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April 30th 2017

Market Review

U.S. stocks finished the week in positive territory. The Dow Jones Industrial Average gained 1.9 percent for the week to close at 20,940.51. The blue-chip gauge rose 1.3 percent for the month. The S&P 500 booked a weekly gain of 1.5 percent and closed at 2,384.20. The broad-index added 0.9 percent in April. The Nasdaq advanced 2.3 percent during the week to end at 6,047.61. The heavy-tech index gained 2.3 percent over the month. All key S&P sectors ended in positive territory for the week, led by health care. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 10.7.

Short-Term Technical Condition

The short-term oriented trend of the market turned clearly bullish last week. This is mainly due to the fact that the S&P 500 strongly increased for the week and managed therefore, to close 17 points above the bullish envelope line from the Trend Trader Index. So from a pure price point of view, the short-term uptrend of the market remains intact as long as the S&P 500 does not drop below 2.352 (bearish threshold from the Trend Trader Index). Furthermore, we can see that both envelope lines of this reliable indicator started to drift higher again, which can be seen as another outright constructive trend signal as this also indicates that the consolidation period, which started in late February, might have come to an end. Also the Modified MACD strongly increased and additionally managed to flash a strong bullish crossover signal last week, indicating that the overall trend structure of the market turned slightly positive. On top of that we can see that the gauge from the Advance-/Decline 20 Day Momentum Indicator is also trading in solid bullish territory. Nevertheless, we can see also that the indicator has shown some small signs of non-confirmation recently and therefore, we think the S&P 500 might need a couple of break-out attempts until we might new sustainable highs.

This picture is widely confirmed by our short-term oriented market breadth indicators as all of them turned bullish or further increased last week. First of all we saw several healthy spikes in the number of stocks which are hitting a fresh yearly high, together with an outright low number of stocks which were pushed to a new yearly low. As a matter of fact, the High-/Low-Index Daily strengthened its bullish signal for the week and jumped therefore, to the highest level since December last year! This is another encouraging signal that the latest gains have not been caused by short-covering but they have been the result from stronger demand! Basically, the same is true if we focus on our short-term oriented breadth momentum indicators. The gauges from the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily also increased, whereas the latter one also flashed a bullish crossover signal (although it is still trading on a lower level). This is indicating that the underlying breadth momentum of the broad market remains constructive at the moment. This can be also observed if we focus on the percentage of stocks which are trading above their short-term oriented moving averages (20/50), as they are trading at quite solid levels. So in the end, the sound readings within our short-term oriented tape indicators are telling us that the recent consolidation period might have come to an end or has at least gotten an outright bullish tilt.

The situation on the contrarian side remains almost unchanged compared to last week. Although, the Smart Money Flow Index started to stabilize on quite low levels, the quite bearish divergence between the Dow Jones Industrial Average and the Smart Money Flow Index has not been sorted out yet. Above all, we can see that the WSC Capitulation Index is still indicating a risk-off market environment, plus the All CBOE Options Put-/Call Ratio Daily grew into bearish territory, leaving the markets a bit vulnerable to short-term oriented disappointments. Normally it takes either a sharp wash-out day or at least some increased volatility to work off such a high optimism. However, given the quite bullish short-term oriented signals in combination with still quite confirmative readings within the NYSE Member Debt Margin, such an event should be limited in price and time.

Mid-Term Technical Condition

The mid-term oriented uptrend of the market also strengthened for the week and is therefore, quite bullish at the moment. This becomes pretty obvious if we focus on the gauge from the Global Futures Trend Index, which continued to climb higher and closed therefore, slightly below the extremely bullish 90 percent threshold last week. As a matter of fact, this reliable indicator is now definitely confirming the current levels from the S&P 500! This can be seen as quite important trend signal, as readings near or even above 90 percent are telling us that the recent correction scenario is definitely off the table! As per last week’s report, the WSC Sector Momentum Indicator is still trading at a solid level, indicating that many sectors of the S&P 500 remain in a mid-term oriented uptrend. Also our Sector Heat Map reveals that the momentum score of all sectors (except Energy which is 0 percent) remains above the momentum score from riskless money market (2.2%). Unchanged compared to last week, most sectors have a lower momentum score than the S&P 500, indicating a growing selectivity among the market. In more detail this means, that only some industries are holding up quite well, whereas the broad market is still lagging behind and therefore, the pure price driven trend information from the index might be a bit misleading at the moment. But given the quite encouraging signals all across the board, we think this fact might get sorted out soon.

This current mid-term oriented up-trend of the market is also widely confirmed by mid-term oriented market breadth. Our entire 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, confirming the recent level of the S&P 500! Moreover, mid-term oriented advancing issues continued to gain more bullish ground and are therefore, trading well above their bearish counterpart. Only mid-term oriented up-volume has not succeeded to turn bullish recently and also our Modified McClellan Oscillator Weekly has still not shown any movements (for the sixth week already). But we can also see that the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) are still trading above their bearish 50 percent threshold, indicating that the majority of all NYSE listed stocks are still per definition in a robust mid-term oriented up-trend. These facts signal that the total upside participation within the market is recovering/gearing up momentum, which is another indication that it a bit too early to take the chips from the table.

Long-Term Technical Condition

As per last week’s report, the long-term uptrend of the market remains intact and therefore, the risk for another bear-market is virtually nonexistent. The Global Futures Long Term Trend Index is still indicating a technical bull market for the S&P 500 and trading at the highest levels for months. As we can see from the WSC Global Momentum Indicator, 82 percent of all local equity markets around the world remain within a long-term oriented uptrend. This can be also monitored if we focus on the WSC Global Relative Strength Index, as the relative strength of all risky markets strengthened last week and keeps trading above the one from U.S. Treasuries. More importantly, long-term oriented market breadth still looks quite constructive at the moment. The percentage of stocks which are trading above their 200 day simple moving average continued to strengthen last week and are trading at solid bullish levels. Also the amounts of stocks which are hitting a fresh 52 weeks high are trading far above their bearish counterparts. Only, like already in the previous week, the Modified McClellan Volume Oscillator Weekly continued to decrease.

Model Portfolios

As it was the last Friday of the month, we received a new allocation advice from the WSC All Weather Portfolio and the WSC Inflation Proof Retirement Portfolio. The allocation of the Global Tactical ETF Portfolio and the WSC Sector Rotation Strategy remains unchanged. Moreover, we are proud to announce that the WSC All Weather Portfolio reached a new all-time high again last week! Right now the year to date performance is 7 percent!

Bottom Line

The technical situation improved all across the board. Especially, the stronger readings within our mid-term oriented indicators are telling us that the recent top building process/consolidation period has almost come to an end. Consequently, we are expecting to see new record highs into summer. However, on a very short-time frame we think the market might need a couple of attempts to break above its latest all-time high. In other words, even if we see further sideways-trading on a very short-time frame, the underlying market tape has definitely a strong bullish tilt. For that reason, we would advise our conservative members to remove any stop-loss limits as the current risk-/reward ratio looks supportive again. Aggressive traders should focus on buying the dips rather to chase the market too aggressively on the upside.

Stay tuned!