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October 24th 2021

Market Review

All major averages finished the week significantly higher. The Dow Jones Industrial Average increased 1.3% to end at a record close of 35,677.02. The S&P 500 gained 1.8% for the week to finish Friday at 4,544.90. The Nasdaq advanced 1.7 percent from the week-ago close to 15,090.20. All key S&P sectors finished in the black for the week. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 15.4.

Short-Term Technical Condition

In line with our latest call, the market continued to push higher last week. Thus, it is not a big surprise that the short-term oriented trend of the market remains quite bullish for the time being. Analyzing the price trend reveals that the S&P 500 is now trading 56 points above the bearish threshold of the Trend Trader Index. Consequently, the purely price driven uptrend of the market remains intact as long as the S&P 500 does not drop below 4,388 (lower envelope line of the S&P 500). Additionally, both envelope lines of this reliable indicator had formed a rounding bottom during the week and started to rise as well. This is another quite bullish price trend signal as the S&P 500 made higher highs and lower lows on a rolling 20 days time frame. This strong price driven uptrend is also confirmed by strong trend momentum since the both trend gauges of the Modified MACD literally rocketed last week. Basically, the same is true if we focus on the Advance-/Decline 20 Day Momentum Indicator, which improved considerably for the week and has, therefore, confirmed the latest all-time high of the S&P 500. Consequently, the current time-series momentum of the S&P 500 looks outright positive at the moment.

More importantly, this positive time-series momentum also looks healthy in its nature as our entire breadth indicators continued to strengthen last week. In other words, the short-term oriented upside participation within the ongoing uptrend also looks quite broad-based at the moment. As a result, the risk for a sudden trend reversal should also be quite low for the time being. This can be seen if we focus on the Modified McClellan Oscillator Daily as well as the Modified McClellan Volume Oscillator Daily, which measures the momentum in advancing stocks and advancing volume, respectively. Both indicators widened their bullish gap, indicating that the current trend is fully supported by an increasing number of advancing stocks and advancing volume. Basically, the same is true if we focus on the Upside-/Downside Volume Index Daily and the percentage of stocks which are trading above their short-term oriented moving averages (20/50). Another quite confirmative fact is that we saw solid readings in the number of stocks which hit a fresh yearly high (207 on Friday), whereas there were hardly any stocks which dropped to a new yearly low (14 on Friday). Therefore, the High-/Low Index Daily also strengthened its bullish signal for the week. As long as this is the case, the underlying short-term oriented tone of the market should remain supportive. Hence, given the recent quite broad-based upside participation, we expect further gains on the horizon.

On the contrarian side, the situation still looks quite muted as most of our option- and sentiment-based indicators remain neutral  (AII CBOE Put-/Call Ratio, AII Bulls/Bears Survey, AII CBOE Call-/Put Ratio Oscillator and the Equity Options Call-/Put Ratio Oscillator). Only some of our option-based oscillators (Equity Options Call-/Put Ratio Oscillator and the WSC Put-/Volume Ratio Oscillator) are telling us that the greed among market participants had started to increase recently. Therefore, increased volatility on a short-term time perspective cannot be ruled out. A fact, which can also be observed if we focus on the WSC Dumb Money Indicator. However, currently market sentiment is far away of being too complacent at the moment. Smart Money has started to build up position recently, whereas the WSC Capitulation Index is not indicating a risk-on market environment again. The only negative signal is coming from a purely seasonal point of view. According to the Presidential Cycle, the time frame up until end of November tends to be quite challenging.

Mid-Term Technical Condition

However, currently this bearish seasonality can be definitely ignored. This is based on the fact that the mid-term oriented trend-condition of the market also continued to strengthen last week. Thus, we received further confirmation for our bullish base case scenario. By jumping to the upper part of its bullish consolidation area  (81%), our Global Futures Trend Index continued to improve significantly last week. With such solid readings (and in combination with supportive market breadth), any upcoming weaknesses should turn out to be limited in price and time. A fact, which can also be seen if we focus on the WSC Sector Momentum Indicator. This indicator shows that the majority (70%) of key sectors within the S&P 500 remains in a strong price driven uptrend. These bullish facts are also supported by our Sector Heat Map as the momentum score of all sectors remains above the one from riskless money market (which dropped to 0%).

Analyzing the current upside participation within this mid-term oriented uptrend also reveals improvements compared to last week  (albeit on quite low levels). The latest break-out was definitely confirmed by an increasing number of advancing issues (Advance-/Decline Line Weekly and the Advance-/Decline Line Daily). A fact, which can also be seen if we focus on the percentage of stocks which are trading above their mid-term oriented moving averages (100/150). Both indicators has shown a supportive upside participation recently. On the other hand we can see that upside volume (Advance-/Decline Volume Line and the Upside-/Downside Volume Index Weekly) and mid-term oriented breadth momentum (Modified McClellan Oscillator Weekly) still remains quite weak-kneed on a mid-term time horizon. However, given the current short-term oriented strength, we assume that these weak signals will get sorted out soon. A fact, which can already be seen in the  Modified McClellan Oscillator Weekly, which has started to show stronger signs of bottoming out recently. So, even though we saw smaller improvements within our mid-term oriented tape indicators, most of them can still be described as being supportive (on quite low levels) rather than being confirmative at the moment.

Long-Term Technical Condition

The long-term oriented technical picture of the market remains nearly unchanged compared to the previous week. Our WSC Global Momentum Indicator slightly decreased and indicates that 55% of all local equity markets around the world (which are covered by our Global ETF Momentum Heat Map) are now trading above their long-term oriented trend lines. Thus, the global bull market slightly strengthened compared to last week. In terms of relative strength (WSC Global Relative Strength Index), U.S. equities remain the strongest market. Therefore, it is not a big surprise at all that the Global Futures Long Term Trend Index keeps trading at quite confirmative levels. If we examine our long-term oriented tape indicators, we can see that the High-/Low Index Weekly and the SMA 200 improved, whereas the Modified McClellan Volume Oscillator Weekly has started to form a rounding bottom recently.

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 Sector Rotation Strategy and the WSC Inflation Proof Retirement Portfolio reached a new all-time high last week.

Bottom Line

Even though some seasonal driven volatility could not be ruled, there is definitely no major reason to change our strategic bullish view for now. To be more precise, with quite supportive/bullish biased readings (especially on a short-term time perspective), any potential weaknesses should turn out to be limited in price and time. A fact that can also be observed if we focus on the gauge of our Big Picture Indicator, which managed to get back into its bullish quadrant at the beginning of last week. As long as this is the case, and as long as we do not see any negative spikes in new lows, in combination with a strong weakening Global Futures Trend Index, it is a way too early to bet on a major trend reversal. Hence, we think conservative members should remain invested, whereas aggressive short-term traders should also stick to the bullish camp (as our short-term oriented indicators remain bullish).

Stay tuned!