September 22nd 2019
After the S&P 500 just had closed 10 points below its all-time high on Thursday, U.S. stocks fell on Friday, with the major indexes snapping a three-week winning streak. For the week, the S&P 500 finished at 2,992.09 and posted a weekly drop of 0.5 percent. The Dow Jones Industrial Average slid 1.1 percent to 26,935.07, whereas the Nasdaq finished the week 0.7 percent lower. The utilities sector was the best weekly performer, while discretionary dragged. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 15.2.
Short-Term Technical Condition
Despite the fact that major indexes finished slightly lower for the week, the short-term oriented up-trend of the market remains well intact. On Friday, the S&P 500 closed 51 points above the bearish threshold from the Trend Trader Index. Consequently, the market remains in a solid price driven short-term oriented uptrend as long as the S&P 500 does not drop below 2,941 (lower threshold from the Trend Trader Index). Above all, both envelope lines of this reliable indicator are still drifting higher on a quite fast pace. This is an indication for a solid short-term oriented uptrend, at least from a current point of view. This can be also seen if we focus on the Modified MACD which has not shown any signs of a threatening bearish crossover signal yet and has, therefore, not confirmed the latest weaknesses by the market. Also, the gauge from the Advance-/Decline 20 Day Momentum Indicator remains outright bullish, although it lost some momentum last week. As this indicator tends to be a leading one, the start of a healthy but bullish biased consolidation period looks quite possible and, therefore, the pace is likely to slow down a bit next week.
Essentially, we receive the same picture if we analyze short-term market breadth. There we can see that the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily were holding up quite well and did not flash any bearish crossover signal. This indicates that the underlying momentum of advancing stocks and advancing volume within the market still remains quite bullish. Another encouraging fact is that the percentage of stocks which are trading above their short-term oriented moving averages (20/50) kept trading well above their bearish thresholds, indicating that the majority of U.S. listed stocks remain in a short-term oriented uptrend. This is a quite supportive trend signal, as it indicates that the current short-term oriented uptrend is still driven by a broad basis (and looks, therefore, still quite sustainable in its nature). The only weak signal is coming from the NYSE New Highs/New Lows Daily as the total number of all NYSE-listed stocks which reached a new yearly high should be definitely stronger if we consider the fact that the S&P 500 is just trading shy below its all-time high. However, as long as we do not see a strong bearish spike in new lows or a bearish crossover signal within the High-/Low Index Daily, the underlying set-up remains supportive. On the other hand, these weak signals are also indicting that the S&P 500 might need a few attempts until it might be able to break above its latest all-time high. Consequently, it could be possible that the market is about to enter a small but healthy consolidation period, which should be, therefore, limited in price and time.
On the contrarian side, most of our indicators still remain quite supportive for the time being. First of all, we can see that our reliable WSC Capitulation Index is still indicating a risk-on market environment, whereas the option market is far away from being greedy. This can be also seen if we focus on market sentiment, as the amount of bulls on Wall Street remains subdued although the market is trading near an all-time high. This is still a quite positive signal, as it indicates that the market has still enough room to climb the wall of worry (reacting quite positively on small positive news). As already mentioned last week, the only negative signal is coming from a pure seasonal point of view (Presidential Cycle). In a pre-election year, the market had often faced stronger headwinds in the fourth quarter, before the typical year-end rally brought some relieve. Although the market followed the Presidential Cycle quite closely this year, we think with such strong readings all across the board it is definitely too early to get concerned and, hence, we keep ignoring these patterns for now. Nevertheless, we keep a close eye on that cycle, because if the upcoming consolidation period will cause a stronger deterioration within market breadth, it would be a clear indication that the market might follow a similar path this year. But as already mentioned above, right now the short-term oriented up-trend participation still looks too constructive to bet on a major trend-reversal at the moment!
