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January 7th 2018

Market Review

U.S. stocks closed the first week of the year with solid gains, with the major indexes finishing at all-time highs. For the week, the Dow Jones Industrial Average rose 2.3 percent to a record of 25,289. The S&P 500 rocketed 2.6 percent in the holiday-shortened week to end at an all-time high of 2,743. The Nasdaq jumped 3.4 percent during the week to finish at a record level of 7,136. The Dow notched the biggest weekly gain since the period ended Dec. 1, 2017, the S&P 500 recorded its best weekly rise since Nov. 11, 2016, and the Nasdaq logged its best climb over the same period since Dec. 9., 2016. Most key S&P sectors ended in positive territory for the week, led by materials. Utilities were the only decliners. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 9.2.

Short-Term Technical Condition

In line with our recent outlook, the short-term oriented up-trend of the market remains intact and even continued to gain more bullish ground last week, pushing the major key indices to new records. Not surprisingly, this short-term oriented trend of the market even strengthened, as the readings from our entire short-term oriented trend indicators are very bullish at the moment. To be more precise, the S&P 500 closed 69 points above the bearish threshold from the Trend Trader Index. Above all, both envelope lines of this reliable indicator are drifting higher on a fast pace. So, from a pure structural point of view, this is another indication for a strong short-term oriented price-driven uptrend. The same is true if we focus on the Modified MACD, as it flashed a strong bullish crossover signal last week. Above all, the gauge from the Advance-/Decline 20 Day Momentum Indicator rocketed last week and has, therefore, clearly confirmed the recent break-out from the S&P 500. Given the fact that this indicator tends to lead price movements, such a strong confirmation also indicates further rallying ahead. Consequently, it looks like that the current short-term oriented up-trend is definitely gaining more steam (from a pure trend point of view).

More importantly, this view is also widely confirmed by short-term market breadth as the current trend participation of all NYSE listed stocks within the latest rally looks quite broad-based and, therefore, very healthy at the moment. The percentage of stocks which are trading above their short-term oriented moving averages (20/50) started to grow, indicating further upside participation within the current trend-structure. Both, the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily, strongly increased their bullish gaps, indicating that the underlying breadth momentum of the market remains positive. However, the most encouraging fact is that the latest break-out from the S&P 500 was supported by an extremely broad basis (which is absolutely a healthy technical signal). This becomes obvious if we focus on the NYSE New HighsNew Lows Indicator. There we saw a major spike in the total number of all NYSE-listed stocks which reached a new yearly high, in combination with an outright low number of stocks which dropped to a new yearly low last week! Consequently, the High-/Low-Index Daily jumped to the highest level for months. In our opinion, with such strong signals all across the board, it is highly unlikely that the recent rally will run out of fuel on a very short time frame. Thus, we think that the market is heading towards new record into mid-January, which is more or less in line with our scenario.

The signals on the contrarian side remain mixed. If we focus on the AII Bulls & Bears survey we can see that the total amount of bulls on Wall Street reached a historical maximum. On a very short time frame, this is a quite good technical signal as it indicates that a lot of purchasing power is flowing back into the market. However, on a mid-term time perspective such strong readings could become a burden for the market as there will be hardly anyone left to push prices higher. We saw similar readings in late 2014. Back then the rally continued to rally a couple of months before we saw the first stronger correction starting in mid-2015. Moreover, we can see that some of our option based indicators are still flashing bearish or at least cautious readings (Equity Options Call-/Put Ratio Oscillator Weeky and Global Futures Put-/Volume Ratio Weekly), plus the Smart Money Flow Index as well as the WSC Capitulation Index  has not really confirmed the latest high. So from a pure contrarian point of view, a period of consolidation cannot be ruled out. However, given the strong bullish readings all across the board, any contrarian driven slow-down should turn out to be healthy in its nature.

Mid-Term Technical Condition

If we focus on the mid-term oriented technical condition of the market, we get the same set-up as we have on a short-term time frame. The mid-term uptrend of the market continued to strengthen and is giving no reason to worry right now. This is mainly because our reliable Global Futures Trend Index increased again last week and is just trading shy below its bullish area! For that reason, the actual reading of this reliable indicator is confirming the current levels from the S&P 500. The same can be seen if we analyze the current trend participation of all major key sectors within the S&P 500. There we can see that most industries continued to show a strong form of positive momentum last week. Mainly because the gauge from our WSC Sector Momentum Indicator is trading in solid bullish territory. This can be also observed by looking at our Sector Heat Map as the momentum score of all sectors remains above the one from riskless money market (currently at 0 percent). In our view, this is another indication that the risk appetite among investors remains quite high and, therefore, we stick to our new record highs scenario.

This mid-term oriented up-trend is also widely confirmed by our mid-term oriented market breadth indicators. Thus, we do not think to see a major trend break ahead. The percentage of stocks which are trading above their mid-term oriented moving averages (100/150) gained slightly more bullish ground last week and are trading far above their 50 percent bullish threshold. This indicates a rising up-trend participation, which is definitely a good sign. In addition, the Modified McClellan Oscillator Weekly finally escaped from its paralyzed status (which has been lasting for several weeks) and flashed a very small bullish crossover signal. This signals that the underlying breadth momentum of the market started to grow. Another encouraging mid-term oriented tape signal is coming from the Advance-/Decline Index Weekly and from the Upside-/Downside Volume Index Weekly. Both indicators strongly increased their bullish gaps. As long as mid-term oriented advancing issues as well as mid-term oriented up-volume are trading above their bearish counterparts, the underlying tape structure of the market remains healthy. For that reason, it looks like that there is now still a bit room left before major troubles might be due.

Long-Term Technical Condition

The long-term uptrend of the market remains intact. Once again, our Global Futures Long Term Trend Index jumped to its highest level for months, indicating a technical bull market. Also, our WSC Global Momentum Indicator signals that 85 percent of all global markets remain within a long-term oriented uptrend. This can be also monitored if we focus on the WSC Global Relative Strength Index, as the relative strength of all risky markets keeps trading above the one from U.S. Treasuries. Also, long-term oriented market breadth still looks very constructive at the moment. The percentage of stocks which are trading above their 200 day simple moving average gained more bullish ground last week. Also, the number of stocks which are hitting a fresh 52 weeks high are trading far above their bearish counterparts, leaving our High-/Low Index Weekly on very supportive levels. And also our Modified McClellan Volume Oscillator Weekly increased its bullish gap.

Model Portfolios

If we have a closer look at our Model Portfolios (WSC Inflation Proof Retirement Portfolio, the Global Tactical ETF Portfolio, the WSC Sector Rotation Strategy and the WSC All Weather Portfolio) we can see that there were no changes in the allocation last week. However, we are proud to announce that the WSC Sector Rotation Strategy and the WSC All Weather Portfolio reached a new al-time high last week.

Bottom Line

Not surprisingly, 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 the first quarter of 2018. Therefore, our bullish outlook remains unchanged and would advise conservative members to hold their equity position, while aggressive short-term traders should definitely stay in the bullish camp.

Stay tuned!!!