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June 16th 2019

Market Review

All three major U.S. averages finished the week with gains. For the week, the Dow Jones Industrial Average eked out a gain of 0.4 percent to end at 26,089.61. The S&P 500 returned 0.5 percent for the week to finish at 2,886.98. The Nasdaq advanced 0.7 percent for the week to finish at 7,796.66. All indexes gained for a second week in a row. Among the key S&P sectors, discretionary and utilities were the best weekly performers, while energy dragged. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 15.

Short-Term Technical Condition

The market is moving in line with our latest outlook, as the technical picture of the market continued to improve all across the board last week. If we have a closer look at our short-term oriented trend indicators, we can see that the bullish trend-status from the S&P 500remains in force and even gained further bullish ground last week. To be more precise, the S&P 500 closed 63 points above the bearish threshold from the Trend Trader Index. This indicates that the market remains in a soling price driven short-term oriented up-trend at the moment. Furthermore, we can see that both envelope lines of this reliable indicator formed a rounding bottom and finally started to increase. This is another supportive fact for our view that the latest recovery from the S&P 500 from its previous low at 2,728 is just more than an oversold bounce. This view is also confirmed by our reliable Modified MACD, which flashed an outright strong bullish crossover signal last week, indicating that the underlying trend-momentum of the market is getting back on track. The only weak but still bullish signal is coming from the Advance-/Decline 20 Day Momentum Indicator. Despite the fact that its gauge also improved compared to last week, it lost some steam on Friday. As this indicator tends to be a leading one, we would not be surprised to a see some form of short-lived bullish consolidation ahead.

This picture also is widely confirmed by our short-term oriented market breadth indicators; all of them further increased last week or have not shown any signs of weakness so far. Consequently, any upcoming consolidation period should turn out to be limited in price and time. First of all, the short-term gauges from the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Dailycontinued to strengthen significantly and, therefore, both indicators flashed a bullish crossover signal last week. This is indicating that the underlying momentum of advancing stocks and advancing volume is getting back on track on a very fast pace. This is quite constructive tape signal, as it indicates that the latest recovery is definitely driven by a border basis and not only from a few heavy weighted stocks in the S&P 500. This can be also observed if we focus on the percentage of stocks which are trading above their short-term oriented moving averages (20/50). Although both indicators still remain bearish from a pure signal point of view, they continuously improved over the past two weeks. This is a quite constructive signal, as it indicates that the broad market is getting back into a short-term oriented uptrend. Nevertheless, we should not forget that their overall scores are still a bit weak-kneed at the moment, which might be another indication for a short-lived consolidation period. However, given the fact that we saw quite stable readings in the number of stocks which are hitting a fresh yearly high (especially at the beginning of the week), together with low readings in the number of stocks which were pushed to a new yearly low, we think the current short-term oriented recovery is not at risk of fading out at the moment. This can be also observed if we focus on the High-/Low-Index Daily, which is still showing a quite bullish gap at the moment.

From a pure contrarian point of view, we can see that the latest recovery had its designated impact on short-term optimism as the option market got back into neutral territory. Moreover, we can see that a lot of bears switched back into the bullish camp, although the majority still remains quite skeptical at the moment. This is a quite supportive fact on a mid-term time horizon, as there is still a lot of dry powder which could act as additional catalyst on a mid-term time perspective. On a very short-time frame, we can see that the Smart Money Flow Index keeps trading sideways, which is another indication for a short-term oriented consolidation period. This would be in-line with the fact that the WSC Capitulation Index is still slightly showing a risk-off market environment. Another short-term concerning fact is that there was a huge spike in NYSE volume, which often leads to a short-term oriented slow-down. Nevertheless, even if we see some increased selling pressure ahead, we do not think it has the potential to push the S&P 500 below its previous low.

Mid-Term Technical Condition

This is mainly due to the fact that our entire mid-term oriented indicators continued to improve last week and have, therefore, reached quite confirmative levels at the moment. The most important signal is coming from the Global Futures Trend Index, as it succeeded to pass the importing bullish 60 percent threshold and is now heading to the middle part of its bullish consolidation area. So from a pure technical point of view, the latest correction cycle has now officially come to an end. Therefore, any upcoming short-term oriented pullbacks should be limited in price and time (as long as this indicator shows positive momentum above 60 percent). Another encouraging fact is that our WSC Sector Momentum Indicator increased once again last week, indicating that the mid-term oriented price-trend from the S&P 500 remains intact. This setting is also supported by our Sector Heat Map. The momentum score of all sectors (except energy) keeps trading above the one from riskless money market. Moreover, the momentum score of riskless money market decreased by nearly 10 percentage points (to 13.5 percent) during the week, which is another strong indication that 2,728 represents an outright strong low.

On top of that, we can see that the re-strengthening mid-term oriented up-trend of the market is also supported by an improving mid-term oriented tape-structure. Our entire advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line) strongly increased in the last couple of trading sessions and are, therefore, clearly confirming the latest recovery from the S&P 500. Also the short-term oriented gauge from the Modified McClellan Oscillator Weekly started to show some positive momentum again, indicating that the underlying tape momentum of the market is getting back on track. Moreover, the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) increased for the week (although they have not succeeded to enter the bullish territory yet). The only weak signals are coming from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly as both of them have not showed any signs of improvements so far. As already mentioned in our last week’s comment, if the current rally is not able to bring both indicators back on track, the current recovery could turn out to be just part of a multi-week top-building process. However, right now it is still a bit too early to say but we keep a close eye on these indicators within the next couple of weeks.

Long-Term Technical Condition

The long-term oriented trend of the market showed also positive signs last week. Our WSC Global Momentum Indicator stopped its bearish ride at the end of the week, indicating 42 percent 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. Given the still quite negative readings within that long-term oriented trend indicator, it could be possible that the latest correction cycle was indeed just the beginning of a longer-lasting top-building process into deeper summer. However, also Global Futures Long Term Trend Index has finally passed its bullish threshold, which is another supportive momentum signal at the moment. A view, that is also supported by stronger momentum scores in nearly all markets in our WSC Global Relative Strength Index. If we focus on long-term market breadth, we can see that all of them recovered last week, although most of them have not managed to get back to confirmative levels yet (Modified McClellan Volume Oscillator WeeklyHigh-/Low Index Weekly and the percentage of stocks which are trading above their 200 day moving average).

Model Portfolios

Last week, there were no changes within the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio, the WSC Sector Rotation Strategy and the WSC Global Tactical ETF Portfolio. Moreover, we are proud to announce that the WSC All Weather Model Portfolio reached a new all-time high last week.

Bottom Line

In line with our latest view, the technical picture of the market continued to improve significantly compared to last week and, therefore, our bullish outlook remains unchanged at the moment. To be more precise, with broadening strengths all across the board, we think that the current recovery is not in danger of fading out at the moment (although we would not be surprised to see a short-lived consolidation period or a few painful down days ahead). Consequently, we strongly believe to see further gains into deeper summer. As already mentioned above, if the current rally will not be able to bring our mid-term oriented tape indicators back on track, it could be possible to see further negative surprises later this year. But for now, the picture still looks quite supportive. For that reason, we would advise our conservative members to remain invested, whereas aggressive traders should focus on buying into weaknesses, as long as our short-term oriented indicator framework remains constructive.

Stay tuned!