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June 13th 2021

Market Review

U.S. stocks ended the week mostly higher pushing the S&P 500 to new record highs. The Dow Jones Industrial Average closed at 34,479.60 and retreated 0.8% over the week, snapping a 2-week win streak. The S&P 500 recorded a 0.4% gain over the week to close at a record high of 4,247.44. The Nasdaq advanced 1.9% from last Friday’s close to finish at 14,069.42. Among the key S&P sectors, the health care sector was the best weekly performer, while the financials sector dragged the most. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, dropped to 15.7.

Short-Term Technical Condition

In line with our latest call, the market continued to push higher last week. Consequently, it is not a big surprise that the short-term oriented uptrend of the market remains well in force. The S&P 500 is now trading 70 points above the bearish threshold from the Trend Trader Index. This is telling us that the purely price driven short-term oriented uptrend of the market remains intact as long as the S&P 500 does not drop below 4,177. Furthermore, we can see that both envelope lines of this reliable indicator showed stronger signs of positive momentum last week and started to increase. This indicates that the underlying trend momentum is also gearing up. This can also be observed if we focus on the Modified MACD, which slightly widened its bullish gap. But the most encouraging signal is coming from our Advance-/Decline 20 Day Momentum Indicator, as its gauge literally rocketed to its highest level for months. Hence, both indicators are clearly confirming the latest gains of the S&P 500. So, all in all, the current time-series momentum of the S&P 500 looks outright bullish at the moment, indicating further gains ahead (at least from a purely trend point of view).

Also, our entire short-term oriented market breadth indicators have clearly confirmed the latest breakout of the S&P 500. As a result, the risk of a fast-changing trend reversal is extremely low for the time being. A very bullish signal is coming from the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily. Both indicators improved significantly last week and showed a widening bullish gap. This indicates that the current short-term oriented uptrend is fully supported by a positive momentum in advancing stocks and in advancing volume. Another quite confirmative fact is that we saw solid readings in the number of stocks which hit a fresh yearly high, whereas there were hardly any stocks which dropped to a new yearly low (12 on Friday). Therefore, the High-/Low Index Daily strengthened its bullish signal for the week. As long as this is the case, the underlying short-term oriented tone of the market remains supportive. The only weaker signal is coming from the percentages of stocks which are trading above their short-term oriented moving averages (20/50). Even though these indicators are solidly trading in bullish territory, their overall levels and weekly performances could be a bit stronger if we consider the current levels of the S&P 500. However, given the quite strong tape condition in combination with solid up-volume (Upside-/Downside Volume Index Daily), these minor bearish divergences can be ignored at the moment. Because with such solid signals across the board, it is highly unlikely that the recent rally will run out of fuel soon – at least on a short-term time perspective.

On the contrarian side, we can see that the speed of greediness has started to increase recently (AII Bulls/Bears Survey, WSC Dumb Money Indicator, Equity Options Call-/Put Ratio Oscillator, WSC Put-/Volume Ratio and the WSC Put-/Volume Ratio Oscillator). Even Smart Money turned a bit cautious and the WSC Capitulation Index is indicating an increased risk-level. If we consider the fact that the S&P 500 reached new record highs, such increased readings are not really unusual. The results are often stronger down-days (washout-days) or other forms of consolidations to dampen short-term optimism. Currently, short-term market breadth remains too strong that such events could trigger a stronger trend-reversals.

Mid-Term Technical Condition

This view is also confirmed by the fact that the mid-term oriented uptrend of the market is giving no reason to worry right now. This is mainly because our reliable Global Futures Trend Index succeeded to increase by another 5 percentage points to 96%. With such solid readings (and in combination with supportive market breadth), any upcoming weaknesses should turn out to be limited in price and time. Therefore, it is a way too early to change our strategic bullish base case scenario at the moment. A fact, which can also be seen if we focus on the WSC Sector Momentum Indicator (since it is not only trading in solid bullish territories, but also succeeded to increase last week). This is telling us that most sectors of the S&P 500 remain in a strong mid-term oriented price driven uptrend at the moment. This strong mid-term oriented price trend is also confirmed by our Sector Heat Map as the momentum score of riskless money market keeps trading at 0%.

Another strong argument for further gains on the horizon is based on the fact that mid-term oriented market breadth has not shown any signs of major weaknesses yet. This shows us that the current mid-term oriented uptrend is still driven by a broad basis. First of all, our entire advance-decline indicators (Advance-/Decline Volume Line, Advance-/Decline Line Daily and the Advance-/Decline Line Weekly) have clearly confirmed the latest gains as they reached their highest levels for years. Another positive mid-term oriented tape signal is coming from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly as their bullish gauges improved and are trading far above the bearish counterparts. This signals a solid underlying demand. Also, our Modified McClellan Oscillator Weekly succeeded to increase its bullish gap last week. And finally, the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) were holding up quite well. All these facts signal that the total upside participation within the market is broad based at the moment, which is another indication that there is still room left on the upside before major troubles might be due.

Long-Term Technical Condition

The long-term oriented trend of the market showed also signs of improvements last week. The WSC Global Momentum Indicator shows that 84% 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. As pointed out several times, this is a quite supportive technical signal, as it exhibits that the current bull market remains quite globally in scope. Another encouraging signal is coming from our Global Futures Long Term Trend Index which succeeded to stay at the highest level for years. This indicates that the S&P 500 remains in a strong technical bull market for the time being. Furthermore, our WSC Global Relative Strength Index shows increased risk-appetite among investors. And finally, all our long-term market breadth indicators improved last week (Modified McClellan Volume Oscillator Weekly, High-/Low Index Weekly, SMA 200).

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 and the WSC Inflation Proof Retirement Portfolio reached new all-time highs last week.

Bottom Line

Our outlook remains unchanged compared to the previous week. Even though sentiment driven 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 any further upcoming sentiment driven washout-day/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.

Stay tuned!