks within the current rally still looks quite stable at the moment. The Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Dailystrengthened their bullish signals, indicating that the underlying breath momentum of the market remains supportive. Also our High-/Low-Index Daily was holding up quite well, as the total number of stocks hitting a fresh 52 weeks high kept trading at quite stable levels, whereas the numbers of stocks hitting a fresh 52 weeks low have not shown any bearish spike so far. However, the most encouraging signal ismcoming from the percentage of stocks which are trading above their short-term oriented moving averages (20/50). Both gauges succeeded to jump back into the bullish territory, indicating that the broad market has now started to participate in the latest rally, which is another quite healthy tape signal. So in the end, most of our short-term oriented tape indicators have shown solid readings and, therefore, it looks quite unlikely that the recent rally will run out of fuel – at least for the moment.

On the contrarian side, we can see that there are still a lot of bears around and, therefore, the market has still enough room before it reaches expensive levels (from a pure sentiment point of view). This might be also the reason, why the option market has not reached outright contrarian levels yet although the market has gained more than 7 percent in the last month. The only negative signal is coming from the WSC Capitulation Index and from some of our option based oscillators (Equity Options Call/Put Ratio Oscillator), indicating that some bullish biased but volatile trading days cannot be ruled out at the moment.

Mid-Term Technical Condition

Nevertheless, the risk of a stronger and longer-lasting trend-reversal remains quite limited at the moment as the mid-term oriented up-trend of the market remains well intact. This is mainly due to the fact that the gauge from the Global Futures Trend Index kept trading within the middle of its bullish consolidation area. Therefore, it is definitely a way too early to issue a strategic sell signal at the moment. Moreover, it is worth to mention that as long as the gauge from this indicator remains above its 60 percent threshold, any upcoming weaknesses/consolidation should be limited in price and time (if additionally mid-term market breadth remains supportive). But on the other hand, as long as the gauge does not manage to close above its extremely bullish 90 percent threshold, the rally can be still categorized as a bullish consolidation period, at least from a pure technical point of view. As a matter of fact, it is still possible to see a slow pace rally environment ahead. Also, the overall price driven mid-term oriented trend looks quite solid at the moment. This is due to the fact that the WSC Sector Momentum Indicator keeps trading at solid bullish levels, indicating that all sectors within the S&P 500remain in a mid-term oriented uptrend. This view is also supported by our Sector Heat Map, as the momentum score of all sectors (except energy at 0 percent) remains above the one from riskless money market (11.2 percent).

The mid-term oriented trend of the market is also confirmed by mid-term oriented market breadth. Especially, the Modified McClellan Oscillator Weekly continued to gain more bullish ground last week, indicating that the underlying mid-term oriented market breadth momentum remains quite supportive. Additionally, all of our advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line) continued to strengthen in the last couple of trading sessions and are, therefore, clearly confirming the current level of the S&P 500! Basically, the same is true if we focus on the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) as they also increased in the last week and got back into the bullish area. This fact can be also seen as a confirming tape signal as the current rally is getting broader based in its nature. Such a broader tape confirmation can also be seen if we focus on mid-term oriented advancing issues as well as mid-term oriented up-volume as both indicators strengthened last week. As a matter of fact, it is a bit too early to change our strategic bullish outlook at the moment. Nevertheless, their signals still remain a bit weak-kneed, but we keep ignoring this bearish divergence (since our remaining indicator framework remains quite bullish at the moment).

Long-Term Technical Condition

The long-term oriented trend of the market improved once again and clearly supports our view that the current consolidation still looks quite supportive in its nature. Once again, our WSC Global Momentum Indicator increased and indicates that currently 55 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 very supportive technical signal, as it shows that the current rally is getting broad support around the world. Also our Global Futures Long Term Trend Index continued its bullish ride and is on its way of passing the bullish threshold soon. Also all markets in our WSC Global Relative Strength Index increased last week. If we focus on our long-term market breadth indicators, we can see that all of them increased (Modified McClellan Volume Oscillator Weekly, the High-/Low Index Weekly, percentage of stocks which are trading above their 200 day moving average).

Model Portfolios

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, whereas the allocation from the WSC Sector Rotation Strategy and the WSC Global Tactical ETF Portfolio remains unchanged.

Bottom Line

The technical picture of the market improved compared to last week and, therefore, our bullish outlook remains unchanged at the moment. To be more precise, with quite supportive/bullish readings within our indicator framework (especially on a mid-term time horizon), we think that the current rally is not at risk of fading out at the moment. As a matter of fact, we think it is a bit too early to bet on a major trend reversal at the moment. Therefore, we strongly believe to see multiple record highs into deeper summer. However, on a very short-time frame it could be possible that the market might need a few attempts to break above its old bull-market high and, therefore, some nasty wash-out days cannot be ruled out at the moment. Nevertheless, given the strong tape condition all across the board, any upcoming weaknesses should be limited in price and time. So in the end, we would advise our conservative members to remain invested, whereas aggressive traders should focus on buying into weaknesses, as long as our short-term oriented indicator framework remains constructive.

Stay tuned!