April 14th 2019
U.S. stocks finished the week mostly with gains. For the week, the Dow Jones Industrial Average lost 0.1 percent to close at 26,412.30. The S&P 500 booked a weekly gain of 0.5 percent to end at 2,907.41. The Nasdaq added 0.6 percent for the week to end at 7,984.16. Among the key S&P sectors, the financial sector was the best weekly performer, while health care dragged. The CBOE Volatility Index(VIX), widely considered the best gauge of fear in the market, traded near 12.
Short-Term Technical Condition
In line with our expectations, the short-term oriented trend of the market clearly continued to strengthen last week. This is mainly due to the fact that the S&P 500 succeeded to closed 67 points above the bearish envelope line from the Trend Trader Index. So from a pure price point of view, the short-term oriented time-series momentum of the market remains intact as long as the S&P 500 does not drop below 2,840 (bearish threshold from the Trend Trader Index). Furthermore, we can see that both envelope lines of this reliable indicator are gearing up significantly at the moment, which is another constructive trend signal at the moment. On top of that, we can see that the underlying trend momentum of the market also strengthened as the trend lines from the Modified MACD increased last week. Also our Advance-/Decline 20 Day Momentum Indicator kept trading at quite solid levels, although it lost some steam at the end of the week. As a matter of fact, its gauge did not fully confirm the latest level from the S&P 500 as it should be definitely a bit higher, given the fact that the broad index is just trading slightly below its all-time high.
However, this small bearish divergence can be definitely ignored at the moment, as our entire short-term oriented market breadth indicators increased further or did not show any signs of weaknesses last week. First of all, we saw healthy readings in the number of stocks which are hitting a fresh yearly high (especially at the end of the week), together with an outright low number of stocks which were pushed to a new yearly low. Consequently, the bullish gauge from the High-/Low-Index Daily is trading in a quite comfortable area. This is another positive signal that the latest gains were not caused by a few mega caps but they were a result from a healthy demand all across the board. Basically, the same is true if we focus on our short-term oriented breadth momentum indicators, as the gauges from the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily also strengthened last week. This is indicating that the underlying breadth momentum of the broad market is gearing up. The only weak signal is coming from the percentage of stocks which are trading above their short-term oriented moving averages (20/50). Although both gauges were holding up quite well, they could be a bit stronger, given the quite solid readings of the broad index. However, this is not a big deal-breaker at the moment, if we consider the quite healthy remaining market breadth signals around. Consequently, the current short-term oriented time-series momentum is well supported by a broad basis and, therefore, the current rally is not at risk of fading out at the moment.
On the contrarian side, the current condition of the market looks quite mixed at the moment. On the positive side, we can see that the gauge from the WSC Capitulation Index is trading in deep bullish territory, indicating a quite strong risk-on market environment at the moment. Moreover, a lot of bears are switching back into the bullish camp, indicating that a lot of purchasing power is getting back into the market. On the other hand, we can see that the option market is a way too bullish at the moment and, therefore, painful wash-out days (to dampen short-term optimism) cannot be ruled out at the moment. If we consider the fact that the next option expiration date is on the 18th of April, we would not be surprised to see some negative sessions next week. This might be also the reason, why the Smart Money Flow Index has not fully confirmed the rally from the Dow Jones Industrial Average. So from a pure contrarian point of view, it could be possible that the market might need a few attempts to break above its latest bull-market high from last year.
Mid-Term Technical Condition
However, in our opinion any upcoming short-term weaknesses should be limited in price and time since our entire mid-term oriented indicators remain bullish and also strengthened significantly last week. As a matter of fact, we strongly believe that it is definitely a way too early to bet on a major time-series momentum crash at the moment This becomes pretty obvious if we focus on the gauge from the Global Futures Trend Index, which touched the 90 percent threshold and got back into the bullish area. As a matter of fact, this reliable indicator is now definitely confirming the current levels from the S&P 500! This can be seen as quite strong trend signal, as readings near (or even above) 60 percent never led to any stronger short-term oriented trend-reversal! Also our WSC Sector Momentum Indicator is trading at solid levels, indicating that the majority of sectors of the S&P 500 remain in a mid-term oriented uptrend. These bullish facts are also supported by our Sector Heat Map where the momentum score from riskless money market dropped to 8 percent. And currently there is only 1 out of 9 sectors within the S&P 500 which is having a lower score than cash. In our view, this is another indication that the risk appetite among investors is still persistent and, therefore, the risk of a stronger correction remains quite subdued at the moment.
On top of that, we can see that this current mid-term oriented up-trend of the market is also widely confirmed by mid-term oriented market breadth. Our entire advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line) increased in the last couple of trading sessions. Thus, they are clearly confirming the recent level of the S&P 500! Moreover, mid-term oriented advancing issues and mid-term oriented up-volume were also holding up quite well and are trading well above their bearish counterparts. This is probably the most important signal, as it indicates a solid underlying demand. Also our Modified McClellan Oscillator Weekly increased its bullish gap last week. In addition, the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) have also not shown any bearish signs recently. All these facts signal that the total upside participation within the market is gaining positive momentum, which is another indication that there is still some room left before major troubles might be due.
Long-Term Technical Condition
The long-term oriented trend of the market improved once again and clearly supports our view that the current consolidation still looks quite supportive in its nature. Our WSC Global Momentum Indicator increased to the highest level for months and tells us, that currently 70 percent 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. This is a very supportive technical signal, as it shows that the current rally still remains global in scope. And once again our Global Futures Long Term Trend Index gained some bullish ground, which is also a very supportive momentum signal at the moment. Also all markets in our WSC Global Relative Strength Index increased last week. If we focus on our long-term market breadth indicators, we can see that all of them increased (Modified McClellan Volume Oscillator Weekly, the High-/Low Index Weekly, percentage of stocks which are trading above their 200 day moving average).
If we have a closer look at our Model Portfolios, we can see that there have been no changes in the allocation advice from the WSC Inflation Proof Retirement Portfolio, WSC All Weather Model Portfolio and the WSC Sector Rotation Strategy. As the relative strengthscore from the S&P Latam dropped out of the top 10 ranked markets within our Global ETF Momentum Heat Map, we received a sell signal for this specific ETF within our WSC Global Tactical ETF Portfolio. Instead, the MSCI is being added to the portfolio. Once again, the WSC All Weather Model Portfolio managed to reach a new all-time high last week.
The technical picture of the market improved compared to last week and, therefore, our bullish outlook remains unchanged at the moment. To be more precise, with quite supportive/bullish readings within our indicator framework (especially on a mid-term time horizon), we think that the current rally is not at risk of fading out at the moment. As a matter of fact, we think it is a bit too early to bet on a major trend reversal at the moment. Therefore, we strongly believe to see multiple record highs in late Q2. However, on a very short-time frame it could be possible that the market might need a few attempts to break above its old bull-market high and, therefore, some nasty wash-out days cannot be ruled out at the moment. Nevertheless, given the strong tape condition all across the board, any upcoming weaknesses should be limited in price and time. So in the end, we would advise our conservative members to remain invested, whereas aggressive traders should focus on buying into weaknesses, as long as our short-term oriented indicator frameworkremains constructive.