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July 06. 2014

Market Review

The U.S. stock market finished the week with solid gains and both, the S&P 500 and Dow Jones Industrial Average, closed at record levels. The Dow Jones Industrial Average gained 1.3 percent over the holiday-shortened week to close at 17,068.26. The S&P 500 was also 1.3 percent higher on the week and finished at 1,985.34. The Nasdaq rallied 2 percent for the week to close at 4,485.93 and recorded its third weekly gain in a row. Among the key S&P sectors, technology was the best weekly performer, while utilities dragged. The Chicago Board Options Exchange Volatility Index (VIX), a measure of investor uncertainty, fell to 10.32.

Short-Term Technical Condition

The S&P 500 is on the way to our projected price target of 2,000 and more importantly, we do not see any signs of a threatening trend breaking signal within our indicator framework right now! The short-term uptrend of the market continued to gain more bullish ground last week. This is mainly due to the fact that the S&P 500 closed 37 points above the bearish threshold from the Trend Trader Index, which indicates that the underlying bullish trend of the market remains intact as long as the broad equity benchmark does not drop below 1,948. Furthermore, we can see that both envelope lines of this reliable indicator are still strongly drifting higher. This is telling us that within the last couple of weeks, we saw higher highs and higher lows, which is another typical pattern for a strong short-term oriented uptrend. This bullish short-term uptrend is also supported by the readings of the Modified MACD, which flashed a small bullish crossover signal last week. Above all, the gauge from the Advance-/Decline 20 Day Momentum Indicator finished the week at quite encouraging levels, although it should be much higher given the fact that the S&P 500 reached a new all-time high last week.

This bearish divergence can be ignored right now, as short-term market breadth continued to improve and is, therefore, confirming the current short-term oriented uptrend of the market! The Modified McClellan Oscillator Daily continued to gain even more bullish ground last week, indicating that the underlying breadth momentum of the broad market remains positive. Additionally, we saw a strong surge in the total amount of all NYSE-listed stocks which reached a fresh 52 weeks high, in combination with one of the lowest readings of new 52 weeks low! Especially on Monday, there were about 365 stocks which have been pushed to a new yearly high, one of the highest readings this year! This is telling us that the current break-out from the S&P 500 looks absolutely healthy and, therefore, further gains can be expected. This can be also seen, if we have a look at the High-/Low-Index Daily. The gauge of this indicator is still trading at quite encouraging levels and is, therefore, confirming the new high we have seen by the S&P 500. Another positive fact is that the percentage of stockss which are trading above their short-term oriented moving averages (20/50) are also confirming the recent level from the S&P 500 as their gauges are trading far above 50 percent. This indicates that the broad market is participating within the recent rally!

If we focus on our contrarian indicators, we can see that the Smart Money Flow Index is diminishing its long term bearish divergence to the Dow, indicating that big institutional investors are gearing up their equity exposure. On the other hand, we can see that the small fry is quite cautious about the continuation on the current rally (as the amount of puts soar), since the gauge from the Daily Put-/Call All CBOE Options Indicator bounced back to quite bullish levels. Another encouraging fact is that the WSC Capitulation Index has not shown any signs of strength yet and is, therefore, still indicating an all-clear environment at the moment. Only the Global Futures Dumb Money Indicator and the Global Futures Put/Volume Ratio Oscillator still remain bearish. Anyhow, with such strong readings within our short-term trend- as well as breadth indicators, those bearish signals can be ignored at the moment as any upcoming weaknesses should be limited in price and time and should, therefore, be used by aggressive traders to add exposure.

Mid-Term Technical Condition

If we focus on the mid-term oriented technical condition of the market, we basically got the same set-up as we have on a short-term time frame. The mid-term uptrend of the market remains well intact and is, therefore, giving no reason to worry right now. This is mainly due to the fact that our reliable Global Futures Trend Index keeps trading well above its extremely bullish 90 percent threshold and is, therefore, confirming the current levels from the S&P 500. Moreover, it is worth to mention that as long as the gauge from this indicator remains above its 60 percent threshold, any upcoming weaknesses should be limited in price and time (if additionally mid-term market breadth remains strong). Above all, the WSC Sector Momentum Indicator is indicating that most sectors within the S&P 500 remain in a strong mid-term uptrend, and, therefore, the current up-trend of the market looks quite healthy at the moment. If we have a closer look at our Sector Heat Map, we can see that energy and technology are/remain the strongest sectors within the S&P 500, whereas consumer discretionary and consumer staples remain the weakest ones.

More importantly, the current mid-term oriented up-trend of the market is strongly being confirmed by mid-term oriented market breadth. The percentage of stockss which are trading above their mid-term oriented moving averages (100/150) gained more bullish ground last week, indicating an absolutely broad based participation at the moment. Moreover, both gauges (100/150) have been pushed to their highest level since early February and are, therefore, confirming the current level from the S&P 500! In addition, we can see that the Modified McClellan Oscillator Weekly reached a new high last week, indicating that the mid-term oriented market internals remain quite healthy. Another encouraging mid-term oriented tape signal is coming from the Advance-/Decline Index Weekly as well as from the Upside-/Downside Volume Index Weekly. Both indicators are telling us that it is a way too early to get bearish from a strategic point of view as both indicators are far away from flashing any bearish crossover signal yet. Normally, as long as both, advancing issues as well as mid-term oriented up-volume are trading above their bearish counterparts, the underlying tape structure of the market remains outright bullish. For that reason, we strongly believe that there is still enough room for an overshoot above 2,000 into late-summer, before troubles might be due!

Long-Term Technical Condition

As per last week’s report, the long-term uptrend of the market (WSC Global Momentum, Global Futures Long Term Trend Index and the WSC Global Relative Strengths) remains well in-force. Therefore, our long-term bullish outlook has not been changed so far. The gauge from the WSC Global Momentum Indicator remains outright bullish at the moment, indicating that 97 percent of all global market ETFs, which are covered by the WSC Global Tactical ETF Portfolio, are still in a long-term uptrend. If we have a closer look at the global relative strength scores, we can see that US equities are picking up momentum (against it peers) again, which can be seen as quite encouraging signal. Furthermore, the Global Futures Long Term Trend Index is still indicating a technical bull market and, therefore, our long-term bullish outlook has not changed so far. More importantly, long-term oriented market breadth still looks quite constructive, as the percentage of stockss which are trading above their 200 day simple moving average grew to 70 percent and are, therefore, far away from being bearish. In addition, the Modified McClellan Volume Oscillator Weekly still remains supportive, whereas the amounts of stocks which are hitting a fresh 52 weeks high are trading well above their bearish counterparts, indicating still a positive market breadth environment for the time being.

Bottom Line

The bottom line: with broadening strengths in our short-term and especially within our mid-term oriented trend- as well as breadth indicators, we believe to see further rallying into late-summer. Furthermore, we have not seen any signs for a major top-building process yet and, therefore, aggressive market timers should use any upcoming weakness to build up exposure, whereas conservative members should hold/increase their equity position as we still think there is still enough room for the S&P 500 to grow above 2,000. Stay tuned!