October 8th 2017

Market Review

U.S. stocks finished the week with solid gains. For the week, the Dow Jones Industrial Average gained 1.7 percent to close at 22,773.67. The S&P 500 ended at 2,549.33 and booked a weekly gain of 1.2 percent. Both, the Dow and the S&P 500, have risen for four straight weeks. The Nasdaq logged a weekly return of 1.5 percent and finished at a record high of 6,590.18; its 55th all-time high of 2017. Nearly all key S&P sectors ended in positive territory, led by materials and financials. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, held near 9.65.

Short-Term Technical Condition

Right in line with our recent outlook, the market continued to push higher last week. As a matter of fact, it is not a big surprise at all that the short-term oriented uptrend of the market remains pretty unchanged compared to last week and even strengthened respectively. To be more precise, the S&P 500 is now trading 45 points above the bearish threshold from the Trend Trader Index. This is telling us that the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 2.504. Furthermore, we can see that both envelope lines of this reliable indicator are still drifting higher on a quite fast pace, indicating that the resistance/support levels for the S&P 500 are increasing as well. This can be seen as a quite constructive technical signal as higher highs and higher lows are a typical pattern for a healthy uptrend. Moreover, the bullish status from the Modified MACD also strengthened during last week (highest level since March) and has therefore, clearly confirmed the latest all-time high from the S&P 500. On top of that we can see that the gauge from the Advance-/Decline 20 Day Momentum Indicator keeps also trading at the highest levels for months and thus, further gains into late October can be expected.

Fundamentally, we receive the same picture if we analyze short-term market breadth as the current trend participation of all NYSE listed stocks within the current rally looks extremely healthy at the moment. Especially, the percentage of stocks which are trading above their short-term oriented moving averages (20/50) continued to grow further into bullish territory. This indicates that the recent rally was not only driven by large-caps as the underlying trend-structure of the whole market is gearing up positive momentum. On top of that, we can see that the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily continued their bullish rides and reached the highest level for months. This is telling us that the underlying breadth momentum of the market remains outright positive. Additionally, we saw excellent readings in the total amount of all NYSE-listed stocks which reached a fresh 52 weeks high in combination with outright suppressed readings of stocks hitting a fresh 52 weeks low! As a consequence, the bullish gauge of the High-/Low-Index Daily is trading far above its bearish counterpart. As long as this is the case, the current rally looks extremely healthy in its nature. So all in all, with such strong signals all across the board, it is highly unlikely that the current rally will run out of fuel. As a consequence, we think that the market is heading towards new records into late October, which is definitely in line with our strategic bullish outlook.

On the contrarian side, the only concern is the elevated complacent within the option market (CBOE Put-/Call Ratio Daily and the All CBOE Options Call-/Put Ratio Oscillator). With such bearish readings in both indicators, the market looks ready for a short-lived but healthy consolidation period. More importantly, if we focus on the NYSE Short Interest Ratio we can see that a lot of short-sellers have been squeezed recently and have therefore, spurred the latest rally even more (which was also in line with our recent outlook). However, the NYSE Short Interest Ratio still remains a bit elevated and therefore, there is still some potential left here.

Mid-Term Technical Condition

Not surprisingly, also our mid-term oriented trend indicators remain extremely bullish. This is mainly due to the fact that the reading from the Global Futures Trend Index remains above the 90 percent threshold and within its extremely bullish area. As long as this is the case, any weaknesses should be used to buy into the market as any pullback should only turn out to be a temporary weaknesses/consolidation within an ongoing bull market. Additionally, the WSC Sector Momentum Indicator has absolutely not shown any signs of weaknesses so far. This can be also seen if we have a closer look at our Sector Heat Map, as it shows that the momentum score of all sectors (except defensive consumer staples which stays at 0 percent) remains above the momentum score from riskless money market (2.4 percent).

The setting of the mid-term oriented up-trend is also strongly confirmed by mid-term oriented market breadth. Especially, the Modified McClellan Oscillator Weekly continued to show a widening bullish gap last week, indicating that the overall tape momentum remains pretty positive for the time being. And once again, all our advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line) increased for the week and thus, reached their highest readings for months. Therefore, they are clearly confirming the current high of the S&P 500! Another encouraging signal is coming from the percentage of stocks which are trading above their mid-term oriented moving averages (100/150). If we focus on their recent development, we can see that both indicators (100/150) have reached their highest level for months. Also mid-term oriented advancing issues as well as mid-term oriented up-volume gained momentum last week. As a matter of fact, we think that further gains can be expected.

Long-Term Technical Condition

The long-term technical condition of the market has not shown any weaknesses in the last couple of trading sessions. We can see that the gauge from the WSC Global Momentum is trading at solid bullish levels, indicating that most local equity markets around the world (in detail 90 percent) are also participating within the current rally. This clearly supports our strategic bullish outlook. Also our Global Futures Long Term Trend Index is trading at solid bullish levels. In addition, the relative strength of most risky markets keeps trading again far above the one from U.S. Treasuries, another indication for the current risk-on market environment. However, the most important fact is that long-term market breadth in the U.S. still remains constructive and is therefore, confirming the current long-term oriented trend of the market. This is mainly due to the fact that the Modified McClellan Volume Oscillator Weekly as well as the percentage of stocks which are trading above their long-term oriented moving averages (200) continued to strengthen their bullish signals. Additionally, the High-/Low Index Weekly jumped to its highest level for months.

Model Portfolios

If we have a closer look at our Model Portfolios (WSC Inflation Proof Retirement Portfolio, the Global Tactical ETF Portfolio, the WSC Sector Rotation Strategy and the WSC All Weather Portfolio) we can see that there have been no changes in the allocation last week. As the MSCI Chile is now ranked within the top 5 markets within our Global ETF Momentum Heat Map, it is now being added to the Global Tactical ETF Portfolio, whereas the portfolio is selling the MSCI Turkey.

Bottom Line

Not surprisingly, the technical picture of the market continued to improve significantly compared to last week and therefore, our strategic bullish outlook remains unchanged. To be more precise, with broadening strengths all across the board the current rally is definitely not at risk of fading out at the moment. As a matter of fact, we strongly believe to see further record highs into fall. Therefore, our bullish outlook remains unchanged and therefore, would advise conservative members to hold their equity position, while aggressive short-term traders should definitely stay in the bullish camp.

Stay tuned!