Mid-Term Technical Condition
This view is also supported by the fact that our mid-term oriented indicators also strengthened last week. This becomes quite obvious if we focus on the gauge from the Global Futures Trend Index, which succeeded to pass the outright bullish 90 percent threshold last week and also managed to reach the highest level for months. As a matter of fact, this reliable indicator is clearly confirming the current levels of the S&P 500! Worth mentioning is the fact that in the past the market never faced a stronger pullback when the gauge of this reliable indicator was trading at similar levels! Consequently, the current mid-term oriented trend condition of the market looks quite healthy at the moment. This call is also supported by the fact that the WSC Sector Momentum Indicator managed to gain even further positive momentum on very bullish levels last week. This is telling us that most sectors within the S&P 500 are participating within the ongoing trend (which is another quite healthy trend signal for the time being). This can be also observed when we focus on our Sector Heat Map, as the momentum score of all sectors (except energy at 0 percent) remains above the one from riskless money market (currently at 11 percent).
Analyzing mid-term oriented market breadth shows a quite supportive picture. Especially, the Modified McClellan Oscillator Weekly succeeded once again to increase its bullish gap last week, indicating that the momentum of advancing stocks still remains quite positive at the moment. Moreover, we can see that most of our (Advance-/Decline Line Daily, Advance-/Decline Line Weekly) reached a new all-time high last week and, therefore, formed a quite bullish divergence last week. This is a quite confirmative picture, as all of them are definitely confirming the current level from the S&P 500 at the moment. Another positive signal is coming from the Advance-/Decline Index Weekly as its bullish gauge keeps trading well above its bearish counterpart. This indicates that the majority of advancing stocks within major indexes are still strongly outpacing declining ones. Consequently, the current rally does not look at risk of fading out at the moment. This can be also seen if we focus on the percentage of stocks which are trading above their mid-term oriented moving averages (100/150). Both indicators are showing us that the majority of all NYSE listed stocks are still per definition in a mid-term oriented up-trend and, therefore, the total upside participation within the market still looks quite healthy at moment. Currently, the only weak mid-term oriented tape signals are volume related. Both, the Upside-/Downside Volume Index Weekly as well as the Advance-/Decline Volume Line Daily are still lagging behind (although the market is trading near record highs). Despite the fact that this can be seen as red flag on the horizon, we keep ignoring this fact as long as our remaining tape indicators remain strong. So all in all, the mid-term oriented condition of the market still looks quite healthy and, hence, we strongly believe that it is still a bit too early to take the chips from the table.
Long-Term Technical Condition
The long-term oriented trend of the market also showed some positive signs last week. Although our WSC Global Momentum Indicator slightly decreased for the week, it keeps trading at quite solid bullish levels. Currently it indicates that 58 percent of all local equity markets around the world (which are covered by our Global ETF Momentum Heat Map) are trading above their long-term oriented trend. Also our Global Futures Long Term Trend Index has started to increase again on very high bullish levels, which is another supportive long-term oriented trend signal at the moment. A view, that is also supported by stronger momentum scores in nearly all markets in our WSC Global Relative Strength Index. This bullish long-term oriented up-trend is widely confirmed by long-term oriented market breadth. This is mainly due to the fact that the Modified McClellan Volume Oscillator Weekly nearly flashed a bullish crossover signal last week, whereas the percentage of stocks which are trading above their 200 day simple moving average as well as the High-/Low Index Weekly remains quite supportive for the time being.
Last week, there were no changes within the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio, the WSC Sector Rotation Strategy and the WSC Dynamic Variance Portfolio.
The technical picture of the market remains pretty unchanged compared to last week. Despite the fact that the market is entering a quite challenging time period from a pure seasonal point of view (Presidential Cycle), our strategic bullish outlook has not been changed so far. With quite bullish indicators all across the board (especially within the WSC Mid-Term Composite), we strongly believe to see further strengths towards/above the old bull-market highs in Q4. However, on a very short-time frame, a period of bullish biased consolidation (even with some nasty pullbacks) looks quite likely. As a consequence, we would advise our conservative members to hold their equity position, while aggressive short-term traders should stay in the bullish camp as long as we do not see a significant drop within WSC Short-Term Composite. Nevertheless, we would also advise them to reduce leverage.