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June 22. 2014

Market Review

U.S. Stocks ended another up week on a record-breaking note, with the S&P 500 and the Dow Jones Industrial Average closing at all-time highs. The Dow Jones Industrial Average climbed 1.0 percent over the week to end at 16,947.08. Friday?s close was the Dow’s 11th closing record of the year. Additionally, the blue chip index also scored an all-time intraday high above 16,978, eclipsing its prior intraday record hit June 9. The S&P 500 rose 1.4 percent to 1,962.87 over the five days, also setting the next record close and its biggest weekly percentage gain since April 17. The Friday session marked the S&P’s 22nd record close this year. The Nasdaq Composite added a weekly gain of 1.3 percent to 4,368.04. Utilities and energy led gainers among the S&P?s 10 major sectors. The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, ended at 10.85. The measure is trading near its lowest level since 2007.

Short-Term Technical Condition

The short-term oriented uptrend of the market continued to strengthen last week and remains well intact, since our entire short-term trend indicators remain bullish at the moment. The S&P 500 is now trading 35 points above the bearish threshold from the Trend Trader Index. This indicates that as long as the S&P 500 does not close below 1,927 the market remains quite bullish from a pure price point of view. Furthermore, it was encouraging to see that the Modified MACD showed a small increasing bullish gap last week, indicating that the market is now trading in a powerful uptrend at the moment. Another positive sign was the fact that the short-term gauge from this reliable indicator managed to avoid a bearish crossover signal last week and has, therefore, started to reduce its bearish divergence to the current level from the S&P 500. Despite the fact that the gauge from the Advance-/Decline 20 Day Momentum Indicator should be a bit higher if we consider the current level from the S&P 500, the indicator itself is far away from being bearish.

More importantly, short-term oriented market breadth continued to show strong signs of improvements and is, therefore, strongly confirming the current short-term oriented uptrend of the market. The Modified McClellan Oscillator Daily gained more bullish ground last week, indicating that the underlying momentum of the broad market remains positive. Above all, we saw a strong surge in the total amount of all NYSE-listed stocks which reached a fresh 52 weeks high (especially on Friday), in combination with one of the lowest readings of new 52 weeks lows! On Friday, there were only 12 stocks on NYSE which were pulled to a new yearly low, whereas 326 stocks climbed to new highs. This indicates an extremely intensifying tape structure, as the broad market continued to strengthen last week. This can be also seen, if we have a look at the High-/Low-Index Daily. The gauge of this indicator picked up momentum again, and is, therefore, strongly confirming the new high we have seen by the S&P 500. More importantly, the bullish gauge of this indicator was nearly able to reach a new high and is, therefore, confirming the current levels from the S&P 500. Another encouraging fact is that the percentage of stockss which are trading above their short-term oriented moving averages (20/50) have confirmed the recent level from the S&P 500 as their gauges strongly grew above 70 percent. This indicates that small cap stocks are strongly participating within the recent break-out.

The situation from a contrarian point of view remains unchanged or got even more threatening at the moment. The gauge from the Daily Put/Call Ratio All CBOE Options dropped to the lowest level since early January 2014. Back then, the S&P had reached an intermediate top before it pulled back strongly into February. Moreover, we received fresh sell signals from the Equity Options Call-/Put Ratio Oscillator and the Global Futures Put-/Volume Ratio Oscillator, indicating that hardly anyone is buying new put options at the moment. Normally, at such a situation the market is quite vulnerable for short-term disappointments or a stronger pullback, as everybody is betting on the same horse. In addition, the small fry is chasing the market aggressively higher, as the ISE Call-/Put Ratio and the Global Futures Dumb Money Indicator hit extreme levels. Therefore, from a pure contrarian point of view the market looks vulnerable for a pullback/short-lived consolidation period within an ongoing bull-market. Nevertheless, as long as the WSC Capitulation keeps trading at outright low levels, in combination with such strong readings within our short-term trend- as well as breadth indicators, we think any upcoming consolidation period/pullback should be used to add exposure.

