April 03. 2016

Market Review

U.S. stocks finished the week with gains. The Dow Jones Industrial Average added 1.6 percent to finish the week at 17,792.75. The S&P 500 increased 1.8 percent to 2,072.78 for the week. The Nasdaq gained 3.0 percent over the week to 4,914.54. Most key S&P sectors finished higher, led by technology, energy was the only decliner on the week. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, hit a fresh low for the year so far and ended just above 13.

Strategy Review

After we had successfully predicted/side-stepped the January correction, it was one of our key calls that 1,810 represented an important low, as our indicator framework was telling us that the market had definitely hit rock bottom. As a consequence, we advised our members to get back into the market quite quickly afterwards and given the fact that the S&P 500 rallied almost 15 percent afterwards, our indicator framework showed once more its ability to identify every major market move. Anyhow, since then our strategic bullish outlook has not been changed so far. Nevertheless, we also mentioned a couple of times that from a pure seasonal point of view (Presidential Cycle), it could be also possible that such a low could only act as basis for another stronger rally (even towards new highs) into early Q2, before we could expect to see further major troubles into deeper summer. As those historical patterns should only be seen as a rough guideline instead of a precise trading plan, we mentioned the fact that the quality of the current rally would give us further guidance where the market is heading. So if our cyclical roadmap (Presidential Cycle) is correct, we should see a growing number of bearish divergences within our indicator framework, especially when the market is trading at new highs. Otherwise, if the quality of the rally is showing a broad based participation even at new record highs, any upcoming weaknesses should just be seen as common 3-5 percent pullback within an ongoing bull-market. So let?s have a closer look at our indicator framework, to evaluate the current condition of the market.

Short-Term Technical Condition

According to our short-term oriented indicators, the bullish trend-status from the S&P 500 remains unchanged and is, therefore, in line with our recent outlook. To be more precise, the S&P 500 closed 55 points above the bearish threshold from the Trend Trader Index and has, therefore, added another whopping 14 points compared to last week. Above all, both envelope lines of this reliable indicator are still drifting higher on a very fast pace. This is another indication for a strong short-term oriented 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 remains quite bullish, although it continued to lose momentum last week and has, therefore, not confirmed the recent break-out. As already mentioned last week, given the fact that this indicator tends to lead price movements, such a non-confirmation could indicate the start of a potential slow-down or even a short-term trend reversal. Moreover, we can see that the readings from the Modified MACD are also quite stretched at the moment and, therefore, it looks like that the current short-term oriented up-trend is losing some steam (at least from a pure trend point of view).
According to our short-term oriented indicators, the bullish trend-status from the S&P 500 remains unchanged and is, therefore, in line with our recent outlook. To be more precise, the S&P 500 closed 55 points above the bearish threshold from the Trend Trader Index and has, therefore, added another whopping 14 points compared to last week. Above all, both envelope lines of this reliable indicator are still drifting higher on a very fast pace. This is another indication for a strong short-term oriented 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 remains quite bullish, although it continued to lose momentum last week and has, therefore, not confirmed the recent break-out. As already mentioned last week, given the fact that this indicator tends to lead price movements, such a non-confirmation could indicate the start of a potential slow-down or even a short-term trend reversal. Moreover, we can see that the readings from the Modified MACD are also quite stretched at the moment and, therefore, it looks like that the current short-term oriented up-trend is losing some steam (at least from a pure trend point of view).

Anyhow, right now it is a way too early to get concerned about a potential major and/or longer-lasting short-term oriented trend reversal as our entire short-term oriented tape indicators remain quite bullish. On top of that, we can see that most of them even strengthened last week and have, therefore, wiped out their bearish divergences we talked about last week. The Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily are still indicating that the underlying breadth momentum of the broad market remains quite supportive at the moment. This important fact is also confirmed by the percentage of stockss which are trading above their short-term oriented simple moving averages (20/50), which finished the week at quite encouraging levels. As a matter of fact both gauges are, therefore, definitely confirming the break-out by the S&P 500, as the current participation of all NYSE listed stocks within the recent rally looks quite broad based. Additionally, there was a significant spike in the total number of stockss which are hitting a fresh yearly high, in combination with outright depressed readings of stocks which dropped to a new yearly low. Consequently, the bullish gauge from the High-/Low Index Daily strengthened its signal as it has reached the highest level for months. So all in all, we stick to our ?new highs? scenario and, therefore, we think any potential short-term exhaustion should be just part of a healthy breather within an ongoing up-trend at the moment.

