September 15th 2019

Market Review

In line with our latest call, all three major U.S. averages finished the week with solid gains. For the week the Dow Jones Industrial Average advanced 1.6 percent to end at 27,219.52. The blue-chip index posted its first eight-day winning streak in more than a year. The S&P 500 added 1.0 percent for the week to finish at 3,007.39. The Nasdaq advanced 0.9 percent from the week-ago close to 8,176.71. Friday’s action left the Dow Jones Industrial Average 0.5 percent from its record at 27,359.16 hit on July 15, while the S&P 500 was also 0.5 percent from its all-time high at 3,025.86 set on July 26. The Nasdaq ended the day 1.9 percent from its all-time closing high at 8,330.21 also hit on July 26. Most key S&P sectors finished higher, led by financials. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, dropped to 13.7.

Short-Term Technical Condition

Not surprisingly, the bullish status of the S&P 500 clearly strengthened last week. The S&P 500 managed to close significantly above the bearish envelope line from the Trend Trader Index (98 points). So from a pure price point of view, the short-term uptrend of the market remains intact as long as the S&P 500 does not drop below 2.918 (bearish threshold from the Trend Trader Index). In addition, both envelope lines of this reliable indicator are drifting higher, which is another constructive trend signal at the moment. This can be also observed if we focus on the Modified MACD, which widened its bullish gap last week (indicating that the short-term oriented trend of the market is gearing up momentum). Moreover, it was good to see that the Advance-/Decline 20 Day Momentum Indicator jumped to its highest level for weeks. As this indicator often reacts before prices do, the recent jump was clearly a quite confirmative signal, indicating further strength ahead. Although the current short-term oriented trend of the market looks quite bullish from a pure price point of view, it should be always counterchecked with our breadth indicators (to measure the quality of the ongoing short-term oriented trend of the market).

According to our short-term oriented breadth indicators, the quality of the current rally looks quite healthy in its nature as it is strongly driven by a broad basis rather than by a few heavy-weighted stocks in the index. As a matter of fact, the chances of a sudden short-term oriented trend-break remain quite low at the moment. A quite encouraging signal is coming from the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily as both indicators strengthened their bullish gaps significantly last week. This is telling us that the current short-term oriented up-trend is widely supported by an increasing number of advancing stocks and advancing volume, which is an outright bullish signal. However, the strongest bullish short-term oriented market breadth signal is definitely coming from the percentage of stocks which are trading above their short-term oriented moving averages (20/50). Both gauges succeeded to jump back into bullish territory and also to the highest levels for weeks and have, therefore, clearly confirmed the latest price action of the market. Moreover, this is telling us that most U.S listed stocks have gotten back into a strong short-term oriented up-trend recently (indicating that the current short-term oriented price trend of the market is well supported by a broad basis). The only weak signal is coming from our NYSE New Highs/New Lows Indicator, as the amount of U.S. listed stocks which are hitting a fresh yearly high could be a bit stronger, given the fact that the S&P 500 almost reached a new all-time high last week. However, this small bearish divergence can be ignored as long as we do not see a stronger spike in new lows or a bearish crossover signal within the High-/Low Index Daily. So all in all, the current short-term oriented uptrend of the market is widely supported by a broad basis and, therefore, we think that the current rally is not at risk of fading out at the moment.

On the contrarian side, we can see that market sentiment is still far away from being euphoric. This is still a quite positive signal, as it indicates that the market has still enough room to climb the wall of worry. Two weeks ago, we said that the amount of bulls on Wall Street remained depressed and, therefore, there was still enough fire power left to push prices higher. In fact, the amount of bears/bulls dropped/increased significantly for the week, indicating that the latest rally was mainly driven by latecomers. Right now, this signal is still kind of supportive, as the amount of bulls has not reached critical levels yet. This can be also seen if we focus on the option market, as the z-score from the CBOE Put-/Call Ratio Daily has dropped into quite neutral territory recently, indicating that there is still enough room to grow. On top of that, we can see that the WSC Capitulation Index is now indicating a risk-on market environment, which is another supportive signal on the contrarian side. The only negative signal is coming from a pure seasonal point of view (Presidential Cycle). In a pre-election year, the market often faced stronger headwinds in the fourth quarter, before the typical year-end rally brought some relieve. Although the market followed the Presidential Cycle quite closely this year, we think with such strong readings all across the board it is definitely too early to get concerned and, hence, we keep ignoring those patterns for now.

