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July 4th 2021

Market Review

All three major U.S. averages finished the week with gains to set another round of record closes. For the week, the Dow Jones Industrial Average advanced 1.0% to end at 34,786.35. The S&P 500 booked a weekly gain of 1.7%. and finished at 4,352.34. The Nasdaq advanced nearly 2% from the week-ago close to 14,639.33. All three benchmarks hit records during the week. The technology sector led gainers among the S&P’s 10 major sectors; energy was the only negative sector for the week. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 15.1.

Short-Term Technical Condition

In line with our expectations, the short-term oriented uptrend of the market strengthened as the readings of our entire short-term oriented trend-indicators continued to improve last week. The S&P 500 is now trading 114 points above the bearish threshold from the Trend Trader Index. This shows that the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 4,238. Additionally, both envelope lines of this reliable indicator are still steadily increasing, indicating that the resistance/support levels for the S&P 500 are rising as well. This is a quite supportive price signal as higher highs and higher lows are a typical pattern for a healthy uptrend. Another positive fact is that the underlying momentum of this short-term oriented price driven trend also continued to strengthen. This can be seen if we focus on the Modified MACD widened its bullish gap last week. And like in the previous week, the only weaker but still bullish signal is coming from the Advance-/Decline 20 Day Momentum Indicator. Although its gauge showed an improvement during the week, it slightly decreased at the end of the week. As a result, it did not fully confirm the latest record of the S&P 500.

However, this small bearish trend divergence can be ignored since most of our short-term oriented market breadth indicators continued to regain their footing last week. The most important tape improvements are coming from the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily. Although both indicators remain bearish from a purely signal point of view, they have finally started to narrow their bearish gaps. This indicates that the current short-term oriented uptrend is now also getting support by an improving momentum in advancing stocks and in advancing volume (albeit on quite low levels). A fact, which can also be observed if we focus on the Upside-/Downside Volume Index Daily which also turned slightly bullish last week. Another supportive fact is that we saw solid levels in the number of stocks which hit a fresh yearly high (203 on Friday), whereas there were hardly any stocks which dropped to a new yearly low (16). Therefore, the High-/Low Index Daily strengthened its bullish signal for the week. As long as there are more new highs around than new lows, the underlying tone remains positive. Nevertheless, the total number of new highs could be a bit stronger, given the fact that the S&P 500 reached a new record high last week. This is telling us that most of the gains were driven by heavy-weighted stocks in the index, rather than being just the result of an extremely broad based demand. This also explains, why the percentage of stocks which are trading above their short-term oriented moving averages (20/50) did not manage to close significantly above their bullish thresholds last week. As a result, the latest high was not fully confirmed by short-term market breadth. Currently, this is not a major dealbreaker at the moment, since most of the signals remain supportive/bullish and continued to improve for the week. As a result, the risk of a fast-changing trend reversal still remains on low levels – at least for now.

From a purely contrarian point of view, most of our sentiment- and option-based indicators (AII Bulls/Bears Survey, WSC Dumb Money Indicator, Equity Options Call-/Put Ratio Oscillator, WSC Put-/Volume Ratio and the WSC Put-/Volume Ratio Oscillator) remain neutral to modestly bearish. Only the WSC Dumb Money Indicator and the WSC Put-/Volume Ratio Oscillator show increased greed among the crowd. However, given the fact that the S&P 500 reached a new all-time high last week all these values still look quite muted to be a gamechanger at the moment. Moreover, we can see that the gauge of the WSC Capitulation Index continued drop significantly last week. This is another indication that the market got back into a risk-on market environment last week.

Mid-Term Technical Condition

This setting is also confirmed by the fact that the mid-term oriented up-trend of the market is giving no reason to worry right now. This is mainly because our reliable Global Futures Trend Index succeeded to increase by 3 percentage points to 93% and got back into the bullish area. With such a strong reading (and in combination with supportive market breadth), any upcoming weaknesses should turn out to be limited in price and time. Therefore, it is definitely a way too early to change our strategic bullish base case scenario at the moment. A fact, which can also be seen if we focus on the WSC Sector Momentum Indicator which also kept trading at quite bullish levels last week. This is telling us that most sectors of the S&P 500 remain in a strong mid-term oriented price driven uptrend at the moment. This strong mid-term oriented price trend is also confirmed by our Sector Heat Map as the momentum score of the riskless money market keeps trading at 0% and below all other sectors.

On top of that, we can see that this current mid-term oriented time-series momentum of the market is also widely confirmed by mid-term oriented market breadth. First of all, our entire advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line) improved last week. Moreover, we can see that mid-term oriented advancing issues as well as mid-term oriented up-volume keep trading well above their bearish counterparts (although they have lost a bit bullish ground recently). As long as both indicators remain bullish, in combination with readings above 60% within our Global Futures Trend Index, it is definitely a bit too early to pull the trigger. Another encouraging signal is coming from the Modified McClellan Oscillator Weekly which also slightly improved for the week. This indicates that the underlying momentum of advancing stocks on a mid-term time horizon still remains positive. A fact, which is also confirmed by the percentage of stocks which are trading above their mid-term oriented moving averages (100/150). So all in all, reflecting our breadth indicators tells us that it might be a bit too early to pull the trigger as the mid-term oriented upside participation still looks quite healthy for the time being.

Long-Term Technical Condition

Not surprisingly, the long-term oriented technical condition of the market is giving no reason to worry right now. Although our WSC Global Momentum Indicator slightly decreased on very high bullish levels, it is far away from being bearish. Currently it shows us that 81% 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. Consequently, the current bulls-run can still be described as global in scope. In contrast, our reliable Global Futures Long Term Trend Index succeeded to gain more bullish ground last week, which is a very supportive momentum signal at the moment. Another supportive fact is that our WSC Global Relative Strength Index was holding up quite well and that all markets have a higher relative strength score than U.S. Treasuries. Our long-term market breadth indicators, in contrast, showed a weaker performance last week. While the SMA 200 remained unchanged for the week, our High-/Low Index Weekly weakened and the Modified McClellan Volume Oscillator Weekly even flashed a small bearish crossover signal.

Model Portfolios

Last week, there were no changes within the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio, the WSC Sector Momentum Portfolio 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

With quite bullish/supportive indicators all across the board, we think it is definitely a way too early to change our strategic bullish outlook at the moment. Thus, we are expecting further gains into deeper summer. A fact, which can also be seen if we focus on our Big Picture Indicator, which is still moving around within its bullish quadrant. As long as this is the case, we think it might be a bit too early to take the chips from the table. Therefore, we think it would make sense for aggressive short-term traders to stick in the bullish camp, whereas conservative investors should remain invested.

Stay tuned!