April 12. 2015

Market Review

In line with our recent call, U.S. stocks ended the week with strong gains. The Dow Jones Industrial Average advanced 1.7 percent over the week to end at 18,057.65. The S&P 500 recorded also a 1.7 percent gain over the week and closed at 2,102.05. The Nasdaq climbed 2.2 percent for the week to 4,995.98. All key S&P sectors ended in positive territory for the week led by energy. The Chicago Board Options Exchange Volatility Index (VIX), the gauge of S&P 500 options known as the VIX, dropped to 12.51.

Short-Term Technical Condition

Not surprisingly, the short-term uptrend of the market continued to gain more bullish ground last week. This is mainly due to the fact that the S&P 500 closed 34 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 2,068. Furthermore, we can see that both envelope lines of this reliable indicator have also slightly started to drift higher, which can be seen as another constructive trend signal. This bullish short-term uptrend is now also supported by the readings of the Modified MACD, which flashed a small bullish crossover signal last week. Above all, the gauge from the Advance-/Decline 20 Day Momentum Indicator finished the week at quite encouraging levels. To be more precise, the gauge of this reliable indicator finished the week at its highest level since the S&P 500 got caught in that frustrating trading range. As a matter of fact the whole underlying short-term oriented trend picture looks like it has enough power for another stronger break-out attempt.

This view is also strongly confirmed by short-term market breadth and, therefore, a sustainable break-out within the next couple of trading sessions (5-10) looks quite likely. Especially, the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily continued to gain more bullish ground last week, indicating that the underlying breadth momentum of the broad market remains outright positive. Additionally, we saw stable readings in the total amount of all NYSE-listed stocks which reached a fresh 52 weeks high, in combination with one of the lowest readings of new 52 weeks low! During the whole week, there were less than 20 stocks a day that were pushed to a new yearly low, indicating that the market internals remain quite supportive. This can be also seen, if we have a look at the High-/Low-Index Daily. The gauge of this indicator is still trading at quite encouraging levels, although its bullish gauge could be a bit higher in our point of view. Anyhow, as long as we do not see any bearish crossover signal within that indicator, it is too early to get concerned about this fact. Another encouraging fact is that the percentage of stockss which are trading above their short-term oriented moving averages (20/50) confirmed (20) or have started to confirm (50) the recent level from the S&P 500 as their gauges strongly grew above 50 percent. This indicates that the healthy rotation back into small caps remains quite strong and, therefore, the broad market is definitely participating within the recent rally. This is a very positive sign as a purely large cap driven rally/breakout is hardly sustainable in the long run.

As per last week’s report, the pure contrarian point of view continued to be/turn quite bullish. Especially dumb money remains quite cautious, after there haven’t been any new all-time high headlines in the news. Conversely, smart money increased its exposure as we saw a quite confirming spike within our NYSE Members Debt in Margin Accounts indicator. This is a quite encouraging, as non-confirmation within that indicator is mostly the first warning sign for a major trend reversal (Charts of Interest). Moreover, apart from the ISEE Call/-Put Ratio, the readings within the option market (Daily Put-/Call Ratio Daily and the OEX Options Call-/Put Ratio Oscillator) are telling us that further gains are quite likely or at the other hand that at least the down-side potential of the market looks quite limited. As a matter of fact, the readings from the WSC Capitulation Index can be definitely ignored at the moment.

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 continued to strengthen and is, therefore, giving no reason to worry right now. This is mainly due to the fact that the gauge from our reliable Global Futures Trend Index gained 700 basis points last week and grew, therefore, almost above its strong bullish 90 percent threshold on Friday. For that reason, the reading from that reliable indicator is absolutely forming an outright bullish divergence if we consider the recent level from the S&P 500. As a matter of fact, we think it might be just a question of time until we see a sustainable break-out (above the upper resistance level from the current trading range) by the S&P 500! Worth mentioning is the fact 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 as well (in combination with strong readings in mid-term oriented market-breadth). This view is also confirmed by the WSC Sector Momentum Indicator, which measures how many key sectors remain in a mid-term oriented up-trend. So from a pure price point of view, most key sectors keep drifting higher and, therefore, the underlying trend-condition of the S&P 500 still looks quite healthy at the moment. This can be also seen if we have a closer look at our Sector Heat Map as energy and utility are the only sectors which have a lower momentum score than riskless money market!

More importantly, mid-term oriented market breadth continued to gain more bullish ground last week. Especially, the Modified McClellan Oscillator Weekly continued to show small signs of recovery and was, therefore, able to increase its bullish gap last week. This indicates that the underlying market breadth momentum is regaining strength, albeit on quite low levels. More importantly, most 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 reach new all-time highs last week and, therefore, any upcoming break-out attempt by the S&P 500 is definitely supported by a very broad basis! Such a broader tape confirmation can also be seen if we focus on the percentage of stockss which are trading above their mid-term oriented moving averages (100/150). Both indicators continued to gain more bullish ground last week and are, therefore, absolutely confirming the current levels from the S&P 500. Above all, we saw a quite encouraging spike in mid-term oriented up-volume as well within mid-term oriented advancing issues and, therefore, both indicators have been pushed back to quite encouraging bull market levels! As a matter of fact, we think the market have enough breadth to punch its way above the upper resistance line from the current trading range and, thus, another rally into May/early June looks quite likely!

Long-Term Technical Condition

The long-term oriented technical picture of the market also slightly improved last week. The Global Futures Long Term Trend Index is still indicating a technical bull market for the S&P 500, whereas most local market indexes around the world continued to regain their footing. This is mainly due to the fact that the gauge of the WSC Global Momentum Indicator closed definitely above 50 percent and, therefore, the current bull market looks quite broad based and global in scope. This can be also monitored if we focus on the Global Relative Strength Index, as the relative strength of most risky assets remains above their bearish zero percent thresholds. More importantly, long-term oriented market breadth still looks quite constructive at the moment. The percentage of stockss which are trading above their 200 day simple moving average continued to strengthen last week, whereas the amounts of stocks which are hitting a fresh 52 weeks high are trading well above their bearish counterparts. Above all, the Modified McClellan Volume Oscillator Weekly also continued to gain more bullish ground last week as well.

Bottom Line

With broadening strengths all across the board, we think to see a strong and sustainable break-out towards new record highs soon, although a few attempts might be necessary. According to our cyclical roadmap (Presidential Cycle), we expect further rallying at least into May, before any troubles might be due. For that reason, we would advise conservative members to hold/increase their equity position, while aggressive short-term traders should buy into any upcoming weaknesses. Stay tuned!