July 03. 2016

Market Review

The U.S. stock market finished the week with solid gains. For the week, the Dow Jones Industrial Average gained 3.2 percent to 17,949.37, its best week since November. The S&P 500 advanced 3.2 percent over the week to 2,102.95; also its best week since November. The Nasdaq rose 3.3 percent over the past five days to 4,862.57. All key S&P sectors ended in positive territory for the week, led by telecoms. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded below 15 to hit a three-week low.

Short-Term Technical Condition

Not surprisingly, the trend condition of the market turned quite bullish last week. This is mainly due to the fact that the S&P 500 closed 31 points above the bearish threshold from the Trend Trader Index. This indicates that the underlying bullish trend of the market remains intact as long as the broad equity benchmark does not drop below 2,071. This bullish short-term price driven uptrend is also supported by the readings of the Modified MACD, which also flashed a small bullish crossover signal last week. Basically, the same is true if we focus on the Advance-/Decline 20 Day Momentum Indicator, which also developed very well last week. Despite the fact that our entire short-term trend indicators are back on track, we can still see that the bullish readings of our entire short-term oriented trend indicators are still a bit weak-kneed. Consequently, a stronger down-day could easily change the trend status within the S&P 500 and, therefore, it looks like that the recent range-bound trading status of the market might be not completely over yet.

However, the situation looks a bit different if we focus on the underlying breadth condition of the market. This becomes quite obvious if we focus on our NYSE New Highs ? New Lows Indicator as we saw a massive spike in the number of stockss which are hitting a fresh yearly high, together with a quite small numbers of stocks which were pushed to a new yearly low! To be more precise, on Friday we saw 411 stocks on NYSE that reached a new 52 weeks high, the highest number for over a year. As a consequence, the bullish gauge from the High-/Low Index Daily also rocketed last week which is telling us that the recent rebound is definitely not a dead-cat bounce as it was broad based in scope. This breadth recovery can be also seen if we focus on the percentage of stockss which are trading above their short-term oriented moving averages (20/50). Both gauges strongly increased and managed, therefore, to get back into the bullish area last week. On top of that it was also good to see that the Modified McClellan Oscillator Daily flashed a small bullish crossover signal last week, whereas the Modified McClellan Volume Oscillator Daily looks like it is following soon. So all in all, the underlying breadth momentum of the market strengthened significantly last week and, therefore, we think it is a way too early to bet on a major trend-reversal for the time being.

The situation from a pure contrarian point of view remains almost unchanged compared to last week. Apart from the fact that the WSC Capitulation Index is still indicating a quite volatile market environment on a very short-time frame, we can see that the Smart Money Flow Index remains outright bullish as it gauge reached a new high last week. Furthermore, the increased fear among the market participants remains persistence and, therefore, most of our option based indicators remain quite bullish for the time being (WallStreetCourier Index, the WallStreetCourier Index Oscillator and the Daily Put-/Call Ratio All CBOE Options Indicator).

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 remains well intact. This is mainly due to the fact that our reliable Global Futures Trend Index keeps trading slightly below its extremely bullish 90 percent threshold and is, therefore, confirming the current levels from the S&P 500. Moreover, it is worth to mention that as long as the gauge from this indicator remains above its 60 percent threshold, any upcoming weaknesses should be limited in price and time (if additionally mid-term market breadth remains strong). Above all, the WSC Sector Momentum Indicator is telling us that most sectors within the S&P 500 remain in a strong mid-term uptrend, and, therefore, the current up-trend of the market looks quite healthy at the moment. If we have a closer look at our Sector Heat Map, we can see that utilities and consumer staples are the strongest sectors within the S&P 500, whereas financials are the weakest ones.

More importantly, the mid-term oriented trend of the market is also strongly confirmed by mid-term oriented market breadth. Especially, the Modified McClellan Oscillator Weekly continued to gain more bullish ground last week, indicating that the underlying mid-term oriented market breadth momentum remains outright bullish at the moment. Additionally, all 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 reached their highest reading for month, which is another proof of evidence for our new highs scenario. Basically, the same is true if we focus on the percentage of stockss which are trading above their mid-term oriented moving averages (100/150) as they increased quite strongly last week. This can be seen as an outright strong confirming tape signal as the current rally looks quite broad based. Such a broader tape confirmation can also be seen if we focus on mid-term oriented advancing issues as well as mid-term oriented up-volume as both indicators are trading well above their bearish counterparts. As a matter of fact, we think it is a way too early to bet on a major trend reversal for the time being.

Long-Term Technical Condition

The long-term uptrend of the market remains 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 65 percent of all global markets remain within a long-term oriented uptrend. Additionally, the relative strengths of most risky markets strongly increased compared to the last weeks. This fact is underlining our short- to mid-term oriented view. Also, long-term market breadth is giving no reason to worry and, therefore, we think that the current long-term uptrend of the market is not in danger at all (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

On a very short-time frame, the market is a bit overbought and, therefore, the pace is likely to slow down within the next couple of trading sessions. Nevertheless, with quite improving/solid readings all across the board, we strongly believe that it is a way too early to take the chips from the table. As a matter of fact, 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!