The situation on the contrarian side remains quite supportive. This is mainly due to the fact that the Smart Money Flow Index is still indicating that the big guys have not changed their bullish position so far, whereas the WSC Capitulation Index is still indicating a risk-on environment for risky assets. Above all, we can see that the greed among the option market dropped significantly (All CBOE Call/Put Ratio Oscillator, Equity Options Call/Put Ratio Oscillator, Global Futures Put/Volume Ratio Oscillator and the WallStreetCourier Index Oscillator) which can be seen as another supportive fact. On top of that, overall market sentiment still leaves enough room for positive surprises, which is another piece of evidence for our strategic bullish outlook.

Mid-Term Technical Condition

If we focus on the mid-term oriented technical condition of the market, we basically receive the same picture as we have on a short-term time frame. The overall trend structure continued to strengthen and is, therefore, giving no reason to worry right now. This is mainly due to the fact that our reliable Global Futures Trend Index managed to close slightly above its extremely bullish 90 percent threshold last week. For that reason, the reading from that reliable indicator is absolutely forming an outright bullish divergence if we consider the recent level from the S&P 500 (which is definitely confirming our strategic bullish outlook). Moreover, it is worth to mention that as long as the gauge from the Global Futures Trend Index remains above its 60 percent threshold, any upcoming weaknesses should be limited in price and time (if additionally mid-term market breadth remains strong). Consequently, any upcoming short-term oriented trend slow down should not lead to a major trend reversal at the moment. Another encouraging fact is that the WSC Sector Momentum Indicator also flashed a bullish signal last week. This indicates that the most sectors within the S&P 500 managed to get back into a mid-term oriented up-trend and, therefore, the current rally is definitely gearing up. This can be also seen within our Sector Heat Map, as the momentum score of riskless money market dropped below the one from the S&P 500.

More importantly, the current mid-term oriented up-trend of the market is still strongly confirmed by mid-term oriented market breadth. Especially, the percentage of stockss which are trading above their mid-term oriented moving averages (100/150) continued to strengthen last week. As a matter of fact both (100/150) are definitely trading above their bearish 50 percent threshold, indicating a broad based upside participation within the current rally. Moreover, we can see that the Modified McClellan Oscillator Weekly continued to show an outright widening bullish gap and, therefore, the overall market breadth momentum of the market remains outright strong at the moment. This can be also seen if we focus on the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly as both indicators are still trading at bull-market levels! So all in all, given the quite bullish readings all across the board, we think further gains into Q2 can be expected (which is in line with our overall strategic outlook).

Long-Term Technical Condition

The long-term oriented technical picture of the market showed some signs of improvements last week. This is mainly due to the fact that the gauge from the WSC Global Momentum grew clearly into bullish territory last week. This is telling us that 57 percent of all local equity market all around the world got back into a long-term oriented up-trend last week. Above all, we can see that the relative strength score from U.S. Treasuries dropped significantly, which is another sign for an increasing risk appetite among investors. On top of that we can see that the readings from the Global Futures Long Term Trend Index stabilized as well, although the indicator itself remains bearish. More importantly, long-term market breadth also continued to add more bullish ground last week. Especially, the percentage of stockss which are trading above their 200 day simple moving average turned almost bullish last week, whereas the High-/Low Index Weekly is also about to get back on track soon. Above all, we can see that the Modified McClellan Volume Oscillator Weekly continued to gain more bullish ground last week, indicating that the long-term tape momentum of the market remains outright supportive at the moment.

Bottom Line

So all in all, the technical picture of the market remains quite unchanged compared to last week. With broadening strengths all across the board, the current rally is not in danger of fading out at the moment. As a matter of fact, we strongly believe to see further gains into early Q2, where we are expecting to see new record highs soon (which is more or less in-line with our cyclical roadmap). On a very short-time frame it could be possible to see a short period of a healthy consolidation ahead, before further gains can be expected. However, given the fact that the current risk/reward looks outright attractive at the moment, we would advise our conservative members to hold their equity position, while aggressive short-term traders should keep buying the dips. Stay tuned!