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January 24th 2021

Market Review

U.S. stocks finished the week in positive territory with the main benchmarks posting record highs during the week. The Dow Jones Industrial Average rose 0.6 percent over the week to 30,996.98. The S&P 500 booked a strong weekly rise of 1.9 percent to finish at 3,841.47 after closing at a record during the week. The Nasdaq jumped 4.2 percent for the week to close at 13,543.06, setting a new closing record on Friday. Of the S&P sectors, the comm. services sector was the best weekly gainer while the financial sector led the decliners. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 22.

Short-Term Technical Condition

In line with our latest call, the market continued to push higher last week. Consequently, it is not a big surprise that the short-term oriented uptrend of the market remains in force. To be more precise, the S&P 500 is now trading 88 points above the bearish threshold from the Trend Trader Index. This is telling us that the pure price driven short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 3,117. Furthermore, we can see that both envelope lines of this reliable indicator showed stronger signs of positive momentum last week, indicating that the underlying trend momentum is also gearing up again. This can be also observed if we focus on the Modified MACD, which managed to flash a bullish crossover signal on Tuesday. Hence, this indicator is clearly confirming the latest rally of the S&P 500. A fact which is also supported by a our Advance-/Decline 20 Day Momentum Indicator (as its gauge steadily increased last week). So all in all, the current time-series momentum of the S&P 500 looks outright bullish at the moment, indicating further gains ahead (at least from a pure trend point of view).

More importantly, the current short-term oriented uptrend is still backed by a broad basis since the underlying tape condition of the market remained outright strong last week. Thus, the odds for a stronger momentum-crash remain quite limited for the time being. First of all, we still saw a stable number of stocks hitting a fresh yearly high through the whole week, whereas there were almost zero stocks which were pushed to a new yearly low. As a result, the bullish gauge of the High-/Low-Index Daily was holding up relatively well (which is another piece of evidence that the current uptrend looks quite healthy in its nature). If we analyze the underlying market breadth (tape) momentum, we can see that the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily are also slightly getting back on track. This is telling us that the momentum of advancing issues and advancing volume still has enough positive momentum to support the current uptrend. A fact which can be also observed if we focus on the percentage of stocks which are trading above their short-term oriented moving averages (20/50). Both gauges are trading in solid bullish areas, indicating that the current uptrend is supported by the majority of all listed U.S. stocks. Another encouraging fact is that the short-term up-volume (Upside-/Downside Volume Index Daily) still keeps trading far above short-term down-volume. In other words, with such solid signals all across the board, it is highly unlikely that the recent surge will run out of fuel – at least from a current point of view.

Unchanged compared to last week, the only red flags are still coming from the contrarian side as most of our option based- as well as sentiment driven indicators remain bearish or bearish biased (All CBOE Put-/Call Ratio Daily, Equity Options Call-/Put Ratio Oscillator, WSC Dumb Money Indicator, the WSC Put-/Volume Ratio and the WSC Put-/Volume Ratio Oscillator). As already mentioned over the past couple of weeks, such a high degree of complacent often leads to a sentiment driven consolidation period and/or sentiment driven washout days (e.g. Fridays intra-day weaknesses) or even nasty but limited sell-off days to dampen short-term optimism. However, given the current short-term oriented condition these bearish signals can be ignored (as they will not have the power to trigger a sustainable trend reversal for the moment). Therefore, any upcoming weaknesses should turn out to be limited in price and time. This might be also the reason, why the Smart Money Flow Index continued to narrow its bearish divergence, whereas the WSC Capitulation Index is still indicating an all-clear market (as its gauge dropped deeper into its bullish territory).

Mid-Term Technical Condition

This view is also confirmed by the fact that the mid-term oriented up-trend of the market still looks very strong for the time being. Hence, it is a way too early to get bearish from a pure strategic point of view. To be more precise, the gauge of our reliable Global Futures Trend Index keeps trading at the upper end (99%) of its extremely bullish trading area and has not shown any weaknesses for the past two months. With such a strong signal, the risk of a sustainable blow-off top remains outright low. Additionally, from a pure price point of view the mid-term oriented uptrend remains also well intact since the WSC Sector Momentum Indicator closed another week at outright bullish levels. This is telling us that the majority of all underlying sectors within the S&P 500 remains in a powerful mid-term oriented uptrend at the moment. This can be also seen if we analyze our Sector Heat Map as the momentum score of all sectors remains above the one from riskless money market, which stayed at 0%. These facts are another indication that we might see further record highs into deeper Q1.

Another strong argument for further gains on the horizon is based on the fact that mid-term oriented market breadth has not shown any signs of major weaknesses yet. This shows us that the current mid-term oriented uptrend is still driven by a broad basis. First of all, our entire advance-decline indicators (Advance-/Decline Volume Line, Advance-/Decline Line Daily and the Advance-/Decline Line Weekly) have clearly confirmed the latest gains as they reached their highest levels for years. Another positive mid-term oriented tape signal is coming from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly as their bullish gauges are still trading far above the bearish counterparts. This signals a solid underlying demand. Also, our Modified McClellan Oscillator Weekly succeeded to increase its bullish gap last week. And finally, the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) also slightly improved and both gauges are trading at their highest levels for months. All these facts signal that the total upside participation within the market is broad based at the moment, which is another indication that there is still room left on the upside before major troubles might be due.

Long-Term Technical Condition

The long-term oriented trend of the market showed also further signs of improvements last week. The WSC Global Momentum Indicator keeps trading at its highest level possible, showing that 100% 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-lines. As pointed out several times, this is a quite supportive technical signal, as it shows that the current bull market remains quite globally in scope. Another encouraging signal is coming from our Global Futures Long Term Trend Index which succeeded to stay at the highest level for years. This indicates that the S&P 500 remains in a strong technical bull market for the time being. Furthermore, our WSC Global Relative Strength Index shows increased risk-appetite among investors. Also, our long-term market breadth indicators improved significantly last week (Modified McClellan Volume Oscillator Weekly, High-/Low Index Weekly) or remained stable at least (SMA 200).

Model Portfolios

Last week, there were no changes within the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio, the WSC Dynamic Variance Portfolio and the WSC Sector Rotation Strategy. Moreover, we are proud to announce that the WSC Model Portfolio Composite, the WSC Inflation Proof Retirement Portfolio  and the WSC Dynamic Variance Portfolio reached a new high during last week.

Bottom Line

Given the fact that the current uptrend is backed by a broad basis and on multiple time-frames, our strategic base case scenario remains unchanged compared to last week. On a very short-time frame painful sentiment driven wash-out events cannot be ruled out. Nevertheless, if we consider the current tape structure of the market any upcoming weaknesses should be limited in price and time. A fact, which can be also observed if we focus on our Big Picture Indicator, which is still moving around in its bullish quadrant. In such a regime, trend-following remains the most profitable strategy. Consequently, we would advise conservative members to hold their equity position, while aggressive short-term traders continue to buy the dips!

Stay tuned!