admin No Comments

November 26th 2017

Market Review

U.S. stocks ended the holiday-shortened week with gains pushing two of the main indexes to new record highs. The Dow Jones Industrial Average recorded a 0.9 percent weekly gain to end at 23,590.83. The S&P 500 also booked a weekly climb of 0.9 percent, closing at a record of 2,602.42. The Nasdaq rose 1.6 percent for the week to close at 6,889.16, also clinching an all-time high. All the main indexes posted their first weekly gain in three weeks. All key S&P sectors ended in positive territory for the week led by technology. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended at 9.67

Short-Term Technical Condition

Not surprisingly, the short-term oriented uptrend of the market got back on track as the readings from our entire short-term oriented trend-indicators strengthened significantly last week. As the latest advance took place on a faster pace, we can see that the S&P 500 is now trading almost 26 points above the bearish threshold 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 2,577. Above all, we can see that the underlying trend momentum also got back on track, as the Modified MACD is about to flash a bullish crossover signal soon. Also the gauge from the Advance-/Decline 20 Day Momentum Indicator rocketed last week and finished at quite solid levels, indicating that the latest consolidation period has come to an end (at least form a pure trend point of view). To confirm that fact, short- to mid-term market breadth remains key area of focus, as it will show us if the latest gains were only driven by a handful of heavy weighted stocks in the S&P 500 or by a broader basis (which is absolute necessary for a healthy and sustainable uptrend).

According to our short-term oriented tape indicators, this is absolutely the case right now. If we focus on the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily, we can see that both indicators flashed a bullish crossover signal last week. This indicates that the underlying breadth momentum of the market got back on track. Another encouraging fact is that the total amount of all NYSE-listed stocks which reached a new yearly high showed an outright encouraging level throughout the whole week. This strong positive tape signal was accompanied by the fact that there were hardly any stocks around which dropped to a new yearly low. This indicates a healthy rotation back into the broad market which is a strong technical signal for a healthy tape recovery. As a consequence, the High-/Low-Index Daily strengthened its bullish signal for the week. Only the percentage of stocks which are trading above their short-term oriented moving averages (20/50) could be a higher, given the fact that the S&P 500 is trading at record highs. However, with such signals all across the board, we think to see stronger gains ahead (which is definitely in line with our strategic outlook). If we take the seasonal factor into consideration, it looks like that the market is getting ready for its typical Santa Claus rally.

On the contrarian side, the situation is more or less unchanged compared to last week. The Smart Money Flow Index is still indicating further gains ahead, as it reached (again) a new all-time high last week. Moreover, we can see that the WSC Capitulation Index continued to decrease for the week and is therefore, confirming the current risk-on market environment.

Mid-Term Technical Condition

If we focus on the mid-term oriented technical condition of the market, we basically get the same set-up as we have on a short-term time frame. The mid-term uptrend of the market strengthened last week, mainly due to the fact that our reliable Global Futures Trend Index increased and is heading to the middle part of the bullish consolidation range (currently at 68 percent). The latest momentum of this reliable indicator is telling us that the mid-term oriented up-trend of the market is gearing up! Additionally, we can see that the WSC Sector Momentum Indicator also increased and is trading at quite solid levels, indicating that most sectors of the S&P 500 participated in the latest rally. Looking at our Sector Heat Map reveals that the momentum score of all sectors remains above the one from riskless money market, which dropped to 0 percent (and is therefore, confirming our bullish call.

Unchanged compared to last week, mid-term oriented market breadth keeps trading at quite solid levels and remains therefore, quite confirmative. 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) increased last week and are therefore, confirming the latest gains we saw. Also the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) closed at quite solid bullish levels. This is a good sign as it shows that the underlying tape structure of the market remains pretty broad-based at the moment. Such a broader tape confirmation can also be seen if we examine mid-term oriented advancing issues as well as mid-term oriented up-volume. Both indicators are trading well above their bearish counterparts. Only the Modified McClellan Oscillator Weekly has not shown any moves recently. Anyhow, given the quite solid readings all across the board, we definitely expect to see further gains into December!

Long-Term Technical Condition

From a pure technical point of view, the long-term oriented up-trend of the market remains intact as the Global Futures Long Term Trend Index has not turned bearish yet. Also the WSC Global Momentum Indicator strengthened its bullish signal within the last weeks and indicates that 85 percent of all local equity markets around the world (all quoted in USD) remain within a long-term oriented up-trend for the time being. In addition, the relative strength of all risky markets keeps trading above the one from U.S. Treasuries. This is another indication for the current risk-on market environment. Moreover, we saw some improvements within our long-term oriented breadth indicators. The percentage of stocks which are trading above their 200 days simple moving average closed at very solid bullish levels. Also our long-term oriented High-/Low Index Weekly is still trading at supportive levels, indicating that the long-term tape of the market remains well intact. Only the Modified McClellan Volume Oscillator Weekly showed some signs of weakness last week.

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 WSC Global Tactical ETF Portfolio and the WSC Sector Rotation Strategy remains unchanged. Moreover, we are proud to announce that the WSC Sector Rotation Strategy and the WSC All Weather Portfolio reached again new all-time high last week.

Bottom Line

In line with our latest call, the technical picture of the market improved significantly last week. Consequently our strategic bullish outlook remains unchanged. To be more precise, with broadening strengths all across the board, we expect to see further (stronger) gains into December. As already mentioned above – if we take the seasonal factor into consideration – it looks like that the market is getting ready for its typical Santa Claus rally. Therefore, would advise conservative members to hold their equity position, while aggressive short-term traders should definitely buy aggressively into any upcoming weaknesses!

Stay tuned!