May 9th 2021
U.S. stocks finished the week mostly with strong gains and with two major indexes posting new record highs. Closing at a record of 34,777.76, the Dow Jones Industrial Average rallied 2.7% for the week to break a two-week losing streak. The S&P 500 booked a weekly gain of 1.2% and closed at a record of 4,232.60. The Nasdaq finished at 13,752.24 and shed 1.5% this week. Most key S&P sectors finished higher, led by the energy sector. The CBOE Volatility index (VIX), widely considered the best gauge of fear in the market, dropped to 16.7.
Short-Term Technical Condition
After the quite volatile but positive week, the short-term oriented trend-condition of the market remains almost unchanged compared to last week. The S&P 500 closed 80 points the bearish threshold of the Trend Trader Index, indicating that the purely short-term oriented up-trend of the market remains intact as long as the broad index does not drop below 4,152. Furthermore, we can see that both envelope lines of this reliable indicator are still drifting higher, indicating that the support/resistance levels for the S&P 500 are increasing as well. This is a quite healthy price signal as higher highs and higher lows are a typical pattern for a strong uptrend, at least from a purely price point of view. The situation still looks different if we focus on the underlying trend momentum (of this price driven uptrend). Here we can see that the Modified MACD has not succeeded yet to flash a bullish crossover signal, indicating some form of short-term exhaustion. This can also be seen if we have a closer look at the Advance-/Decline 20 Day Momentum Indicator. Although the indicator is still trading at quite bullish levels, it has not shown any strengths recently and has, therefore, not confirmed the latest all-time high of the S&P 500. Currently, this negative divergence is still a bit too weak to be taken too seriously at the moment. As a result, our short-term oriented indicators are just signaling some form of short-term slow-down/bullish biased consolidation rather than being the start of a major-trend reversal.
This view is widely confirmed by short-term market breadth. Even though the momentum of advancing issues and advancing volume (Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily) on NYSE slightly decreased for the week, the overall short-term market breadth condition of the market still looks quite constructive for the time being. Thus, it is still a bit too early to get concerned about a sustainable trend-reversal. The main rationale behind that view is that we saw very healthy readings in the total number of stocks hitting a fresh yearly high (and even a peak on Friday), but hardly any stocks hitting a new yearly low. Consequently, the bullish gauge of the High-/Low Index Daily closed at quite confirmative levels (as it widened its gap significantly). With such broad based market breadth readings, the risk of a sustainable trend-reversal should remain low. Additionally, the current short-term oriented up-trend is still supported by short-term oriented up-volume (Upside-/Downside Volume Index Daily) and by a solid number of stocks which are trading above their short-term moving averages (20/50). Still both indicators could be a bit stronger if we consider the current record levels of the S&P 500. Despite the fact that short-term oriented market breadth started to lose some steam on high bullish levels, its overall readings remain too strong to get concerned at the moment. Consequently, the risk of a sustainable trend break still remains low (although some small clouds are already visible).
On the contrarian side, we can see that market sentiment is far away from being extreme. This is a quite positive situation, if we consider the fact that the S&P 500 reached a new all-time high last week. To be more precise, our entire option based indicators (Daily Put-/Call Ratio All CBOE Options, AII Bulls & Bears Survey, Smart Money Flow Index, All CBOE Options Put-/Call Ratio Oscillator and the WSC Put-/Volume Ratio) remain neutral or even turned slightly positive last week (Equity Options Call-/Put Ratio Oscillator). Additionally, we saw a lot of smart buying last week since the Smart Money Flow Index has shown some relative strength versus the Dow Jones Industrial Average recently, whereas the WSC Capitulation Index is still indicating a strong risk-on market environment at the moment. Another positive signal is coming from the WSC Dumb Money Indicator, which finally turned neutral last week. The only small bearish signal is coming from the AII Bulls & Bears survey as the number of bulls still remains quite high. So all in all, the situation on contrarian side looks quite trend-confirmative at the moment.
Mid-Term Technical Condition
This view is strongly supported by the fact that our entire mid-term-oriented indicators remain quite bullish or even strengthened their bullish signals last week. The gauge from our reliable Global Futures Trend Index slightly increased and is solidly trading above the upper edge of its extremely bullish 90 percent threshold (currently 94%). Consequently, as long as this gauge does not show stronger signs of negative momentum, it is a way too early to get concerned about any upcoming short-term oriented volatility. Also, from a purely price point of view, the mid-term oriented uptrend of the market remains well intact as the WSC Sector Momentum Indicator has not shown any signs of weakness. This indicates that all main sectors in the S&P 500 remain in a strong mid-term oriented price driven up-trend and are, therefore, confirming the current levels of the S&P 500. This can also be seen if we have a closer look at our Sector Heat Map, as the momentum score of the riskless money market remains at zero percent.
More importantly, the mid-term oriented up-trend still looks quite broad based in its nature since mid-term oriented market breadth has not shown any signs of weaknesses yet. Especially, the Modified McClellan Oscillator Weekly continued to gain more bullish ground last week and widened its gap. This is telling us that the momentum of mid-term oriented advancing issues remains quite strong for the time being. As a matter of fact, the recent all-time high of the S&P 500 is still packed by a broad basis. This can also be seen if we focus on our advance-decline indicators since some of them jumped to their highest levels for years (Advance-/Decline Line Daily and Advance-/Decline Line Weekly) or were holding up quite well at least (Advance-/Decline Volume Line). Such a broader tape confirmation is also coming from our mid-term oriented advancing issues and mid-term oriented up-volume as both indicators are trading well above their bearish counterparts. The only weaker signal is coming from the percentage of stocks which are trading above their mid-term oriented moving averages (100/150). Both gauges slightly decreased for the week. However, this small divergence can be definitely ignored at the moment since the remaining tape indicators remain outright strong. As a matter of fact, any upcoming weaknesses should turn out to be limited in price and time (at least form the current point of view).
Long-Term Technical Condition
The long-term oriented trend of the market remains nearly unchanged compared to the previous weeks. Our WSC Global Momentum Indicator signals that 94% 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 shows 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 – at least for the time being. Furthermore, our WSC Global Relative Strength Index still shows increased risk-appetite among investors. Focusing on our long-term market breadth indicators reveals that the SMA 200 slightly decreased, while the Modified McClellan Volume Oscillator Weekly and the High-/Low Index Weekly succeeded to improve significantly.
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 Sector Rotation Strategy, the WSC Inflation Proof Retirement Portfolio and the WSC All Weather Portfolio reached a new all-time high last week.
Our outlook remains unchanged compared to last week. Even though we are still expecting to see further increased volatility ahead, there is no fundamental reason to change our strategic bullish outlook for the time being. The market is exactly following our expected path so far and given the outright bullish tape structure, we think that any further upcoming consolidation period should turn out to be limited in price and time – at least for the time being. 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. Aggressive short-term traders should remain also bullish as long as our short-term oriented indicators remain bullish.