Mid-Term Technical Condition

This is also due to the fact that the gauge from the Global Futures Trend Index reached the highest level since late 2013, indicating an outright strong mid-term oriented uptrend at the moment. For that reason, the current reading of this reliable indicator is absolutely confirming the recent break-out from the S&P 500. And as long as the gauge of the Global Futures Trend Index is trading above 60 percent, any upcoming pullback should be limited in price and time. Furthermore, we can see that the WSC Sector Momentum Indicator remains outright bullish at the moment, signaling that most sectors within the S&P 500 remain in a strong mid-term oriented uptrend. If we have a closer look at our Sector Heat Map, we can see that energy and industrials are/remain the strongest sectors within the S&P 500, whereas consumer discretionary and consumer staples are the weakest ones. Moreover, the relative strength score of riskless Money Market is still trading at 0 percent, telling us that all sectors within the S&P 500 are trending higher, and, therefore, the current up-trend of the market looks quite healthy at the moment.
This is also due to the fact that the gauge from the Global Futures Trend Index reached the highest level since late 2013, indicating an outright strong mid-term oriented uptrend at the moment. For that reason, the current reading of this reliable indicator is absolutely confirming the recent break-out from the S&P 500. And as long as the gauge of the Global Futures Trend Index is trading above 60 percent, any upcoming pullback should be limited in price and time. Furthermore, we can see that the WSC Sector Momentum Indicator remains outright bullish at the moment, signaling that most sectors within the S&P 500 remain in a strong mid-term oriented uptrend. If we have a closer look at our Sector Heat Map, we can see that energy and industrials are/remain the strongest sectors within the S&P 500, whereas consumer discretionary and consumer staples are the weakest ones. Moreover, the relative strength score of riskless Money Market is still trading at 0 percent, telling us that all sectors within the S&P 500 are trending higher, and, therefore, the current up-trend of the market looks quite healthy at the moment.

This can be also seen if we examine mid-term oriented market breadth. The percentage of stockss which are trading above their mid-term oriented moving averages (100/150) gained more bullish ground last week, indicating a broad based participation. Above all, the Modified McClellan Oscillator Weekly continued to show a widening bullish gap in the last couple of trading sessions, indicating that the underlying momentum of the broad market kept growing strongly. Anyhow, the most encouraging tape signal is coming from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly. Both bullish gauges from those reliable indicators have continued to grow strongly for the week and are, therefore, confirming the recent breakout by the S&P 500. As long as mid-term oriented advancing issues as well as mid-term oriented up-volume are trading far above their bearish counterparts, further strength can be expected on a mid-term time horizon.

Long-Term Technical Condition

The long-term uptrend of the market has not been broken yet 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. The WSC Global Momentum Indicator grew to 96 percent, indicating that the majority of all global market indexes have been pushed back into a long-term uptrend. This is a quite encouraging number as it tells us that the current bull market remains broad based and global in scope. This is mainly due to the fact that Emerging Markets and the EMEA region have started to recover significantly. This can be also seen if we focus on the WSC Global Relative Strength Indicator, as the EMEA region is picking up momentum fast. More importantly, long-term oriented market breadth still looks quite constructive, as the percentage of stockss which are trading above their 200 day simple moving average grew to 64 percent and are, therefore, far away from being bearish. Moreover, the Modified McClellan Volume Oscillator Weekly still remains constructive, whereas the amounts of stocks which are hitting a fresh 52 weeks high are trading well above their bearish counterparts, indicating still a positive market breadth environment for the time being.

In our Technical Market Outlook 2014, it was one of our key calls that the market will face a stronger pullback on the beginning of the year (suggested by the Decennial Cycle), followed by a significant and strong rally into summer, which could push the S&P 500 towards 1,950/1970, before a longer-lasting top-building/distribution process might start. The S&P 500 has almost reached the upper end of our initial price target and we have not received any evidences for an important top-building process at the moment. Therefore, further strengths into mid-late July/early August looks quite likely. Right now, the S&P 500 is overshooting our cyclical roadmap in terms of price but not from a time perspective, as the Juglar Cycle as well as the Decennial Cycle are topping out in late July/early August. For that reason, it still might be possible to see a growing numbers of divergences within our indicator framework within the next couple of weeks.

Bottom Line

The bottom line: the situation compared to last week remains unchanged. From a pure contrarian point of view we think that the market looks vulnerable for a 2-3 percent pullback or at least a short-lived consolidation period into late June and, therefore, we could see some rocky sessions ahead. Nevertheless, as long as our mid- to long-term oriented indicator framework remains bullish (at least from a pure signal point of view) and as long as we do not see a typical top-building process pattern, we think it is too early to call for a major market top right now. Therefore, we think that the market could easily overshoot towards 1,970/2,000 into late summer, before major troubles might be due! For that reason, we would advise our conservative members to hold their equity position, while aggressive short-term traders should buy the dips as long as our short-term indicator framework does not turn completely bearish. Stay tuned!