March 01. 2015

Market Review

U.S. stocks finished the week nearly unchanged. For the week, the Dow Jones Industrial Average lost less than 0.1 percent to close at 18,132.7, whereas the S&P 500 decreased 0.3 percent to end at 2,104.51. The tech-heavy Nasdaq rose 0.2 percent for the week to end at 4,963.53. Most key S&P sectors ended in negative territory for the week, led by energy. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded below 14.

Short-Term Technical Condition

Apparently, the short-term oriented trend of the market remains almost unchanged compared to last week as the S&P 500 finished nearly flat for the week. The Trend Trader Index is telling us that the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 2,065. Furthermore, we can see that both envelope lines of this reliable indicator are still drifting higher, indicating that the resistance/support levels for the S&P 500 are increasing as well. This can be seen as a quite constructive technical signal as higher highs and higher lows are a typical pattern for a healthy uptrend. The same is true if we focus on the readings from the Modified MACD, as they have not shown any signs of a threatening bearish crossover signal yet. Above all, the gauge from the Advance-/Decline 20 Day Momentum Indicator is still trading at quite encouraging bullish levels. Nevertheless, if we focus on the absolute level from the gauge of the Advance-/Decline 20 Day Momentum Indicator, we can see that it should be much higher, given the fact that the S&P 500 reached a new all-time high last week. In addition, the Modified MACD showed also a narrowing bullish gap, indicating some small signs of short-term exhaustion.

Right now, it is a bit too early to get concerned about those facts as our entire short-term market breadth indicators are still confirming the current short-term oriented uptrend of the market. The current trend participation of all NYSE listed stocks remains quite bullish, as the percentage of stockss which are trading above their short-term oriented moving averages (20/50) remain well above their bearish 50 percent threshold. In addition, we can see that the gauges of the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily are smoothly trending higher, indicating that the underlying breadth momentum of the broad market remains outright constructive at the moment. In addition, the number of stockss which are hitting a fresh yearly low have not shown any signs of strength yet and, therefore, the readings from the High-/Low Index Daily remain quite constructive. Nevertheless, we think that the total amount of new highs could be a bit higher, if we consider the current levels from the S&P 500. In our opinion, this small bearish divergence can be ignored, as long as the total amount of new lows remains depressed.

The situation on a contrarian side remains quite unchanged compared to last week. The Smart Money Flow Index sorted out its long-term bearish divergence to the Dow, indicating that big institutional investors are still on a buying spree. This can be also observed if we focus on the WSC Capitulation Index, which is still indicating an extremely risk-on environment! Like last week, only the z-score from OEX Call-/Put Ratio Oscillator Weekly remains in bearish territory, whereas the ISEE Call-/Put Ratio also flashed a bearish signal last week. This indicates that both gauges are two standard deviations away from their historical means, which is a quite rare event. As a matter of fact a washout-day or further consolidation on a very short-time frame could be possible. Nevertheless, with such strong readings within our indicator framework, we think any consolidation should be limited in price and time.

Mid-Term Technical Condition

Another reason why we are quite sure about that is the fact that the mid-term oriented uptrend of the market also continued to strengthen last week. This is mainly due to the fact that the gauge from our reliable Global Futures Trend Index closed above its extremely bullish 90 percent threshold last week and has, therefore, clearly confirmed the latest all-time high by the S&P 500. In addition, the WSC Sector Momentum Indicator gained more bullish ground last week, indicating that most sectors of the S&P 500 have not shown any signs of weaknesses yet and they remain, therefore, still in a strong mid-term oriented uptrend. This can be also seen if we have a closer look at our Sector Heat Map, as the relative strength score of riskless money market remains at low levels, whereas health care and consumer discretionary remain the strongest sectors for the time being.

More importantly, the current mid-term oriented up-trend of the market is still confirmed by mid-term oriented market breadth. The percentage of stockss which are trading above their mid-term oriented moving averages (100/150) continued to strengthen slightly for the week and are now trading at encouraging 60 percent. This indicates that the current upside participation within the whole market remains quite broad-based! Moreover, the Modified McClellan Oscillator Weekly showed an increasing bullish gap last week, plus mid-term oriented advancing issues as well as mid-term oriented up-volume are trading well above their bearish counterparts, indicating a quite bullish tape structure from a pure signal point of view!

Long-Term Technical Condition

The long-term oriented technical picture of the market remains almost unchanged compared to last week. The Global Futures Long Term Trend Index is still indicating a technical bull market for the S&P 500, whereas most local market indexes around the world continued to regain their footing. This is mainly due to the fact that the gauge of the WSC Global Momentum Indicator increased to 45 percent and, therefore, the global bull market is getting broader based at the moment. This can be also monitored if we focus on the Global Relative Strength Index, as the relative strength of most risky markets continued to strengthen last week. More importantly, long-term oriented market breadth still looks quite constructive at the moment. The percentage of stockss which are trading above their 200 day simple moving average continued to strengthen last week, whereas the amounts of stocks which are hitting a fresh 52 weeks high are trading well above their bearish counterparts. Plus the Modified McClellan Volume Oscillator Weekly continued to gain more bullish ground last week, indicating a quite healthy tape structure at the moment.

Bottom Line

The bottom line: from a pure contrarian point of view the market looks vulnerable for a short-term oriented pullback towards 2,060 or a short-lived consolidation period within an ongoing bull-market. Nevertheless, as long as the WSC Capitulation keeps trading at outright low levels, in combination with such strong readings within our short to mid-term oriented trend- as well as breadth indicators, we think any upcoming weaknesses should be used to add exposure! Stay tuned!