December 24th 2017

Market Review

All three U.S. major averages posted modest gains for the week. The Dow Jones Industrial Average added 0.4 percent during the week to close at 24,754.06. The S&P 500 increased 0.3 percent to 2,683.34 for the week. Both the Dow and the S&P rose for a fifth straight week. The Nasdaq gained 0.3 percent over the week to 6,959.96. All three indexes are within 1 percentage point of record levels. Most key S&P sectors finished higher, led by energy, while utilities ended in the red. The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, closed at 9.9.

Short-Term Technical Condition

The short-term oriented uptrend of the market remains well in force. To be more precise, the S&P 500 is still trading 38 points above the bearish threshold from the Trend Trader Index. This is telling us that from a pure price point of view, the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 2,645. Furthermore, we can see that both envelope lines of this reliable indicator are still drifting higher on a very fast pace. This indicates that the resistance/support levels for the S&P 500 are increasing as well (which is a typical sign for a powerful price driven uptrend). The same is true if we focus on the trend lines from the Modified MACD, as they have not shown a threatening bearish crossover signal yet. Also the gauge from the Advance-/Decline 20 Day Momentum Indicator is still trading on quite solid bullish levels, although it should a bit higher if we consider the current levels from the S&P 500. Nevertheless, it is a way too early to bet on a major trend reversal for the time being.

This is due to the fact that short-term market breadth also looks quite constructive and even showed some bullish divergences compared to last week. This becomes pretty obvious if we focus on the Modified McClellan Oscillator Daily as well as the Modified McClellan Volume Oscillator Daily. Both indicators improved last week – the first one flashing a small bullish crossover signal and the latter one jumping to the highest level for months. These facts show that the underlying market breadth momentum has gained some strength recently. Another encouraging fact is that the High-/Low Index Daily strengthened its bullish signal for the week. This is due to the fact that we saw stable readings in the total number of all NYSE-listed stocks hitting a fresh yearly high, in combination with very low readings of new 52 weeks low! Also the percentage of stocks which are trading above their short-term oriented simple moving averages (20/50) gained some bullish ground last week (albeit on low levels). So all in all, we think it is a bit too early for any counter trend activities as the current situation still looks constructive by its nature.

The readings on the contrarian side are not showing a clear direction at the moment. According to our option-/sentiment based indicators (Global Futures Dumb Money Indicator, Uptick-/Downtick Ratio Daily, All CBOE Options Put-/Call Ratio, AII Bulls & Bears, Trin Daily and the WSC Capitulation Index) the crowd is a way too complacent at the moment. Under normal circumstances, such increased optimism is often a vanguard for a consolidation period as the market has to digest this huge optimism first. Nevertheless, given the quite constructive signal all across the board, in combination with an outright high reading within the NYSE Member Debt in Margin Accounts we think it is still a bit too early to get concerned about those facts.

Mid-Term Technical Condition

The mid-term uptrend of the market also improved a bit. Our reliable Global Futures Trend Index increased to 81 percent last week, confirming the current levels from the S&P 500. The same is true if we analyze the current trend participation of all major key sectors within the S&P 500. There we can see that most industries continued to show a strong form of positive momentum last week – mainly because the gauge from our WSC Sector Momentum Indicator is trading in solid bullish territory. Looking at our Sector Heat Map reveals that the momentum score of all sectors remains above the one from riskless money market (currently at 0 percent). In our view, this is another indication that the underlying trend force remains outright strong and, therefore, we stick to our new record highs scenario.

The mid-term oriented market breadth condition shows the same picture as last week – an intermingled one. First of all, the Modified McClellan Oscillator Weekly remains in its paralyzed status (as it did in the previous weeks). And once again, the percentage of stocks which are trading above their mid-term oriented simple moving averages (100/150) has not shown any significant bullish moves. These facts signal that the underlying trend momentum of the market remains a bit flattish at the moment. In contrast, mid-term oriented advancing issues as well as mid-term oriented up-volume are still trading above their bearish counterparts. And once again, our entire advance-decline indicators (Advance-/Decline Volume Line, Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly) continued to strengthen in the last couple of trading sessions or have at least not shown any signs of bearish divergences. So all in all, the current technical condition of the market still looks quite confirmative. Therefore, it is a way too early to call for a major market top right now.

Long-Term Technical Condition

The long-term uptrend of the market remains intact and, therefore, our long-term bullish outlook has not been changed so far. Once again, the Global Futures Long Term Trend Index jumped to its highest level for months, indicating a technical bull market. Our WSC Global Momentum is telling us that 80 percent of 35 local equity markets all around the world (which are covered from our WSC Global ETF Momentum Heat Map) are still in a long-term oriented up-trend at the moment. As a consequence, the global trend structure still looks extremely supportive for the time being. On top of that we can see that the relative strength of all risky markets keeps trading above the one from U.S. Treasuries. More importantly, this long-term oriented uptrend of the market is widely confirmed by long-term market breadth. This is due to the fact that the readings from our entire long-term oriented tape indicators remain bullish (High-/Low Index Weekly, Modified McClellan Volume Oscillator Weekly and the percentage of stocks which are trading above their 200 day moving average).

Model Portfolios

If we focus on our Model Portfolios, we can see that the WSC Sector Rotation Strategy is adding several sectors (XLV, XLI and the XLB) as their momentum scores rose above average and above the one from the S&P 500 within our Sector Heat Map. This is also telling us that the underlying sector trend participation within the ongoing rally is getting broader again, which is another healthy technical signal for a stable up-trend. The allocation of the WSC Global Tactical ETF Portfolio, the WSC All Weather Portfolio and the WSC Inflation Proof Retirement Model Portfolio 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

Not surprisingly – given the quite solid readings all across the board – our strategic bullish outlook remains literally unchanged compared to last week. As a consequence, we would advise our conservative members to remain invested, while aggressive short-term traders should focus on buying the dips again rather than chasing the market too aggressively on the upside.

Stay tuned!