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June 11th 2017

Market Review

The three major U.S. averages finished the week with mixed results. The Dow Jones Industrial Average eked out a small weekly gain of 0.3 percent to finish at a record of 21,271.97. The S&P 500 fell 0.3 percent for the week to finish at 2,431.77. The Nasdaq dropped 1.6 percent for the week to 6,207.92. The sudden tech retreat on Friday pushed the Nasdaq into negative territory for the week. Among the key S&P sectors, energy was the best weekly performer, while technology dragged. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 10.6.

Short-Term Technical Condition

According to our short-term oriented indicators, the bullish trend-status from the S&P 500 remains unchanged and is therefore, in line with our recent outlook. The S&P 500 is still trading 29 points above the bearish threshold from the Trend Trader Index. This is telling us that the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 2.402. Furthermore, we can see that both envelope lines of this reliable indicator are still steadily drifting higher on a quite smooth way, indicating that the resistance/support levels for the S&P 500 are increasing as well. This can be seen as a quite constructive technical signal as higher highs and higher lows are a typical pattern for a healthy uptrend. This bullish price driven short-term oriented uptrend is also supported by the readings of the Modified MACD, as both trend-lines gained more bullish ground last week, indicating further gains ahead. On top of that we can see that the gauge from the Advance-/Decline 20 Day Momentum Indicator closed at quite encouraging bullish levels and is therefore, confirming the current levels from the S&P 500.

Focusing on short-term market breadth, we do not see any thread for a major short-term trend reversal around (at least at this point in time) as the readings of our entire short-term oriented breadth indicators remain outright bullish at the moment. This becomes pretty obvious if we focus on the percentage of stocks which are trading above their short-term oriented moving averages (20/50). Finally, both gauges showed a quite bullish spike and have therefore, reached their highest level for weeks. As a matter of fact the latest high/breakout looks quite sustainable as it is now even confirmed by an even broader basis.  Unchanged compared to last week are the quite encouraging numbers from the total amount of new yearly highs compared to new yearly new lows. To be more precise, during the whole week we saw a robust numbers of new yearly highs which are definitely confirming the current short-term oriented uptrend of the market. This is also due to the fact that the total amount of all NYSE-listed stocks which reached a new yearly low remains relatively subdued. As a consequence, the High-/Low-Index Daily remains pretty bullish. Only the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily could be a bit stronger, although they haven’t flashed a bearish crossover signal yet. So all in all, the readings from our short-term oriented tape indicators are indicating that the underlying trend condition of the market remains pretty solid at the moment. 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. As a consequence, we do not think that even a short-term oriented price-driven trend break would lead to a major trend reversal at this point in time.

The situation on the contrarian side remains pretty supportive but on a very short-time frame can also see some harassing option based signals. To be more precise, the gauge from the WSC Capitulation Index is still indicating a risk-on market environment, whereas the strong readings from NYSE Member Margin Debt Indicator is strongly confirming the latest high from the S&P 500. On the other hand, we can see that the greed within the option market has reached contrarian levels. This becomes pretty obvious if we focus on the Global Futures Put-/Volume Ratio Oscillator, the Equity Options Call-/Put Ratio Weekly and the All CBOE Options Put-/Call Ratio Weekly. In such a situation it is not unusual to a see a washout day or at least a short-term period of consolidation ahead. But given the quite strong short-term trend- as well as breadth indicators, we think that upcoming sentiment driven sideways trading/down testing should be limited in price and time.

Mid-Term Technical Condition

This view is also confirmed by the fact that the mid-term oriented uptrend of the market remains also quite bullish at the moment. This is mainly due to the fact that our reliable Global Futures Trend Index keeps trading in the middle of the bullish consolidation area and is therefore, still confirming the current rally and/or the current levels from the S&P 500. Moreover, it is worth to mention 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 (if additionally mid-term market breadth remains strong). In addition, the readings from the WSC Sector Momentum Indicator are also trading on strong bullish levels (although they dropped last week). This indicates that the majority of sectors within the S&P 500 is gearing up. This can be also seen if we take a look at our Sector Heat Map as the momentum score of all sectors (except energy) remains above the one from riskless money market (currently at 10 percent).

Right now, the mid-term oriented trend of the market is also confirmed by mid-term oriented market breadth. Especially, the Modified McClellan Oscillator Weekly succeeded in defending its bullish status, indicating that the underlying mid-term oriented market breadth momentum remains pretty supportive. All 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 strengthen in the last couple of trading sessions or have not shown any signs of bearish divergences yet! Basically, the same is true if we focus on the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) as they have definitely reached their highest level for weeks. This can be seen as an outright strong confirming tape signal as the current rally looks quite broad based. Additionally, the mid-term oriented advancing issues are trading well above their bearish counterparts. Only the mid-term oriented up-volume could definitely be a bit stronger in our point of view, but given the quite strong readings all across the board, this fact can be definitely ignored at the moment. As a matter of fact, we think that further gains into deeper June can be expected.

Long-Term Technical Condition

The long-term uptrend of the market remains intact. 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. Once again, the WSC Global Momentum Indicator jumped to its highest levels for months and indicates that now 92 percent of all global markets remain within a long-term oriented uptrend. Within the last two weeks, this indicator increased by 10 percentage points! This positive momentum can also be 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 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. And also our Modified McClellan Volume Oscillator Weekly has not shown any bearish moves the last two weeks.

Model Portfolios

Last week, there have been no changes in the allocation advice of our model portfolios (WSC All Weather Portfolio, WSC Inflation Proof Retirement Portfolio, WSC Sector Rotation Strategy and the Global Tactical ETF Model Portfolio).

Bottom Line

With broadening strengths all across the board, we expect that the market is about to follow our summer rally scenario and therefore, we think to see further gains into summer. Consequently, our strategic bullish outlook remains unchanged. On a very short time frame, the market looks pretty vulnerable for further bullish biased consolidation or at least for a sentiment driven washout day. Nevertheless, with quite supportive/bullish indicators all across the board, we think that any upcoming harassing fire should be limited in price and time. Therefore, would advise conservative members to hold their equity position, while aggressive short-term traders should definitely remain in the bullish camp. From a pure trading point of view, 2,450/2,455 represents important key resistance levels. A break above that numbers would indicate that further rallying towards 2,480 and 2,500 can be expected.

Stay tuned!