November 3rd 2019

Market Review

In line with our latest call, U.S. stocks rallied for the week, pushing the S&P 500 and the Nasdaq to new record highs. For the week, the Dow Jones Industrial Average rose 1.4 percent to 27,347.36. The S&P 500 climbed 1.5 percent for week to a record high of 3,066.91. The Nasdaq increased 1.7 percent from last Friday close to an all-time high of 8,386.4. Most key S&P sectors ended in positive territory for the week, led by the health care sector. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended near 12.3.

Short-Term Technical Condition

Obviously, the readings from our entire short-term oriented trend-indicators continued to strengthen last week. The S&P 500 is currently trading 84 points above the bearish threshold from the Trend Trader Index, indicating that the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 2,982. Additionally, both envelope lines of this reliable indicator started to increase on a quite fast pace. This fact can be seen as a quite constructive technical signal as it indicates that the latest price move is getting more sustainable in its nature (which is in line with our recent outlook). Also the underlying price driven momentum of the market remains outright robust at the moment as the Modified MACD strengthened its bullish signal and has, additionally, not shown any signs of weakness so far. Another quite bullish trend signal is coming from the Advance-/Decline 20 Day Momentum Indicator, which finished the week also at quite solid levels. So all in all, the current time-series momentum of the market looks outright bullish at the moment.

As you already know, a healthy/sustainable trend should always be backed by a broad basis, otherwise the chances for a sharp trend-reversal remain outright high. Therefore, it was good to see that the current short-term oriented uptrend is widely confirmed by our short-term market breadth indicators (as all of them continued to improve last week). This is a quite positive technical signal, as it shows us that the recent break-out was well supported by a relatively broad basis. This becomes quite obvious if we analyze the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily. Both indicators clearly strengthened their bullish signals, indicating that the momentum of advancing stocks as well as advancing volume is gearing up. Also the total number of stocks which are hitting a fresh yearly high remains at quite solid levels, whereas the number of stocks which were pushed to a new yearly low has not shown further negative spikes so far (and keeps trading at outright low levels). This is another quite bullish ingredient, since a stronger increase is often a very reliable harbinger of a stronger trend-reversal. However – given the quite strong increase in new highs – it was not a big surprise at all that the High-/Low-Index Daily was also holding up quite well last week and even increased its bullish gap. Also the percentage of stocks which are trading above their short-term oriented simple moving averages (20/50) showed a quite strong upside participation and both indicators are still trading in solid bullish territory. With such positive short-term readings, we believe that the risk of a stronger and sustainable negative trend-reversal should to be extremely limited for the time being. As a matter of fact, further record highs into deeper November are quite likely.

From a pure contrarian point of view, we can see that the market has still a bit room left to grow until it will get too complacent. This can be seen if we focus on the z-score from the Daily Put-/Call Ratio All CBOE Options, which is still slightly trading above its bearish threshold. Additionally, we can see that market sentiment also improved over the last couple of weeks, whereas the number of bulls has also not reached critical values yet. Nevertheless, if the market continues to rise with such a speed, it will be just a question of time until these values grow into complacent territory. If this is the case, we would not be surprised to see a distribution phase ahead. But now we are not there yet and more importantly, market breadth remains too strong to get concerned at the moment. Hence, we are also ignoring the negative signal from the WSC Capitulation Index and from the Presidential Cycle – at least for now.

Mid-Term Technical Condition

Another reason, why we stick to our strategic bullish outlook is due to the fact that the mid-term oriented technical condition of the market remains also quite robust. First of all, our reliable Global Futures Trend Index has not shown any signs of weaknesses so far and its gauge was able to remain in the upper part of its bullish consolidation range. These circumstances can be seen as a very constructive signal, as they clearly confirm our latest multiple record highs scenario. In addition, the WSC Sector Momentum Indicator is still trading at a very solid level and even succeeded to slightly increase in the previous week. This is telling us that most sectors within the S&P 500 are per definition in a mid-term oriented uptrend. This can be also seen if we have a closer look at our Sector Heat Map, as the momentum score of all industries (except energy) is still trading above the one from riskless money market (currently trading at 10.9 percent). These facts are another indication that the risk appetite among investors remains quite high (and, therefore, our strategic bullish view remains unchanged).

This current mid-term oriented up-trend of the market is widely confirmed by mid-term oriented market breadth. First of all, our advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line Weekly) continued to strengthen in the last couple of trading sessions (the only exception is the Advance-/Decline Volume Line) and are, thus, confirming the recent record high of the S&P 500! In other words, the recent high was widely supported by a broad basis, which is an absolutely healthy breadth signal. Moreover, mid-term oriented advancing issues and mid-term oriented up-volume continued to gain more bullish ground and are trading far above their bearish counterparts. These are outright bullish signals, since the risk of a stronger correction is extremely low with such strong readings. Also our Modified McClellan Oscillator Weekly increased once again last week, indicating that the mid-term oriented tape momentum remains constructive. And finally, also the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) slightly improved, indicating that the majority of all NYSE listed stocks are still per definition in a robust mid-term oriented up-trend. All in all, these facts signal that the total upside participation within the market is still positive, which is another indication that it a bit too early to take the chips from the table.

Long-Term Technical Condition

Basically, the same applies for the long run, as the long-term oriented uptrend of the market remains well intact. Our WSC Global Momentum keeps trading at solid levels and indicates that 77 percent of all local equity markets around the world are trading above their long-term oriented trend-lines. Moreover, the Global Futures Long Term Trend Index is also trading at solid levels (although it has been decreasing for weeks now). This can be also seen if we take a look at the Global Relative Strength Index as the relative strength of all risky markets improved significantly last week. And in addition, we can also observe improvements in long-term market breadth, as the readings from our entire long-term oriented tape indicators (High-/Low Index Weekly, the Modified McClellan Volume Oscillator Weekly, SMA 200) strengthened last week.

Model Portfolios

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 Consumer Discretionary 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 to announce that the WSC All Weather Model Portfolio reached a new all-time high last week. The portfolio scored 20.7 percent on a year-to-date basis.

Bottom Line

Our base call remains unchanged compared to last week. The market is exactly following our expected path so far. In other words, the current time-series momentum of the S&P 500 is still strongly backed by a broad basis. As a matter of fact, our strategic bullish outlook remains unchanged compared to last week. So as long as our Big Picture Indicator keeps moving around within its bullish quadrants, the current rally is not in danger of fading out at the moment. Thus, we strongly believe to see further record highs into deeper November. So all in all, the current risk-/reward ratio still looks extremely attractive at the moment and, therefore, we would advise our conservative members to hold their equity exposure, while aggressive short-term traders should remain bullish.

Stay tuned!