Mid-Term Technical Condition

Another reason, why we believe that it is a way too early to take the chips from the table is due to the fact that the mid-term oriented uptrend of the market remains quite bullish at the moment. First of all, our reliable Global Futures Trend Index increased by 22 percentage points (!) last week and has nearly touched the threshold of the outright bullish 90 percent area (87 percent). This is telling us that the mid-term oriented up-trend of the market regained outright strong momentum. As always stated in our previous market comments, as long as this indicator is showing positive signs of momentum and keeps trading above 60 percent (in combination with supportive mid-term market breadth), the risk of a stronger trend-reversal is literally not given! Also from a pure price point of view, the mid-term oriented trend of the market remains well in place. Our WSC Sector Momentum Indicator is trading at solid bullish levels and even increased last week. An indication that most sectors within the S&P 500 are still in a strong price-driven mid-term oriented up-trend. This is also supported by our Sector Heat Map. The momentum score of all sectors keeps trading above the one from riskless money market (currently at 12.5 percent) – the only exception is the energy sector, which has been trading at 0.0 percent for several weeks now.

More importantly, mid-term oriented market breadth also showed stronger signs of confirmation and is, therefore, confirming the current mid-term oriented up-trend of the market. First of all, the Modified McClellan Oscillator Weekly (slightly) increased its bullish gap, telling us that the underlying breadth momentum of the broad market remains positive. In addition, the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) jumped to the highest levels for weeks. This is a quite bullish technical signal, as it telling us that the current upside participation within the current mid-term oriented trend remains quite broad-based! Above all, we can observe that the gauges of mid-term oriented up-volume as well as mid-term oriented advancing issues (slightly) increased their bullish gaps. Another encouraging breadth signal is coming from our entire advance-decline indicators (Advance-/Decline Volume Line, Advance-/Decline Line Daily, Advance-/Decline Line Weekly) which reached new all-time highs last week. This outright positive divergence is another indication that we might see new record highs soon.

Long-Term Technical Condition

The long-term oriented trend of the market also improved last week. Our WSC Global Momentum Indicator increased once again last week and succeeded to get back into the bullish territory. Currently it indicates that 68 percent 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. Also our Global Futures Long Term Trend Index has finally started to increase, which is another supportive momentum signal at the moment. This fact is also supported by the momentum scores in nearly all markets in our WSC Global Relative Strength Index. Examining our long-term market breadth gauges reveals that all of them recovered last week. The Modified McClellan Volume Oscillator Weekly increased and nearly flashed a bullish crossover signal. The percentage of stocks which are trading above their 200 day simple moving average also increased significantly and jumped to the highest level for weeks. Also the High-/Low Index Weekly remains quite supportive for the time being.

Model Portfolios

Last week, there were no changes within the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio, the WSC Sector Rotation Strategy and the WSC Dynamic Variance Portfolio. Moreover, we are proud to announce that the WSC All Weather Model Portfolio reached a new all-time high last week.

Bottom Line

In line with our expectations, the technical picture of the market continued to improve compared to the previous week. Therefore, our bullish outlook remains unchanged at the moment. To be more precise, with quite supportive/bullish readings within our indicator framework (especially on a mid-term time horizon), we think that the current rally is not at risk of fading out at the moment. As a matter of fact, we think it is a bit too early to bet on a major trend reversal at the moment. Consequently, we strongly believe to see multiple record highs into deeper September/October. However, on a very short-time frame it could be possible that the market might need a few attempts to break above its old bull-market high and, thus, some nasty wash-out days cannot be ruled out at the moment. Nevertheless, given the strong tape condition all across the board (WSC Short-Term Composite and WSC Mid-Term Composite), any upcoming weaknesses should be limited in price and time. So in the end, we would advise our conservative members to remain invested, whereas aggressive traders should focus on buying into weaknesses, as long as our short-term oriented indicator framework remains constructive.

Stay tuned!