June 10th 2018
As highlighted in our latest call, U.S. stocks finished the week with solid gains. For the week, the Dow Jones Industrial Average advanced 2.8 percent to close at 25,316.53. It was the Dow’s biggest weekly gain since March. The S&P 500 ended at 2,779.03 and booked a weekly gain of 1.6 percent. The Nasdaq gained 1.2 percent over the week to finish at 7,645.51. Both averages posted their third straight weekly gain. Among the key S&P sectors, utilities was the only negative sector for the week. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, held near 12.1.
Short-Term Technical Condition
The market is moving right in line with our recent outlook and, therefore, it is not a big surprise at all that the short-term oriented uptrend of the market even gained more momentum. The S&P 500 is now trading 59 points above the bearish threshold from the Trend Trader Index, signaling that the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 2.720. Furthermore, both envelope lines of this reliable indicator are drifting higher on a quite fast pace, indicating that the resistance/support levels for the S&P 500 are increasing as well. This is a quite constructive technical price signal as higher highs and higher lows are a typical pattern for a healthy uptrend. Moreover, the Modified MACD also gained more bullish ground last week and widened its bullish gap. This is telling us that the overall short-term oriented trend momentum is still gearing up. On top of that we can see that the gauge from the Advance-/Decline 20 Day Momentum Indicator is also trading at the highest levels for weeks (and was, therefore, confirming the latest break-out from last week). So all in all, the current short term trend condition is clearly confirming the recent levels from the S&P 500.
The current short-term oriented up-trend of the market is also supported by short-term market breadth, as the readings from all of our tape indicators showed major signs of improvements last week. This becomes pretty obvious if we focus on the on the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily. The first one increased its bullish gap and is trading at the highest levels for weeks and the latter one succeeded to flash a bullish crossover signal. This is showing us that the momentum of advancing stocks and advancing volume is definitely quite supporting at the moment. Also the percentage of stocks which are trading above their short-term oriented moving averages (20/50) closed at outright bullish levels last week. To be more precise, about 65/75 percent of all NYSE listed stocks are trading above their 20/50 day simple moving average. On top of that we saw solid readings in the total number of stocks which are hitting a fresh yearly high compared to depressed readings of new 52 weeks lows! As a consequence, the High-/Low-Index Daily also strengthened its bullish signal. So all in all, the readings from our short-term oriented tape indicators are telling us that the underlying technical condition of the current price-driven trend has strengthened significantly during the last couple of trading days and, therefore, we can definitely neglect any major sell-off scenario.
On the contrarian side, we can see that the market is slightly overbought (Advance-/Decline Ratio Daily and the Upside-/Downside Volume Ratio Daily). As a matter of fact, it could be possible to see some languishing trading sessions on a very short-time frame. Apart from that fact, most of our option based contrarian indicators (Global Futures Put Volume Ratio Oscillator, Equity Options Call-/Put Ratio Oscillator and the All CBOE Options Call-/Put Ratio Oscillator) remain supportive as the greed within dumb money slightly decreased last week. The only outright long-term bearish signal is coming from the Smart Money Flow Index (as this reliable indicator is far away from confirming the current levels from the Dow Jones Industrial Average). The last time we saw such strong divergences between this reliable indicator and the Dow was a couple of months before the “Trump Rally” started. Compared to back then, the Smart Money Flow Index is now showing a huge bearish divergence. Therefore, we would not be surprised if the market is facing major headwinds in deeper summer (which would be in line with the readings from our Presidential Cycle).
Mid-Term Technical Condition
The mid-term uptrend of the market did not show any weakness last week. Our reliable Global Futures Trend Index gained further momentum and is now trading in the middle part of its bullish consolidation range. As long as this is the case, any upcoming weaknesses should be limited in price and time (of course only in combination with supportive market breadth indicators). Basically, the same is true if we analyze the current momentum score of all major key sectors within the S&P 500. The gauge from the WSC Sector Momentum was holding up very well and is trading at solid bullish levels. This can be also seen if we focus on our Sector Heat Map, as the momentum score from riskless money market dropped again last week. And currently only 2 out of 9 sectors within the S&P 500 (consumer staples and utilities) are trading below the momentum score from riskless money market. In our view, this is another indication that the risk appetite among investors has returned and, therefore, we think that further gains can be expected.
The mid-term market breadth looks very supportive at the moment. Especially, the Modified McClellan Oscillator Weekly continued to increase last week and finally succeeded to flash a bullish crossover signal. This indicates that the overall mid-term tape momentum of the market is back on track. In addition, 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) showed major signs of improvements! Mid-term oriented up-volume and mid-term oriented advancing issues did the same. This is signaling that the current rally is extremely broad-based and, therefore, not at risk of running out of fuel at the moment. 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). Both indicators increased to outright supportive levels during the last couple of trading sessions. This indicates that the total upside participation on a mid-term time horizon grew last week, which is another indication that further gains into deeper June can be expected.
Long-Term Technical Condition
The long-term oriented trend of the market shows the same picture as in the previous weeks. The WSC Global Momentum Indicator decreased again to the lowest level for months and touched its 50 percent threshold. This is a clear indication that a lot of local equity markets around the world are falling below their long-term trend-lines and that the current bull-run is fading out. To be more precise, the current global bull market is now mainly driven by U.S. equities (whereas the remaining regions are definitely running out of steam). This is another red flag on the horizon but given the quite supportive readings all across the board, we think it is still a bit too early as local U.S. investor to get concerned about that fact. Additionally, the Global Futures Long Term Trend Index has not shown any positive moves and keeps trading at the lowest level for months. But once again, a positive sign is coming from our WSC Global Relative Strength Index as the relative strength of all risky markets increased last week. In addition, all markets (except two) are trading above the one from U.S. Treasuries. Also the readings from our long-term oriented tape indicators (High-/Low Index Weekly, Modified McClellan Volume Oscillator Weekly and the percentage of stocks which are trading above their 200 day moving average) showed some small improvements.
If we have a closer look at our Model Portfolios, we can see that there have been no changes in the allocation advice from the WSC All Weather Portfolio, the Inflation Proof Retirement Portfolio and the WSC Sector Rotation Strategy. As the underlying risk management indicator (WSC Global Momentum Indicator) of the WSC Global Tactical ETF Portfolio flashed a bearish/difficult/selective environment for global risky assets, the portfolio is switching into cash, to protect capital.
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 still looks quite healthy in its nature. 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 further gains into deeper June (although we would not be surprised if such gains were accompanied by increased volatility). 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.