April 05. 2015

Market Review

U.S. stocks finished the Easter-shortened week nearly unchanged. For the week the Dow Jones Industrial Average advanced 0.3 percent to end at 17,763.24. The S&P 500 rose 0.3 percent over the week to 2,066.96. The Nasdaq lost 0.1 percent for the week to end at 4,886.94. Most key S&P sectors ended in positive territory for the week, led by utilities. Health care was the only decliner. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14.7.

Short-Term Technical Condition

Despite the fact that the market finished nearly unchanged for the week, the readings within our short-term oriented indicators has shown some small signs of strength recently. Although the Modified MACD still remains quite bearish for the time being, we can see that the S&P 500 managed to close within both envelope lines from the Trend Trader Index on Thursday. So from a pure price point of view, this indicates more or less a neutral trend scenario at the moment. Above all, we can see that the Advance-/Decline 20 Day Momentum Indicator flashed a small bullish signal last week, signaling that the trend-internals are also slightly getting back on track at the moment. So although the overall trend-condition of the market slightly improved last week, we think that further consolidation work into next week looks quite possible. That is mainly due to the fact that the Modified MACD has not turned bullish yet and the readings from the Advance-/Decline 20 Day Momentum Indicator are still a bit too low to be taken too seriously at the moment!

More importantly, for the time being the current consolidation period does not look corrective in its nature at all. As a matter of fact it might be too early to get concerned about that sideway-trading! This is mainly due to the fact that we saw further improvements within our short-term oriented tape indicators last week. In particular, the current trend participation of all NYSE listed stocks remains quite bullish, as the percentage of stockss which are trading above their short-term oriented moving averages (20/50) remain well above their bearish 50 percent threshold. In addition, we can see that the Modified McClellan Oscillator Daily turned bullish, whereas the Modified McClellan Volume Oscillator Daily is still holing up quite well. This is signaling that the underlying breadth momentum of the broad market is slightly getting back on track. In addition, the number of stockss which are hitting a fresh yearly low have not shown any signs of strength yet and, therefore, the readings from the High-/Low Index Daily remain quite constructive. Nevertheless, we think that the total amount of new highs could be a bit higher, if we consider the current levels from the S&P 500. In our opinion, this small bearish divergence can be ignored, as long as the total amount of new lows remains depressed!

From a pure contrarian point of view, the situation is getting increasingly supportive. Apart from the fact that the WSC Capitulation Index is still indicating a quite cautious market environment, we can see that the option market is showing some form of capitulation at the moment. This is mainly due to the fact that the gauges from the Daily Put-/Call Ratio All CBOE Options Indicator as well as the OEX Options Call-/Put Ratio Oscillator are gradually moving into contrarian territory, whereas the Program Trading Indicator still remains quite bullish! Above all, we are expecting the bullish 16-week cycle and, therefore, another rally attempt by the market looks quite likely.

Mid-Term Technical Condition

Although further consolidation might be possible on a very short-time frame, we think that a new sustainable break-out might be at hand soon. This is mainly due to the fact that the mid-term oriented uptrend of the market continued to strengthen, as the gauge from our reliable Global Futures Trend Index grew to the upper end of its bullish consolidation area. This is telling us that any upcoming short-term oriented pullback should be limited in price and time and represents, therefore, a good opportunity to increase exposure. Above all, the WSC Sector Momentum Indicator is still trading on the upper end of its scale, indicating that the entire underlying sectors within the S&P 500 are per definition 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 most industries (apart from energy and utilities) is far above the one from riskless money market.

More importantly, the current mid-term oriented up-trend of the market is still confirmed by mid-term oriented market breadth. The percentage of stockss which are trading above their mid-term oriented moving averages (100/150) are trading well above their bearish threshold, indicating the current upside participation within the whole market still remains quite broad-based! Moreover, the Modified McClellan Oscillator Weekly flashed a small bullish crossover signal last week, telling us that the underlying breadth momentum of the broad market is regaining strength. Above all, we saw that the readings of mid-term oriented up-volume as well as within mid-term oriented advancing issues kept trading at quite bullish levels last week. Another encouraging breadth signal is coming from the Advance-/Decline Line Daily, which almost reached a new all-time high last week. This is another indication, that the broad market is regaining momentum at the moment. So all in all, this is telling us that the current consolidation period definitely looks healthy at the moment/turned out to be supportive and, therefore, another rally attempt might be at hand soon.

Long-Term Technical Condition

The long-term oriented technical picture of the market remains almost unchanged compared to last week. The Global Futures Long Term Trend Index is still indicating a technical bull market for the S&P 500, whereas most local market indexes around the world continued to regain their footing. This is mainly due to the fact that the gauge of the WSC Global Momentum Indicator increased to 50 percent and, therefore, the global bull market is getting broader based at the moment. This can be also monitored if we focus on the Global Relative Strength Index, as the relative strength of most risky markets continued to strengthen last week. More importantly, long-term oriented market breadth still looks quite constructive at the moment. The percentage of stockss which are trading above their 200 day simple moving average continued to strengthen last week, whereas the amounts of stocks which are hitting a fresh 52 weeks high are trading well above their bearish counterparts. Plus the Modified McClellan Volume Oscillator Weekly continued to gain more bullish ground last week.

Bottom Line

Our outlook remains unchanged compared to last week. Right down the line, we strongly believe that the market is heading into a make instead of a break scenario. Although, further down-testing into the mid April week of April cannot be ruled out at the moment, we think the downside potential of the market remains quite limited at the moment. Even if the S&P 500 breaks below 2,035, we would only expect to see a re-test of the 200 day moving average line around 2,010/2,000 instead of a broad-based break-down. Therefore, it might be just a question of time until renewed strength into May can be expected. As a matter of fact, conservative members should remain invested (and remove any existing stop-loss limits), whereas aggressive traders should focus on buying the dips! Stay tuned!