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May 30th 2021

Market Review

U.S. stocks finished the week in positive territory. The Dow Jones Industrial Average gained 0.9% over the week to close at 34,529.45. The S&P 500 recorded a weekly gain of 1.2% and finished at 4,204.11, sitting just 0.8% from its record high. Both benchmarks broke a two-week losing streak. The Nasdaq ended at 13,748.74 and increased 2.1% over the past week. For the month of May, the 30-stock Dow and the S&P 500 gained 1.9% and 0.6%, respectively, posting their fourth up month in a row. The tech-heavy Nasdaq, however, suffered a 1.5% loss this month for its first negative month in seven. Most key S&P sectors ended in positive territory for the week, led by the discretionary sector; the utilities sector led decliners. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, closed near 16.8.

Short-Term Technical Condition

In line within our expectations, the short-term oriented uptrend of the S&P 500 continued to strengthen last week. From a purely price point of view, the short-term oriented up-trend of the market remains supportive as long as the S&P 500 does not close below 4,149 (lower threshold of the Trend Trader Index). Consequently, there is still a lot of room left until the short-term oriented price trend of the market turns negative. Another strong bullish signal is coming from the Advance-/Decline 20 Day Momentum Indicator, which showed a strong surge last week (and  was, therefore, clearly confirming the recent gains of the S&P 500). Only the Modified MACD has not turned bullish yet, indicating that the underlying momentum of the ongoing short-term oriented uptrend still remains a bit weak kneed. Despite the fact that this is bearish from a purely signal point of view, the indicator itself nearly flashed a bullish crossover signal last week. This is another indication that the recent consolidation period has come to an end (and, therefore, a break above the latest all-time high looks quite likely).

This picture is confirmed by short-term market breadth as our entire tape indicators showed stronger signs of improvements last week. This shows the broad based market is getting back on track and, therefore, the chances of a sustainable trend-reversal remains quite low. This becomes obvious if we focus on the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily as both indicators succeeded to flash a bullish crossover signal last week. This illustrates that the momentum of advancing stocks as well as advancing volume turned positive again (which is a another quite important ingredient for a strong short-term oriented uptrend). This view is confirmed by the percentage of stocks which are trading above their short-term oriented simple moving averages (20/50) since both indicators turned quite bullish on Friday. Thus, this is another piece of evidence that the current short-term oriented uptrend is quite broad based in its nature. A fact, which is also confirmed by the Upside-/Downside Volume Index Daily. Therefore, it is not a big surprise at all that the  High-/Low-Index Daily widened its bullish gap, since the number of new yearly highs continued to outpace the new lows by a large extend. So given the quite positive short-term oriented market breadth signals, we strongly believe that it is just a question of time until we see new record highs.

On the contrarian side, we can see that greed among market participants slightly started to pick up again as some of our option based oscillators (WSC Put-/Volume Ratio and the WSC Put-/Volume Ratio Oscillator) turned slightly bearish last week. Nevertheless, the speculation level within the option market still looks quite muted since the z-score of the AII CBOE Put-/Call Ratio still keeps trading within one standard deviation. Another interesting fact is that the WSC Capitulation Index also turned bearish last week and has, therefore, not confirmed the latest rally of the S&P 500. As a result, it could be possible that the market might need a few attempts to break above its all-time high.

Mid-Term Technical Condition

The mid-term oriented technical picture of the market is not giving any reasons to worry right now. The gauge of the Global Futures Trend Index showed stronger signs of positive momentum far above its 60 percent threshold. With such bullish readings, the market never faced a stronger and sustainable trend-reversal in the past. Thus, it has clearly confirmed the latest level of the S&P 500. Basically, the same is true if we focus on the WSC Sector Momentum Indicator. There, we can see that the majority of sectors in the S&P 500 remains in a strong mid-term oriented price driven uptrend at the moment. This can also be seen if we focus on our Sector Heat Map, since the momentum score from the riskless money market remains at 0%. In our view, this is another indication that the underlying mid-term oriented up-trend of the market remains well intact. Thus, we strongly believe that it is definitely a way too early to bet on a major trend-reversal for the time being.

More importantly, the current mid-term oriented uptrend is still supported by strong mid-term oriented market breadth. Especially our entire advance-decline indicators (Advance-/Decline Volume Line, Advance-/Decline Line Daily, Advance-/Decline Line Weekly) improved significantly last week. Some of them have even reached new all-time highs and have, therefore, formed quite bullish divergences to the current level of the S&P 500. Thus, it was not a big surprise at all that the Modified McClellan Oscillator Weekly widened its bullish gap, indicating that the tape momentum of the broad market remains intact. Focusing on the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) reveals a similar picture, since the majority of stocks remains in a mid-term oriented uptrend at the moment. With such a strong upside participation, the risk of a stronger and sudden trend-reversal should remain low. A fact, which is also confirmed by the Upside-/Downside Volume Index Weekly and the Advance-/Decline Index Weekly.

Long-Term Technical Condition

The long-term oriented technical picture of the market also remains quite robust. Our Global Futures Long Term Trend Index keeps trading at the highest levels for years. This signals that the long-term oriented up-trend of U.S. equities is still gaining momentum on very high bullish levels. Basically, we receive the same picture globally. Although the WSC Global Momentum Indicator finished the week unchanged, it shows that 81% 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. Thus, the current bull market remains global in scope. Moreover, also our WSC Global Relative Strength Index was holding up quite well and reveals that the relative strength of all risky markets is trading far above the one from U.S. Treasuries. If we examine our long-term oriented tape indicators, we can see that the SMA 200 and the Modified McClellan Volume Oscillator Weekly improved while the High-/Low Index Weekly was holding up quite well.

Model Portfolios

As it was the last Friday of the month, we received a new allocation advice from the WSC All Weather Portfolio, the WSC Inflation Proof Retirement Portfolio and the WSC Dynamic Variance Portfolio. The allocation of the our WSC Sector Rotation Strategy remains unchanged. Additionally, we are proud to announce that the WSC Model Portfolio Composite and the WSC Inflation Proof Retirement Portfolio reached a new high during the previous week.

Bottom Line

In line with our strategic view, the technical picture of the market continued to improve last week. To be more precise, with broadening strengths all across the board, there is absolutely no fundamental reason to change our strategic bullish outlook for the time being. Thus, we strongly believe that the S&P 500 will have enough power to break above its current trading range, which will then be accompanied by further gains into deeper summer. Even if the S&P 500 needs a few attempts to do so (with such positive readings all across the board), any upcoming consolidation/down-days should turn out to be limited in price and time. This is mainly due to the fact that there are absolutely no major deal-breaker visible at the moment. In other words, as long as the gauge from our Big Picture Indicator keeps improving, we think it is a way 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!