September 24th 2017

Market Review

U.S. stocks finished the week with a mixed performance. For the week, the Dow Jones Industrial Average rose 0.4 percent to 22,349.59. The S&P 500 gained less than 0.1 percent to end at 2,502.22. The Nasdaq lost 0.3 percent during the week to finish at 6,426.92. Among key S&P sectors, financials closed higher for the week, while utilities slumped. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended near 9.6.

Short-Term Technical Condition

The short-term oriented uptrend of the market remains well intact as the readings from our entire short-term oriented trend-indicators continued to strengthen last week. The S&P 500 is now trading 30 points above the bearish threshold from the Trend Trader Index. This is telling us that the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 2,472. Additionally, both envelope lines of this reliable indicator continued to increase on a fast pace, indicating that the resistance/support levels for the S&P 500 are increasing as well. This can be seen as a quite constructive technical signal as higher highs and higher lows are a typical pattern for a healthy uptrend. This bullish short-term uptrend is also clearly supported by the readings of the Modified MACD, which reached a high level last week, indicating further gains ahead. Above all, the gauge from the Advance-/Decline 20 Day Momentum Indicator finished the week at a very high level and is therefore, clearly confirming the recent levels from the S&P 500.

Essentially, we receive the same picture if we analyze short-term market breadth. Especially, the percentage of stocks which are trading above their short-term oriented moving averages (20/50) continued to grow further into deep bullish territory or stayed at a very high level. This indicates an outright supportive trend-structure at the moment. To be more precise, about 76/69 percent of all NYSE listed stocks are trading above their 20/50 day simple moving average; for the SMA 50 the highest numbers we have seen for months. On top of that, we can see that the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily have not shown any signs of weaknesses yet and even increased their bullish gaps. This indicates that the underlying breadth momentum of the market remains positive. Another encouraging fact is that we have seen a strong pick-up in the total amount of all NYSE-listed stocks which reached a new yearly high, in combination with one of the lowest readings of stocks which dropped to a new yearly low! As a consequence, the High-/Low Index Daily strengthened its bullish signal for the week and reached record readings. In our opinion, with such strong signals all across the board, it is highly unlikely that the recent rally will run out of fuel. As a consequence, we think that the market will continue to crawl towards new records into end-September, which is definitely in line with our strategic bullish outlook.

On the contrarian side it remains pretty quiet at the moment. The only interesting fact is that the NYSE Short Interest Ratio jumped to the highest level since 2014. Consequently the current short-squeeze potential is tremendous – especially if we consider the outright strong technical market condition at the moment. Unchanged compared to last week, the WSC Capitulation Index continued to decline, which is another positive signal for a continuation of the current rally.

Mid-Term Technical Condition

If we focus on the mid-term oriented technical condition of the market, we basically get the same set-up as we have on a short-term time frame. The mid-term uptrend of the market continued to strengthen significantly and is therefore, giving no reason to worry right now. This is mainly due to the fact that our reliable Global Futures Trend Index passed the outright bullish 90 percent threshold. This is telling us that the mid-term oriented up-trend of the market remains well in force. Additionally, we can see that the WSC Sector Momentum Indicator is trading at quite solid levels, indicating that most sectors of the S&P 500 remain in a mid-term oriented uptrend. Looking at our Sector Heat Map reveals that the momentum score of nearly all sectors remains above the one from riskless money market. But beside energy, which has been the only sector below riskless money market for month, now also consumer staples (a quite defensive sector) dropped below 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 stocks which are trading above their mid-term oriented moving averages (100/150) continued to increase, indicating the current upside participation within the whole market still remains quite broad-based! Moreover, the Modified McClellan Oscillator Weekly finally 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 see 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 our entire advance-decline indicators (Advance-/Decline Volume Line, Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly) which reached new all-time highs 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 picture definitely looks healthy at the moment/turned out to be supportive and therefore, new record highs might be at hand soon.

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 currently 95 percent of all local equity markets around the world remain in a long-term oriented uptrend. Moreover, 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. Also long-term market breadth is currently giving no reason to worry 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, which increased its bullish gap, as well as looking at the number of stocks which are trading above their longer-term oriented moving averages (200)!

Model Portfolios

If we have a closer look at our Model Portfolios, we can see that there have been no changes in the allocation advice from the WSC Inflation Proof Retirement Portfolio, the Global Tactical ETF Portfolio and the WSC All Weather Portfolio. As the momentum score of utilities dropped below average and below the one from the S&P 500 within our Sector Heat Map, we received a sell signal for that ETF within our WSC Sector Rotation Strategy. Moreover, we are proud to announce that the WSC All Weather Portfolio reached another all-time high last week.

Bottom Line

The technical picture of the market continued to improve significantly compared to last week and therefore, our strategic bullish outlook remains unchanged. To be more precise, with broadening strengths all across the board the current rally is definitely not at risk of fading out at the moment. As a matter of fact, we strongly believe to see further record highs into fall. As a matter of fact, our bullish outlook remains unchanged and therefore, would advise conservative members to hold their equity position, while aggressive short-term traders should definitely stay in the bullish camp.

Stay tuned!