May 28th 2017

Market Review

U.S. stocks closed out the week with stronger gains and at new record highs. For the week, the Dow Jones Industrial Average added 1.3 percent to end at 21,080.28. The S&P 500 gained 1.4 percent to close at a record 2,415.82. The Nasdaq jumped 2.1 percent for the week to end at a record 6,210.19. Most key S&P sectors ended in positive territory for the week, led by utilities. Energy was the only decliner. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 9.8.

Short-Term Technical Condition

The recovery from last week pushed the S&P 500 nearly 30 points above the bearish threshold from the Trend Trader Index. So from a pure price point of view, the short-term oriented trend from the S&P 500 clearly turned bullish and should remain intact as long as the broad index does not close below 2,386. Unchanged compared to last week, we can see that both envelope lines of this reliable indicator are increasing on a fast pace. This indicates that the underlying short-term oriented trend-structure of the market remains quite bullish, as we have seen slightly higher highs and higher lows within the past 20 days. Another encouraging fact is that the current positive uptrend is now also confirmed by the Modified MACD, which flashed a bullish but quite weak crossover signal. This is telling us that the short-term oriented up-trend of the market has slightly started to gain positive momentum (at least on low levels). This can be also seen if we focus on the Advance-/Decline 20 Day Momentum Indicator, which gained further bullish ground compared to last week. But its gauge did not confirm the latest break-out attempt by the S&P 500 and should be therefore, a bit higher, given the record readings of the broad index. Additionally, we should not forget that any stronger down-day could easily lead to a bearish crossover signal within the Modified MACD. So from a pure trend point of view, the latest move still looks a bit fragile, especially if we ignore the latest new-high headlines.

Right now this fact is not a big threat at all, as the underlying breadth status of the market has also improved compared to last week. This is mainly due to the fact that both the Modified McClellan Volume Oscillator Daily and the Modified McClellan Oscillator Daily flashed a stronger bullish crossover signal last week, indicating that the market internals are gearing up momentum. Another encouraging fact is that there are hardly any stocks around which have dropped to a new yearly low so far. This becomes pretty obvious if we focus on our NYSE New HighsNew Lows Indicator as we saw a quite stable number in the number of stocks which are hitting a fresh yearly high, together with a quite small numbers of stocks which were pushed to a new yearly low. This is telling us that the market internals remain pretty supportive as the latest gains still looked quite healthy. As a consequence, the bullish gauge from the High-/Low Index Daily strongly increased for the week and has therefore, slightly confirmed the latest break-out by the S&P 500. On the other hand, we can see that the percentage of stocks which are trading above their short-term oriented moving averages (20/50) are still trading below their 50 percent bullish threshold, although they managed to increase for the week. As a matter of fact, both indicators are somehow contradicting the readings of the NYSE New HighsNew Lows Indicator, as they indicate a minor uptrend participation. In such a case we have to consider that the market traded in a quite narrow trading range within the last couple of weeks. This causes both moving averages (20/50) to flatten out a bit and those indicators get quite responsive. As a matter of fact, we put a bit more emphasis on the NYSE New HighsNew Lows Indicator at the moment. As already mentioned last week, right now we do not see a bigger game changer in place as the underlying short-term oriented tape structure of the market looks quite supportive at the moment.

On the contrarian side, the situation is almost unchanged compared to last week. The Daily Put/Call Ratio All CBOE Options continued to move gradually out from its bearish territory, indicating that the crowd is getting a bit more cautious which is a quite good development (given the new highs scenario). Basically, the same is true if we focus on the sentiment survey from Market Vane which slightly started to level off, whereas the Uptick-/Downtick Ratio Daily is indicating heavy buying from institutional investors. So from a pure contrarian point of view, this is often a vanguard for a consolidation period as the market has to digest those inflows. This would coincide with the fact that the Smart Money Flow Index is still indicating a bullish but more sideways-trading oriented scenario.

