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April 11h 2021

Market Review

U.S. stocks finished the week with solid gains sending major benchmarks to record levels. The Dow Jones Industrial Average finished at a record closing high of 33,800.60 and climbed 2% this week. The S&P 500 gained about 2.7% over the same period and finished also at a new record of 4,128.80. Closing at 13,900.19, the Nasdaq rallied 3.1% for the week. Most key S&P sectors ended in positive territory for the week, led by the technology sector. Energy was the only decliner. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, dropped to 16.7, its lowest level in 14 months.

Short-Term Technical Condition

In line with our strategic outlook, the market pushed 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 170 points above the bearish threshold from the Trend Trader Index. This is telling us that the purely price driven short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 3,959. Furthermore, we can see that both envelope lines of this reliable indicator are increasing, indicating that the resistance/support levels for the S&P 500 are doing so as well. This can be seen as an outright constructive technical signal as higher highs and higher lows are a typical pattern for a healthy price-driven uptrend. If we focus on the underlying price trend momentum, we can see that the bullish status from the Modified MACD also strengthened during the previous week as it widened its bullish gap. Hence, this indicator is clearly confirming the latest rally of the S&P 500. The situation looks quite different if we examine the Advance-/Decline 20 Day Momentum Indicator which declined at high bullish levels, not fully confirming the move of the S&P 500. Therefore, given the fact that this indicator is a leading one, it could be possible to see a short-lived slow-down of the recent rally, although the underlying tone remains quite bullish.

More importantly, the current short-term oriented uptrend is backed by a broad basis since the underlying tape condition of the market improved last week. Consequently, the current upside participation is telling us that the risk of a stronger momentum crash remains quite low at the moment. Especially, the number of stocks hitting a fresh yearly high reached quite confirmative levels, whereas we hardly saw any stocks which were pushed to a new yearly low. As a consequence, the bullish gauge of the High-/Low-Index Daily widen its bullish gap significantly (indicating that the latest gains were not only caused by a few mega-caps since they were the result from a strong demand all across the board). On top of that, we can see that the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily finally succeeded to flash a bullish crossover signal. This shows us that the current short-term oriented uptrend is widely confirmed by positive momentum in advancing issues and advancing volume. The only weaker signals are coming from the Upside-/Downside Volume Index Daily and the percentage of stocks which are trading above their short-term oriented moving averages (20/50). Even though these indicators are trading in bullish territory, their overall levels and weekly performances could be a bit stronger if we consider the current levels of the S&P 500. However, given the quite strong tape condition, these minor bearish divergences can be ignored at the moment. In other words, with such solid signals across the board, it is highly unlikely that the recent surge will run out of fuel.

On the contrarian side, we can see that the market is far away from being complacent (which is a quite bullish ingredient if we consider the fact that the market reached an all-time high last week). The only small negative sign of increased speculation is coming from the WSC Dumb Money Indicator and from the z-score of the AII CBOE Put-/Call Ratio Indicator. Nevertheless, their signals could be by far worse if we consider the current circumstances. Moreover, we can see that the WSC Capitulation Index is still indicating a risk-on market environment, since the Smart Money Flow Index has decreased its bearish gap recently. Another positive sign is coming from the AII Bulls & Bears survey, since the amount of bulls decreased slightly last week, showing some minor degree of capitulation.

Mid-Term Technical Condition

Another main reason, why we believe it is still a way too early to bet on a major trend-reversal is due to the fact that our entire mid-term oriented indicators remain bullish and even strengthened last week. The most encouraging signal is coming from our Global Futures Trend Index. Its gauge picked up further momentum and jumped back into the bullish top area as it passed the important 90% threshold. This can be interpreted as a quite strong technical trend signal, as such strong readings (in combination with bullish mid-term oriented tape signals) never led to any stronger correction/trend-reversal in the past! Also, the gauge from our WSC Sector Momentum Indicator has not shown any weakness so far, indicating that most underlying sectors within the S&P 500 have not broken below their mid-term oriented uptrend yet. This can be also seen if we examine our Sector Heat Map as the momentum score of all sectors remains above the one from the riskless money market sector (which remains at 0%). These facts are another indication that the risk appetite among investors remains quite high (and, therefore, our strategic bullish view remains unchanged).

This view is also supported by the fact that the current mid-term oriented time-series momentum of the market is confirmed by mid-term oriented market breadth, which improved last week too. First of all, our entire advance-decline indicators increased (Advance-/Decline Volume Line) and even reached the highest levels for years (Advance-/Decline Line Daily, Advance-/Decline Line Weekly). Another positive mid-term oriented tape signal is coming from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly as the bullish gauges from both indicators increased last week. This indicates a solid underlying demand. And also our Modified McClellan Oscillator Weekly succeeded to (slightly) widen its bullish gap last week. And finally, the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) was also holding up quite well. 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 some room left before major troubles might be due.

Long-Term Technical Condition

The long-term oriented trend of the market remains nearly unchanged compared the previous week. The WSC Global Momentum Indicator shows that 97% 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. Also, our Global Futures Long Term Trend Index signals that the long-term oriented uptrend of U.S. equities remains well intact. Moreover, the relative strength of all risky markets was still holding up quite well compared to treasuries. If we examine our long-term oriented tape indicators, we can see that the Modified McClellan Volume Oscillator Weekly improved while the High-/Low Index Weekly and the SMA 200 remained nearly unchanged.

Model Portfolios

Last week, there were no changes within the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio and the WSC Dynamic Variance Portfolio. Since the momentum score of technology rose above average and above the momentum score of the S&P 500, we received a buy signal for that sector within our WSC Sector Rotation Strategy. Moreover, we are proud to announce that the WSC Sector Rotation Strategy reached a new all-time high last week.

Bottom Line

Given the quite bullish readings all across the board, the current uptrend looks quite solid in its nature as it is backed on a broad basis in multiple time frames. Hence, further stronger rallying looks quite likely (especially if we consider the recent recovery of our momentum indicators). As a result, our bullish strategic view remains unchanged compared to last week, since the risk of a stronger trend-reversal looks extremely low at the moment. A fact, which can also be observed if we focus on our Big Picture Indicator which keeps trading in its outright bullish quadrant. As long as this is the case, we  think it might be a bit too early for conservative members to take the chips from the table. Aggressive traders should go with the flow as long as our short-term oriented indicators remain constructive.

Stay tuned!