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April 18th 2021

Market Review

U.S. stocks rose for another week, sending the major benchmarks again to record levels. For the week, the Dow Jones Industrial Average advanced 2% percent to 34,200.67 reaching a new record high. The 30-stock benchmark crossed the 34,000 threshold for the first time ever during the week. The S&P 500 climbed 2.7% for the week to a new closing high of 4,185.47. The Nasdaq advanced 3.1% from last Friday’s close to 14,052.3. The S&P 500 and the Dow posted their fourth straight positive week, while the tech-heavy Nasdaq has registered gains for three weeks in a row. Most key S&P sectors ended in positive territory for the week, led by utilities. The communication services sector was the only decliner. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell to 16.3.

Short-Term Technical Condition

Right in line with our recent outlook, the market continued to push significantly higher last week. As a result, the readings of our bullish short-term oriented indicators even strengthened on quite confirmative levels last week. The S&P 500 is now trading 174 points above the bearish threshold from the Trend Trader Index. This signals that the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 4.011. In addition, both envelope lines of this reliable indicator are still drifting higher on a quite fast pace, indicating that the resistance/support levels for the S&P 500 are increasing as well. This is quite a constructive technical signal as higher highs and higher lows are a typical pattern for a healthy uptrend. More importantly, the underlying momentum (of this price trend) also strengthened significantly since both trend lines from the Modified MACD reached their highest levels for months. This view is also supported by the Advance-/Decline 20 Day Momentum Indicator as its gauge strengthened considerably last week. As a result, our entire short-term oriented trend indicators are fully confirming the latest record of the S&P 500.

This powerful uptrend is also confirmed by our short-term oriented market breadth indicators as all of them continued to strengthen last week. First of all, we saw healthy levels or even an outright bullish spike on Friday in the number of stocks which are hitting a fresh yearly high together with an outright low number of stocks hitting a new yearly low. Consequently, the High-/Low-Index Daily widened its bullish gap tremendously. This is an outright positive signal since it shows that the latest gains were the result from a broad-based advance rather than being just being driven by a few heavy-weighted mega caps in the index. Basically, the same is true if we focus on our short-term oriented breadth momentum indicators, as the gauges from the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily also strengthened to quite confirmative levels last week. This is indicating that the underlying breadth momentum of the broad market is still gearing up. A fact which can also be observed if we focus on the Upside-/Downside Volume Index Daily. Also, the percentage of stocks which are trading above their short-term oriented moving averages (20/50) strengthened, although the performance of both gauges (especially the SMA 50) could be a bit stronger in our point of view. Currently, this small non-confirmation can definitely be ignored since the current up-trend is widely confirmed by short-term market breadth. Thus, the risk of a sudden trend-reversal (momentum crash) looks extremely low at the moment.

On the contrarian side, the degree of complacency still remains quite low if we consider the fact that the S&P 500 has constantly been hitting record highs in the past two weeks as it advanced almost every single day within that time period. The readings from the option market (z-score of the AII CBOE Put-/Call Ratio, WSC Dumb Money Indicator and the WSC Put-/Volume Ratio) are somehow stretched but could be by far worse. The only really negative sentiment signal is coming from the Bulls & Bears survey, since the number of bulls spiked to the highest level since 2018. This shows that a lot of good news is already priced in. Historically, such high degree of sentiment often led to some kind of consolidation or to stronger sentiment driven wash-out/sell-off days. Apart from that fact, our entire contrarian indicators remain quite neutral, whereas the WSC Capitulation Index is still indicating an extreme positive risk-on market environment at the moment.

Mid-Term Technical Condition

This positive short-term view is also strongly supported by the fact that our entire mid-term-oriented indicators remain quite bullish or even strengthened their bullish signals last week. The Global Futures Trend Index continued to increase at outright bullish levels and closed out the week at 95%. As a result, this indicator has clearly confirmed the latest record of the S&P 500. In the past, such strong readings (in combination with bullish mid-term-oriented tape signals) never led to any stronger and sustainable correction/trend-reversal. Thus, the overall market environment remains quite positive for the time being. This can also be seen if we focus on the WSC Sector Momentum Indicator, which shows that nearly all underlying sectors of the S&P 500 remain in a powerful mid-term oriented price driven uptrend. These bullish facts are additionally supported by our Sector Heat Map as the momentum score of the riskless money market keeps trading at 0% and below all other sectors. Thus, we think it is a way too early to change our strategic bullish view.

The setting of the mid-term oriented up-trend is also confirmed by mid-term oriented market breadth. Especially our advance-decline indicators (Advance-/Decline Volume Line, Advance-/Decline Line Daily, Advance-/Decline Line Weekly) improved for the week and some even reached their highest levels ever. Our Modified McClellan Oscillator Weekly continued to widen its bullish gap last week, indicating that the overall tape momentum remains positive for the time being. Therefore, these indicators are clearly confirming the current record of the S&P 500! Another encouraging signal is coming from the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) and the mid-term oriented advancing issues as well as mid-term oriented up-volume. All three indicators slightly improved for the week, although the last two did not fully confirm the record closing on Friday.

Long-Term Technical Condition

The long-term technical condition of the market also slightly improved in the last couple of trading sessions. We can see that the gauge from the WSC Global Momentum got back to the 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. This clearly supports our strategic bullish outlook. Also, our Global Futures Long Term Trend Index is trading at the highest levels for years. In addition, the relative strength of all risky markets keeps trading again far above the one from U.S. Treasuries, another indication for the current risk-on market environment. Another important fact is that long-term market breadth in the U.S. remains constructive and is, therefore, confirming the current long-term oriented trend of the market. This is due to the fact that our long-term market breadth indicators improved 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 the that WSC Sector Rotation Strategy and the WSC Inflation Proof Retirement Portfolio reached a new all-time high 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. As a result, we expect to see further gains into early Q1. On a short-term time frame the risk of sentiment driven sell-off days exceeding 3% is definitely increasing if we consider the current number of bulls on Wall Street. Although such sell-off days will not cause a significant trend-reversal, they could be quite painful for leveraged traders. Thus, we think it would make sense to use close-stops if too much leverage is being used. Otherwise, we do not see any kind of major risk-factors around. A fact, which can also be observed if we focus on our Big Picture Indicator, which is still moving around in its outright bullish quadrant. In such a regime, trend-following remains the most profitable strategy.

Stay tuned!