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October 27. 2013

Market Review

U.S. stocks finished another week of gains with the S&P 500 index at a record high. For the week, the Dow Jones Industrial Average jumped 1.1 percent to 15,570.28, its highest close since Sept. 19. The 30-stock gauge is approximately 1 percent from hitting its all-time record. Surpassing its record close set on Tuesday, the S&P 500 climbed 0.9 percent to 1,759.77. Both the Dow and S&P 500 rose for a third consecutive week. The Nasdaq gained 0.7 percent to 3,943.36, its second weekly gain. Most key S&P sectors closed in positive territory, boosted by industrials and utilities. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, closed near 13.

Short-Term Technical Condition

As per last week?s report, the short-term up-trend of the market remains well intact, since the gauges of our entire short-term trend indicators (Trend Trader Index, Modified MACD and the Advance-/Decline 20 Day Momentum) are extremely bullish at the moment! The market is trading 61 points above the bearish threshold from the Trend Trader Index, plus its envelope lines are strongly drifting higher, indicating that the support levels for the S&P 500 are increasing as well, which is a typical pattern for a strong short-term up-trend. The same is true, if we have a look at our reliable Modified MACD, which has picked up strong bullish momentum as its trend lines have shown a quite widening gap, plus we have seen an encouraging up-move from the Advance-/Decline 20 Day Momentum Indicator, indicating further strength ahead.

More importantly, our entire short-term tape indicators are confirming the short-term uptrend of the market since there are hardly any stocks around which are hitting a fresh 52 week?s low and additionally the amount of new highs remain are confirming the recent break-out by the S&P 500. Short-term up-volume is trading well above short-term down-volume, plus our reliable Modified McClellan Oscillator Daily has not shown any signs of weaknesses yet. If we have a closer look at the underlying short-term trend structure of the market, we can see that the current trend remains quite broad based (percentage of stocks which are trading above their 20/50 day simple moving average), telling us that the current rally is not only being driven by heavy weighted stocks within the S&P 500!

According to our contrarian indicators, there are absolutely no serious trend-breaking divergences around as smart money is still buying into the rally, the option market remains cautious, plus our reliable WSC Capitulation Index is giving no reason to worry at the moment.

Mid-Term Technical Condition

The most important mid-term oriented trend signal is coming from the Global Futures Trend Index, which has been pushed back above its extremely bullish 90 percent threshold, indicating an outright strong mid-term oriented uptrend at the moment. In addition, the WSC Sector Momentum Indicator is still trading far above its bearish threshold and has even picked up more up-side moment last week, indicating that most sectors within the S&P 500 are per definition in a strong mid-term oriented up-trend. This can be also seen if we have a closer look at our sector heat map as the relative strengths score of riskless Money Market is trading at 0 percent, telling us that all sectors within the S&P 500 are trending higher in absolute terms, and, therefore, the current up-trend of the market looks outright healthy at the moment.

Moreover, if we focus on our mid-term oriented tape indicators, we can see that last week?s move has pushed the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) back to encouraging 75 percent, telling us that the upside participation within the whole market is extremely broad-based and, therefore, further rallying can be expected! Despite the fact that the Modified McClellan Oscillator Weekly still remains bearish from a pure signal point of view, we can see that it might be just a question of time until this indicator will get back on track. However, the most promising mid-term oriented signals are coming from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly. Both indicators have improved significantly last week and have, therefore, started sorting out those bearish divergences we have been worried about in our previous market comment! Especially the significant spike in mid-term oriented advancing issues is telling us that current downside potential of the market should be limited in price and time.

Long-Term Technical Condition

If we have a look at our long-term oriented WSC Global Momentum Indicator, we can see that the current rally has continued to broaden out globally, as roughly 70 percent of all global markets (all denominated in USD) continued to show strong momentum versus riskless money market. The same is true, if we have a look at our Global Relative Strengths Indicator. The relative strength of U.S. Treasuries remains below all risky markets, which is a strong sign when the market is in a risk-on mode, plus the Global Futures Long Term Trend Index is still indicating a technical bull market. Furthermore, we have seen more improvements in long-term market breadth, as our Modified McClellan Volume Oscillator Weekly has continued to bottom out, the number of stockss which are trading above their 200 day simple moving average are far away from being bearish plus, the number of stockss which are hitting a fresh 52 week?s high are recovering.

Bottom Line

The bottom line: with broadening strengths in our short- to long-term trend- as well as breadth indicators, our bullish outlook has not been changed so far. Therefore, we would advise our conservative members to hold/increase their equity exposure while aggressive traders should buy aggressively into any upcoming weaknesses. Stay tuned!