Mid-Term Technical Condition

If we analyze the mid-term oriented trend of the market, it was good to see that the recent move from last week caused a small recovery within the Global Futures Trend Index. Consequently, the gauge from this reliable indicator is now trading again in the middle part of its bullish consolidation area, which is quite supportive as it indicates a quite bullish biased market environment and therefore, it is a bit too early to bet on a suckers rally. Basically the same is true if we focus on the WSC Sector Momentum Indicator, which also increased last week. This is telling us that most industries within the S&P 500 (56 percent) remain in a mid-term oriented uptrend at the moment. This signals that from a pure price point of view the mid-term oriented up-trend of the market remains intact. Additionally, our Sector Heat Map shows the same positive picture as it did already in the last week – namely the momentum score of all sectors (except energy) remains above the one from riskless money market (currently at 7 percent).

Examining mid-term oriented market breadth reveals an intermingled setting currently. On the one side, the picture generally improved compared to the previous week. This becomes obvious if we focus on our advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line), as all of them gained bullish ground last week and are confirming the latest high of the S&P 500. Also the percentage of stocks which are trading above their mid-term oriented simple moving averages (100/150) increased for the week (although they are still trading slightly below the bullish threshold). On the other side, some indicators still remain unchanged compared to the previous week. Our Modified McClellan Oscillator Weekly remains in its paralyzed status as it has been trading sideways and not showing any significant movements for seven weeks now, indicating further mid-term oriented range-bound trading ahead. On top of that, we can see that also the (contradicting) readings from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly nearly remained unchanged compared to the previous week. So all in all, those signals are telling us that the market still remains somehow vulnerable on a mid-term time frame. However, right now it’s a bit too early to get concerned about that fact as the mid-term oriented trend of the market still remains bullish. But we keep a close eye on the development of those indicators in the next couple of weeks, as those readings are still indicating that this could change quite quickly at the moment.

Long-Term Technical Condition

As per last week’s report, the long-term uptrend of the market remains intact (and therefore, any upcoming pullback will not lead to a new bear-market at the moment). The Global Futures Long Term Trend Index is still indicating a technical bull market for the S&P 500 and trading at the highest levels for months. As we can see from the WSC Global Momentum Indicator (and like in the previous weeks), 82 percent of all local equity markets around the world 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 (except commodities). Also, long-term oriented market breadth still looks quite constructive at the moment. The percentage of stocks which are trading above their 200 day simple moving average also gained bullish ground last week and are trading at solid levels. Also the amounts of stocks which are hitting a fresh 52 weeks high are trading far above their bearish counterparts – having a positive impact on our High-/Low Index Weekly. The only bearish signal is coming from the Modified McClellan Volume Oscillator Weekly – as it continued to decrease, like already in the previous weeks.

Model Portfolios

As it was the last Friday of the month, we received a new allocation advice from the WSC All Weather Portfolio and the WSC Inflation Proof Retirement Portfolio. As the MSCI Chile dropped out among the top 10 markets within our Global ETF Momentum Heat Map, we received a sell signal for that specific ETF. On the other hand, as the MSCI France now ranked within the top 5 markets within our Global ETF Momentum Heat Map, it is now being added to the portfolio. The allocation of the WSC Sector Rotation Strategy remains unchanged. Moreover, we are proud to announce that the WSC All Weather Portfolio reached a new all-time high again last week! Right now the year to date performance is 8.4 percent!

Bottom Line

The overall situation remains almost unchanged compared to last week. Given the still supportive/bullish readings within our indicator framework, we think it is still a bit too early to take the chips from the table. As a matter of fact our long-term strategic bullish outlook remains unchanged for now. Moreover, it was good to see that the latest move from the market was more or less supported by a broader basis and therefore, we also remain bullish on a short-term time frame. Therefore, we think to see further gains into June. However, if those gains are accompanied with further deteriorating readings within our mid-term tape indicators, it will then be possible that the market is moving into a more important tactical summer top. However, right now we are sticking to the bullish camp and therefore, we advise our conservative members to remain invested. Nevertheless, we think they should keep their stop loss limit around 2,328 just in case if things change quickly during the week. However, as long as the S&P 500 keeps trading above that level, we remain bullish into summer.

Stay tuned!