July 11th 2021
All three major U.S. benchmarks booked a third straight week of gains to end Friday at fresh all-time highs. For the week, the Dow Jones Industrial Average eked out a small gain of 0.2% to finish at a record of 34,870.16. The S&P 500 advanced 0.4% in that period and closed at a fresh record of 4,369.55. The broad index earned its sixth week of gains in seven. The Nasdaq booked a weekly gain of 0.4% as well and finished at an all-time high of 14,701.92. Among the key S&P sectors, utilities was the best weekly performer, while the energy sector dragged the most. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 16.2.
Short-Term Technical Condition
Not surprisingly, the positive time-series momentum of the S&P 500 remains intact. On Friday, the broad index managed to close 111 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 4,258. Furthermore, we can also see that both envelope lines of this reliable indicator are still drifting higher, signaling that the resistance/support levels for the S&P 500 are increasing as well. This can be seen as another quite encouraging technical trend signal, as the market continued to make higher highs and higher lows within the past 20 days. This solid short-term oriented price driven up-trend is also still confirmed by the bullish Modified MACD, which also strengthened last week. This shows that the momentum of this price driven uptrend also remains quite positive. The only weaker signal is coming from the Advance-/Decline 20 Day Momentum Indicator. Although its gauge succeeded to get back into the bullish area on Friday, it could be a bit stronger if we consider the current record levels of the S&P 500. Given the fact that this indicator tends to be a leading one, we would not be surprised to see some kind of breather ahead (whereas the overall tone remains quite bullish – at least for now).
This view is mostly confirmed by short-term market breadth. Even though the momentum of advancing issues and advancing volume (Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily) on NYSE remains negative, the overall short-term market breadth condition of the market still looks constructive. Thus, it is still a bit too early to bet on a sustainable trend-reversal (although short-term market breadth could be a bit stronger if we consider the current levels of the S&P 500). The main rationale behind that view is that during the whole week we saw a confirmative number of NYSE-listed stocks which reached a new yearly high, in combination with quite depressed readings of stocks dropping to a new yearly low! Even on weak sell-off days, the number of stocks which dropped to a new low did not spike at all. As a result, the High-/Low-Index Daily is still far away from flashing a bearish crossover signal. Nevertheless, we can also see that the latest high was mostly driven by mega caps, since the percentage of stocks which are trading above their short-term oriented moving averages (20/50) has not recovered substantially yet. This is another indication for an aging rally. Currently, this is not a concern yet if we consider the solid number of new highs and new lows. Additionally, we can see that the Upside-/Downside Volume Index Daily improved at the end of the week, although it still has not succeeded to turn bullish yet. Consequently, the risk of a stronger and sustainable trend break still remains low (although some small clouds are visible on a very short-term time perspective).
Contrarian wise, the increased volatility (on Thursday) had a quite dampening effect on the small fry as our entire sentiment- and option-based indicators (Oscillator, WSC Put-/Volume Ratio and the WSC Put-/Volume Ratio Oscillator, WSC Dumb Money Indicator and the WSC Put-/Volume Ratio Oscillator) remain or turned neutral last week. This is a quite supportive fact as it shows that the market has still some room left to climb the wall of worry. Additionally, we have seen increased smart buying recently (Smart Money Flow Index), whereas the WSC Capitulation Index is now definitely indicating an all-clear market environment. Further tailwinds are coming from the seasonal side (Presidential Cycle) as the market should face further tailwinds until early August.
Mid-Term Technical Condition
This view is also supported by the fact that our entire mid-term-oriented indicators remain quite bullish at the moment. Although the gauge from our reliable Global Futures Trend Index slightly decreased last week, it is still touching the edge of its extremely bullish 90% threshold. Consequently, as long as this gauge does not show stronger signs of negative momentum, any upcoming weaknesses should be limited in price and time. Also, from a purely price point of view, the mid-term oriented uptrend of the market remains well intact as the WSC Sector Momentum Indicator even succeeded to improve last week. This indicates that all main sectors in the S&P 500 remain in a strong mid-term oriented price driven up-trend and are, therefore, confirming the current levels of the S&P 500. This can also be seen if we have a closer look at our Sector Heat Map, as the momentum score of the riskless money market remains at zero percent.
The current mid-term oriented uptrend of the market is still widely confirmed by mid-term oriented market breadth. First of all, our entire advance-decline indicators were holding up quite well (Advance-/Decline Line Daily, Advance-/Decline Line Weekly) or even improved significantly (Advance-/Decline Volume Line). Another positive mid-term oriented tape signal is coming from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly (since the bullish gauges of both indicators have not shown any weaknesses so far). This indicates a solid underlying demand. And also, our Modified McClellan Oscillator Weekly succeeded to stay bullish (although it looks like it is peaking out soon). And finally, the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) also improved (whereas the SMA 100 even managed to jump back into the bullish area last week). All these facts signal that the total upside participation within the market still looks quite confirmative, which is another indication that there is still some room left before major troubles might be due.
Long-Term Technical Condition
The long-term oriented trend of the market shows an intermingled picture. On the one side, our WSC Global Momentum Indicator remains nearly unchanged and shows that 81% 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 lines. Also, our Global Futures Long Term Trend Index succeeded to improve last week and signals that the long-term oriented uptrend of U.S. equities strengthened. On the other side, we can see that the relative strength of all risky markets decreased significantly last week and some of them even dropped below U.S. Treasuries. Also, examining our long-term oriented tape indicators (High-/Low Index Weekly, the Modified McClellan Volume Oscillator Weekly, SMA 200) reveals that they weakened for the week.
Last week, there were no changes within the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio and the WSC Dynamic Variance Portfolio. As the momentum score of materials fell below average and below the average from the S&P 500, we received a sell signal for that ETF within the WSC Sector Rotation Strategy. Moreover, we are proud that the WSC All Weather Model Portfolio reached a new-all time high last week.
Given the minor bearish divergence within some of our short-term oriented indicators, a short-term breather cannot be ruled out at the moment. Apart from that fact, there is absolutely no fundamental reason to change our strategic bullish outlook for the time being. The market has exactly been following our expected path so far and given the quite bullish tape structure (especially on a mid-term time perspective), we think further gains into deeper summer can be expected. A fact, which can also be seen if we focus on our Big Picture Indicator, which is still moving around within its bullish quadrant. As long as this is the case, we think it might be a bit too early to take the chips from the table. For that reason, we think it would make sense for our conservative members to remain invested, whereas aggressive traders should stick in the bullish camp.