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November 14th 2021

Market Review

Markets were in consolidation mode last week. The Dow Jones Industrial Average dropped 0.6% over the week to 36,100.31. The S&P 500 booked a small weekly loss of 0.3% to finish at 4,682.85. The Nasdaq inched down about 0.7% on the week and ended at 15,860.96. All three benchmarks posted their first losing week in six. Despite the week’s small losses, the three major averages are within striking distance of their record highs. Of the S&P sectors, materials led advancers, while the discretionary sector dragged the most. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 16.3.

Short-Term Technical Condition

Even though the broad index finished slightly lower for the week, the short-term oriented uptrend of the market remains intact. The S&P 500 is still trading nearly 100 points above the bearish threshold of the Trend Trader Index. This is telling us that the bullish price trend of the market remains intact as long as the S&P 500 does not close below 4,589 (lower threshold of the Trend Trader Index). Furthermore, both envelope lines of the Trend Trader Index are still increasing on a fast pace as we saw higher highs and higher lows on a 20 days rolling basis (which is a quite bullish price driven trend signal). The situation looks slightly different if we analyze the underlying trend momentum of this price driven trend. There we can see that the Modified MACD and the Advance-/Decline 20 Day Momentum Indicator have shown some signs of fatigue recently and have, therefore confirmed the latest consolidation period. Nevertheless, both indicators still remain quite bullish form a purely signal point of view. Therefore, the latest weaknesses can be described as a healthy breather rather than being part of a sustainable trend reversal. To increase the degree of confidence in that statement, the quality of that short-term oriented uptrend (market breadth) will give us further guidance.

Although most of our short-term oriented market breadth indicators have lost some ground recently, they still show a quite broad-based upside participation (within the current uptrend). Thus, the quality of the current uptrend remains high and, therefore, it might be a bit too early to get concerned about the latest slowdown. Especially, the percentage of stocks which are trading above their short-term oriented moving averages (20/50) are telling us that the majority of all U.S. listed stocks remains in a short-term oriented uptrend at the moment. Thus, the current trend is still backed by a broad basis. A fact, which is also supported by the fact that there are still enough stocks around which are hitting a fresh yearly high, whereas the number of stocks which were pushed to a new yearly low has not shown any negative spikes so far. As a result, the High-/Low Index Daily still remains quite bullish (although it has lost some ground recently). More importantly, the volume in advancing stocks continued to outpace the volume in decline ones (Upside-/Downside Volume Index Daily), whereas the  momentum of advancing stocks (Modified McClellan Volume Oscillator Daily) and advancing volume (Modified McClellan Volume Oscillator Daily) has not shown any signs of weaknesses so far. So all in all, the quality of the current uptrend remains quite high. Thus, the latest slow-down can still be categorized as healthy breather than being the starting point of a stronger trend reversal – at least from the current point of view.

From a purely sentiment point of view, we can see that the latest consolidation period had literally zero impact on short-term optimism. Our entire option based indicators (WSC Dumb Money Indicator, AII CBOE Put-/Call Ratio, Equity Options Call-/Put Ratio Oscillator, WSC Put-/Volume Ratio and the WSC Put-/Volume Ratio Oscillator) are showing that the amount of call options being bought continued to accelerate last week. As already mentioned last week, with such a strong imbalance on the option market, further consolidation or even stronger sentiment driven washout-days into expiration day (next Friday) looks quite likely. This view would coincide with the fact that the last two weeks of November tend to be quite weak from a seasonal point of view (Presidential Cycle). However, given the strong trend quality (market breadth) any sentiment driven sell-off should be limited in price and time.

Mid-Term Technical Condition

This view is also supported by quite robust mid-term oriented trend signals. The Global Futures Trend Index continued to increase and closed out the week at 85%, confirming the latest level of the S&P 500. Historically, such strong readings (in combination with bullish mid-term-oriented tape signals) never led to any stronger trend-reversal in the past. As a result, this can be interpreted as an outright bullish technical signal for the time being and, therefore, further gains (on a mid-term horizon) are highly likely. Thus, the overall market environment remains quite positive for the time being. This can also be seen if we focus on the WSC Sector Momentum Indicator, which is still trading in solid bullish territories. This shows that the mid-term oriented price trend of most sectors within the S&P 500 remains intact. These bullish facts are additionally supported by our Sector Heat Map as the momentum score of the riskless money market keeps trading at 0% and below all other sectors. Consequently, we think it is a way too early to change our strategic bullish view.

More importantly, the quality of this mid-term oriented uptrend still looks quite robust at the moment. Especially, the number of advancing issues and advancing volume have not confirmed the latest slow-down as they were holding up quite well (Advance-/Decline Line Daily) or even formed a bullish divergence compared to the market (Advance-/Decline Volume Line and Advance-/Decline Line Weekly). Another encouraging signal is coming from the Modified McClellan Oscillator Weekly, which succeeded to improve last week and narrowed its bearish gap. This indicates that the underlying momentum of advancing stocks on a mid-term time horizon continued to improve. Also, the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) finished the week at quite confirmative levels. Thus, the mid-term oriented uptrend looks quite broad-based in its nature. The only weaker signal is coming from the Upside-/Downside Volume Index Weekly as it flashed a tiny bearish crossover signal last week. This shows that the number of advancing volume on a mid-term oriented time frame continued to weaken. Mid-term oriented advancing issues, in contrast even succeeded to improve during the week. Thus, with such a strong (up)trend quality we received further confirmation that it is a bit too early to get concerned at the moment.

Long-Term Technical Condition

The long-term oriented trend of the market remains nearly unchanged compared the previous week. The WSC Global Momentum Indicator slightly decreased for the week and shows that 58% of all local equity markets around the world (which are covered by our Global ETF Momentum Heat Map) are still 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 nearly all risky markets improved considerably compared the previous week. Still 5 markets are now trading below U.S. Treasuries. If we examine our long-term oriented tape indicators, we can see that the High-/Low Index Weekly and the Modified McClellan Volume Oscillator Weekly improved while 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 Rotation Strategy and the WSC Dynamic Variance Portfolio. Moreover, we are proud to announce that the WSC All Weather Model Portfolio and the WSC Inflation Proof Retirement Portfolio reached a new all-time high last week.

Bottom Line

Our outlook remains unchanged compared to the previous week. Even though further sentiment driven consolidation (or even stronger washout days) cannot be ruled out, there is no fundamental reason to change our strategic bullish outlook for the time being. The market has been exactly following our expected path so far and given the outright bullish tape structure, we think that the current sentiment driven consolidation period should turn out to be limited in price and time. 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. 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 (although they should not use full leverage).

Stay tuned!