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March 02. 2014

Market Review

U.S. stocks finished the week with solid gains. The Dow Jones Industrial Average rose 1.4 percent from the week-ago close to 16,321.71. The blue-chip index saw a February rise of 4 percent, its largest monthly percentage gain since January 2013. After advancing to an intraday record of 1,867.92 on Friday, the S&P 500 climbed 1.3 percent for the week to 1,859.45. The broad index capped its third weekly gain this month and gained 4.3 percent for the month. The Nasdaq gained 1.6 percent over the week to 4,308.11. The technology-laden index rose 5 percent over the course of the month, its biggest monthly gain since September 2013. Materials and consumer staples led gainers among the S&P?s 10 major sectors. The Chicago Board Options Exchange Volatility Index slipped 4.6 percent for the week to 14.

Short-Term Technical Condition

In line with our cyclical roadmap (Charts of Interest), the market is moving higher into Q1. The short-term up-trend of the market has continued to strengthen, since the S&P 500 is now trading 55 points above the bearish threshold from the Trend Trader Index, plus the Modified MACD has not shown any signs of weaknesses so far. Moreover, during the whole week we saw a hefty rise in the readings of the Advance-/Decline 20 Day Momentum Indicator, indicating that the market internals improved significantly. On Friday, this reliable indicator reached the highest level since July 2013 and is, therefore, strongly confirming the recent break out we saw on Friday.

More importantly, this strong short-term uptrend is strongly being confirmed by our entire short-term market breadth indictors as we have seen a strong surge in the number of stockss which are hitting a fresh 52 week’s high (especially on Friday), in combination with one of the lowest readings of stocks which are dropping to a fresh 52 week’s low, indicating an extremely intensifying tape structure. This can be also seen, if we have a look at the High-/Low-Index Daily. In addition, the current participation of short-term up-volume in the current up-trend looks absolutely healthy, the gauges of our Modified McClellan Oscillator Daily have shown no weaknesses so far and the percentage of stocks which are trading above their short-term oriented simple moving averages (20/50) have been pushed back to quite encouraging levels. This indicates that broad market breadth has continued to strengthen enormously! Right down the line, there are absolutely no bearish divergences around at the moment and, therefore, we are expecting to see further gains into deeper March.

From a contrarian point of view, there are absolutely no trend breaking signals around at the moment. The gauge from the WSC Capitulation Index is trading at outright low levels, whereas the readings from the option market are quite neutral. Only the Global Futures Advance-/Decline Indicator shows that the market is a bit overbought at the moment and, therefore, the pace is likely to slow down in the next couple of trading sessions.

Mid-Term Technical Condition

The technical picture for the mid-term looks quite similar. The gauge of the Global Futures Trend Index closed above the extremely strong 90 percent bullish threshold last week and for that reason we strongly believe to see further gains ahead! Moreover, our reliable WSC Sector Momentum Indicator is trading on the upper end of its bullish range, indicating that most sectors within the S&P 500 are in a strong mid-term oriented uptrend. This can be also seen if we have a closer look at our Sector Heat Map, as the relative strength score of riskless money market remains at zero percent and, therefore, the technical market environment on a mid-term time frame looks absolutely healthy for the time being.

The same is true if we have a look at the percentage of stockss which are trading above their mid-term oriented moving averages (100/150). Nearly 70 percent of all NYSE-listed stocks are per definition in a mid-term oriented up-trend at the moment and, therefore, the upside participation within the whole market is extremely broad-based! Another strong mid-term oriented sign is coming from the Modified McClellan Oscillator Weekly, which continued to show a widening bullish gap in the last couple of trading sessions. Furthermore, mid-term oriented advancing issues as well as mid-term oriented up-volume are giving no reason to worry right now. All in all, the current technical set-up for the mid-term is telling us that any upcoming short-term oriented weaknesses should be limited in price and time and will, therefore, represent a great opportunity to add exposure.

Long-Term Technical Condition

As per last week’s report, the long-term uptrend of the market (WSC Global Momentum, Global Futures Long Term Trend Index and the WSC Global Relative Strengths) remains quite bullish biased and, therefore, our long-term bullish outlook has not been changed so far. The Global Futures Long Term Trend Index is indicating that the current bull market still remains in force from a technical point of view, whereas the relative strengths from US equities is trading well above the bearish 50 percent threshold from the WSC Global Relative Strengths Indicator. Only the WSC Global Momentum remains quite bearish, as most global equity markets (especially emerging markets) are still underperforming riskless money market. More importantly, this long-term uptrend is strongly confirmed by long-term market breadth, as the Modified McClellan Volume Oscillator Weekly continued to strengthen and, therefore, slightly flashed a bullish crossover signal last week. Moreover, the percentage of stockss which are trading above their 200 day simple moving average are far away from being bearish, plus the number of stockss which are hitting a fresh yearly high are trading well below their bearish counterparts. Anyhow, as already mentioned last week, we would not be surprised to see deterioration within our long-term oriented indicators over the next couple of weeks, as we are still expecting to see a cyclical bear market later this year (Charts of Interest).

Bottom Line

The bottom line: on a very short-time frame the market is quite overbought and, therefore, the pace is likely to slow down within the next couple of trading sessions. Nevertheless, with broadening strengths in our short-term to mid-term oriented trend- as well as breadth indicators, we strongly believe to see further strengths in deeper March. Therefore, we would advise our conservative members to hold/increase their equity position, while aggressive short-term traders should buy into any upcoming weaknesses. Stay tuned!