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June 6th 2021

Market Review

All three major U.S. averages finished the week with modest gains. For the week, the Dow Jones Industrial Average advanced 0.7% to end at 34,756.39. The S&P 500 finished at 4,229.89 and booked a weekly gain of 0.6%. Both benchmarks posted their second straight positive week. Closing at 13,814.49, the tech-heavy Nasdaq gained 0.5% this week for its third winning week in a row. Energy led gainers among the S&P’s 10 major sectors; utilities and discretionary were the only negative sectors for the week. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 16.4.

Short-Term Technical Condition

In line with our expectations, the short-term oriented uptrend of the market continued to strengthen last week, as the S&P 500 closed slightly above the bullish threshold of the Trend Trader Index. So, from a purely price point of view, the short-term oriented uptrend of the market remains intact as long as the S&P 500 does not close below 4,149. In addition, the gauge from the Advance-/Decline 20 Day Momentum Indicator also showed a strong weekly surge and is, therefore, confirming the recent gains of the S&P 500. Another supporting signal is coming from the Modified MACD. Although this indicator still looks a bit weak-kneed, it succeeded to flash a tiny bullish crossover signal on Friday. This is telling us that the momentum of the ongoing price trend has started to get back on track.

This picture is widely confirmed by short-term market breadth. To be more precise, our entire tape indicators showed stronger signs of improvements last week, indicating that the current short-term oriented uptrend is still strongly supported by a broad basis. As a result, the risk of a sudden trend-reversal remains limited. Especially, the number of stocks hitting a fresh yearly high reached quite confirmative levels, whereas we hardly saw any stocks which were pushed to a new yearly low. Thus, the bullish gauge of the High-/Low-Index Daily widen its bullish gap significantly during the week. This shows that the latest gains were driven by a strong demand all across the board, rather than being just only the result from a few mega-caps. Basically, the same is true if we focus on the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily. Both indicators continued to strengthen their bullish signals, telling us that the momentum of advancing stocks as well as advancing volume is still positive. This is a quite encouraging signal since an ongoing uptrend should always be supported by an increasing number of advancing stocks and advancing volume. Therefore, it was not a big surprise at all that the Upside-/Downside Volume Index Daily has not shown any signs of weakness so far. Moreover, we can see that the upside participation within the current uptrend remains robust since the majority of all U.S. listed stocks keeps trading above their short-term oriented moving averages (20/50). So given the quite positive short-term oriented tape condition, we strongly believe that the S&P 500 has enough strength to hit a sustainable all-time high soon.

On the contrarian side, there are hardly any trend-breaking signals around. Sentiment is picking up again (AII Bulls & Bears Survey, WSC Dumb Money Indicator and the AII CBOE Put-/Call Ratio). However, if we consider the fact that the S&P 500 is just slightly trading below its all-time high the overall degree of greed looks quite muted. Moreover, we can see that the WSC Capitulation Index has started to drop recently, which is another positive signal for the time being.

Mid-Term Technical Condition

Another main reason, why we believe it is still a way too early to bet on a major trend-reversal is due to the fact that our entire mid-term oriented indicators remain bullish and even strengthened last week. The most encouraging signal is coming from our Global Futures Trend Index. Its gauge picked up further momentum and jumped back into the bullish top area as it passed the important 90% threshold. This can be interpreted as a quite strong technical trend signal, as such strong readings (in combination with bullish mid-term oriented tape signals) never led to stronger corrections! Also, the gauge from our WSC Sector Momentum Indicator improved last week, indicating that most underlying sectors within the S&P 500 are trading above their mid-term oriented uptrend. This can also be seen if we examine our Sector Heat Map as the momentum score of all sectors remains above the one from the riskless money market sector (which remains at 0%). These facts are another indication that the risk appetite among investors remains quite high (and, therefore, our strategic bullish view remains unchanged).

The setting of the mid-term oriented uptrend is also confirmed by mid-term oriented market breadth. Especially our advance-decline indicators (Advance-/Decline Volume Line, Advance-/Decline Line Daily and the Advance-/Decline Line Weekly) improved for the week and some even reached their highest levels ever. This is another indication that we might see new all-time highs soon. Moreover, the mid-term oriented tape momentum also still looks quite healthy, since the Modified McClellan Oscillator Weekly continued to widen its bullish gap last week. Another encouraging signal is coming from the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) as both gauges also slightly improved for the week. Nevertheless, the most important signals are coming from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly. Both indicators remain outright bullish and are, therefore, clearly confirming the current mid-term oriented uptrend of the market. In the past, such strong signals were a very reliable predictor for further gains on the horizon.

Long-Term Technical Condition

The long-term oriented trend of the market remains nearly unchanged compared the previous week. The WSC Global Momentum Indicator shows that 90% 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. Also, our Global Futures Long Term Trend Index was holding up quite well and signals that the long-term oriented uptrend of U.S. equities remains well intact. Moreover, the relative strength of all risky markets was still holding up quite well compared to treasuries. If we examine our long-term oriented tape indicators, we can see that the Modified McClellan Volume Oscillator Weekly improved while the High-/Low Index Weekly and the SMA 200 remained nearly unchanged.

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 Model Portfolio Composite, the WSC All Weather Model Portfolio, the WSC Sector Momentum Portfolio and the WSC Inflation Proof Retirement Portfolio reached new all-time highs last week.

Bottom Line

The situation remains unchanged compared to last week. In line with our strategic view, the technical picture of the market continued to improve last week. To be more precise, with broadening strengths all across the board, there is absolutely no fundamental reason to change our strategic bullish outlook for the time being. Thus, we strongly believe that the S&P 500 will have enough power to break above its current trading range, which will then be accompanied by further gains into deeper summer. Even if the S&P 500 needs a few attempts to do so (with such positive readings all across the board), any upcoming consolidation/down-days should turn out to be limited in price and time. This is mainly due to the fact that there are absolutely no major deal-breaker visible at the moment. In other words, as long as the gauge from our Big Picture Indicator keeps improving, we think it is a way too early to take the chips from the table. For that reason, we think it would make sense for our conservative members to remain invested, whereas aggressive traders should stick in the bullish camp. Stay tuned!