July 24. 2016

Market Review

U.S. stocks closed higher for the fourth straight week, with the S&P 500 hitting a new record high. For the week, the Dow Jones Industrial Average jumped 1.3 percent to 18,570.85. The S&P 500 climbed 0.6 percent to close at a new all-time high of 2,175.03. The Nasdaq added 1.4 percent from the week earlier and finished at 5,100.16, its highest close of 2016. Among the key S&P sectors, technology was the best weekly performer, while energy dragged. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, hit a low of 11.4 this week, its lowest level since last summer.

Short-Term Technical Condition

According to our short-term oriented indicators, the bullish trend-status from the S&P 500 remains unchanged and is, therefore, in line with our recent outlook. To be more precise, the S&P 500 closed 69 points above the bearish threshold from the Trend Trader Index and has, therefore, added another whopping 20 points compared to last week. Above all, both envelope lines of this reliable indicator are still drifting higher on a very fast pace. This is another indication for a strong short-term oriented uptrend. The same is true if we focus on the readings from the Modified MACD, as they have not shown any signs of a threatening bearish crossover signal yet. Above all, the gauge from the Advance-/Decline 20 Day Momentum Indicator remains quite bullish, although it continued to lose momentum last week.

Right now this fact is not a big threat at all, as the current short-term oriented up-trend of the market is still supported by short-term market breadth! Especially, the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily continued to gain even more bullish ground last week, indicating that the underlying breadth momentum of the broad market remains outright strong at the moment. This important fact is also confirmed by the percentage of stockss which are trading above their short-term oriented simple moving averages (20/50), as their gauges strongly trade far above 50 percent. As a matter of fact both gauges (20/50) are, therefore, definitely confirming the current rally from the S&P 500, as the current participation of all NYSE listed stocks within the recent rally looks quite broad based. Additionally, we saw stable readings in the total amount of all NYSE-listed stocks which reached a fresh 52 weeks high, in combination with very low readings of new 52 weeks low! The same is true, if we focus on the High-/Low-Index Daily as its bullish gauge is trading far above its bearish counterpart and, therefore, further gains can be expected.

After the quite encouraging new-highs headlines, the crowd is getting greedy again. This becomes quite obvious if we focus on the z-score of the Daily Put/Call Ratio All CBOE Options Indicator which dropped into bearish territory last week. Basically the same is true if we have a closer look at the Global Futures Put/Volume Ratio Oscillator, the All CBOE Options Put-/Call Ratio Oscillator and the Global Futures Advance-/Decline Indicator. On the other hand, we can see that the smart guys (Smart Money Flow Index) have not used the rally to sell into strength so far, whereas the WSC Capitulation Index is still indicating an extremely risk-on environment for risky assets. So all in all, it could be, therefore, possible to see a small period of weaknesses/consolidation (to dampen short-term optimism), before further strength can be expected.

Mid-Term Technical Condition

As per last week?s report, also our mid-term oriented trend indicators remain outright supportive. This is mainly due to the fact that the reading from the Global Futures Trend Index reached an extreme bullish level of 98 percent on Friday. As long as we do not see any significant weaknesses within that gauge, any pullback should only turn out to be a temporary weaknesses/consolidation within an ongoing bull market. Also, from a pure price point of view, the mid-term oriented uptrend of the market remains intact as the WSC Sector Momentum Indicator remains quite bullish. This is telling us that all underlying sectors within the S&P 500 have not broken below their mid-term oriented uptrend yet. This can be also seen if we have a closer look at our Sector Heat Map, as the momentum score of riskless money market remains at zero percent, whereas defensive sectors such as utilities and consumer staples remain the strongest sectors for the time being.

Another main reason why we believe that the downside potential of the market remains extremely capped at the moment is due to the fact that the current mid-term oriented up-trend of the market is still widely 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 quite positive for the time being. Also, most of our advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line) continued to strengthen in the last couple of trading sessions and are, therefore, confirming the recent level of the S&P 500! Moreover, mid-term oriented advancing issues as well as mid-term oriented up-volume keep trading far above their bearish counterparts. Another encouraging signal is coming from the percentage of stockss 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 where holding up quite well and, therefore, they remain outright bullish. This indicates that the total upside participation within the market still looks quite broad based, which is another indication that it might be a bit too early to take the chips from the table!

Long-Term Technical Condition

The long-term uptrend of the market remains well intact and, therefore, our long-term bullish outlook has not been changed so far. The Global Futures Long Term Trend Index is indicating a technical bull market, whereas the WSC Global Momentum Indicator shows that 70 percent of all local equity markets around the world remain in a long-term oriented uptrend at the moment. Moreover, we can see that the relative strength of most risky markets keeps trading above the one from U.S. Treasuries which is another indication for a risk-on market environment. Above all we can see that long-term market breadth is giving no reason to worry right now and, therefore, we think that the current long-term uptrend of the market is not in danger at all (at least for the time being). Especially our long-term oriented High-/Low Index Weekly is still trading at supportive levels, indicating that the long-term tape of the market remains well intact. This can be also seen if we have a look at the Modified McClellan Volume Oscillator Weekly as well as looking at the number of stockss which are trading above their longer-term oriented moving averages (200)!

Bottom Line

The technical picture of the market remains quite unchanged compared to last week. With quite bullish indicators all across the board we have not seen any typical signs for a major top-building process yet and, therefore, we expect to see further record highs into deeper summer. However, with quite stretched signals on the contrarian side, a period of consolidation on a very short-time frame might be likely. However, our bullish outlook remains unchanged and, therefore, would advise conservative members to hold/increase their equity position, while aggressive short-term traders should definitely stay in the bullish camp. Stay tuned!