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December 3rd 2017

Market Review

U.S. averages finished the week mostly with strong gains. The Dow Jones Industrial Average rocketed 2.9 percent for the week to close at 24,231.59, its strongest weekly rise of 2017. The S&P 500 finished at 2,642.22. The broad index recorded a 1.5 percent weekly gain, the biggest since September. Both the Dow and the S&P 500 have risen in 10 of the past 12 weeks. The Nasdaq in contrast, fell 0.6 percent over the week to finish at 6,847.59; the biggest weekly decline for the index since September. The tech-heavy index also suffered its biggest one-day drop in more than three months on Wednesday.

Short-Term Technical Condition

The market is moving right in line with our recent outlook! Therefore, it is not a big surprise at all that the short-term oriented uptrend of the market remains well in force. The S&P 500 is currently trading 55 points above the bearish threshold from the Trend Trader Index. This means that the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 2.587. Furthermore, we can see that both envelope lines of this reliable indicator are drifting higher, indicating that the resistance/support levels for the S&P 500 are increasing as well. This can be seen as a quite strong technical signal as higher highs and higher lows are a typical pattern for a healthy uptrend. The same is true if we focus on the trend lines from the Modified MACD, as they increased very sharply and are trading at very high bullish levels as well. Basically, the same is true if we focus on the Advance-/Decline 20 Day Momentum Indicator as its gauge closed at quite confirmative levels.

This view is widely confirmed by short-term market breadth as the trend participation of all NYSE listed stocks within the current trend looks quite broad-based at the moment. This is probably the important ingredient for sustainable gains. In particular, the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily strengthened their bullish signals indicating that the underlying breadth momentum of the market is outright positive. In other words, the latest break-out was widely confirmed by advancing stocks in combination with advancing volume. Another encouraging fact is the strong pick-up in the total number of all NYSE-listed stocks (NYSE New HighsNew Lows Indicator) which reached a new yearly high, in combination with one of the lowest readings of stocks which dropped to a new yearly low! As a consequence, the High-/Low-Index Daily is trading at the highest level for weeks. Only the percentage of stocks which are trading above their short-term oriented moving averages (20/50) could be a bit stronger if we consider the current record levels of the S&P 500. However, given the quite strong signals all across the board, we do not think that any upcoming noise of the market will lead to a major trend reversal at this point in time.

The situation on the contrarian side is quite mixed at the moment. On a very short time frame, the market is getting increasingly complacent (Global Futures Dumb Money Indicator, Uptick-/Downtick Ratio Daily and the All CBOE Options Put-/Call Ratio). Normally it takes either a sharp wash-out day or at least some increased volatility to work off such a high optimism. On the other hand we can see that our more mid-term oriented contrarian indicators remain quite confirmative. However, with quite confirmative readings within our mid-term oriented contrarian indicators (Smart Money Flow Index, NYSE Member Margin Debt and the WSC Capitulation Index), any upcoming wash-out days should be limited in price and time.

Mid-Term Technical Condition

Also our mid-term oriented trend indicators remain outright supportive. This is mainly due to the fact that the reading from the Global Futures Trend Index strongly increased to the upper part of its bullish consolidation range. This is a very constructive signal, as it confirms our latest call regarding the Santa Claus Rally. In addition, our WSC Sector Momentum Indicator surged to the highest level for weeks. This indicates that most sectors within the S&P 500 are per definition in a mid-term oriented uptrend. Also our Sector Heat Map reveals that the momentum score of all industries is above the one from riskless money market (currently at 0 percent).

If we focus on our mid-term oriented market breadth indicators, they show an ambiguous picture at the moment. On the one hand, there are a lot of positive signals. For example, our entire advance-decline indicators (Advance-/Decline Volume Line, Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly) continued to strengthen in the last couple of trading sessions. Further supporting signals are coming from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly as both indicators closed at quite confirmative levels last week. Another supportive signal is coming from the stocks which are trading above their mid-term oriented simple moving average (100/150). Only the Modified McClellan Oscillator Weekly finished the week literally unchanged, indicating that the underlying breadth momentum is still somehow lagging behind on a mid-term time horizon. In summary, the overall mid-term oriented condition of the market is definitely supporting our latest call and therefore, it is a way too early to bet on a major trend reversal at that point in time.

Long-Term Technical Condition

The long-term oriented technical picture of the market remains almost unchanged compared to last week. The Global Futures Long Term Trend Index is still indicating a technical bull market for the S&P 500. Our WSC Global Momentum keeps trading at solid levels and indicates that 82 percent of all local equity markets around the world remain within a long-term oriented uptrend. Focusing on the WSC Global Relative Strength Index shows that the relative strength of all risky markets keeps trading far above the one from U.S. Treasuries. More importantly, long-term oriented market breadth still looks quite constructive at the moment. We saw solid readings in the percentage of stocks which are trading above their 200 day simple moving average. Also the Modified McClellan Volume Oscillator Weekly gained some bullish ground last week and narrowed its bearish gap. In addition, long-term new highs are very strong and rocketed last week. Therefore, our long-term oriented High-/Low Index Weekly continued to strengthen and reached its highest level for months. This can be seen as another positive long-term tape signal.

Model Portfolios

As the relative strength score from the MSCI Chile dropped out of the top 10 ranked markets within our Global ETF Momentum Heat Map, we received a sell signal for those specific ETFs within our WSC Global Tactical ETF Portfolio. Instead, the S&P GCSI is being added within the portfolio. There have been no changes in the allocation advice from the WSC Inflation Proof Retirement Portfolio and the WSC All Weather Portfolio.

Bottom Line

In line with our latest call, the technical picture of the market improved significantly last week. Consequently our strategic bullish outlook remains unchanged. To be more precise, with broadening strengths all across the board, we expect to see further (stronger) gains into December. As already mentioned above – if we take the seasonal factor into consideration – it looks like that the market is already at the starting point of its typical Santa Claus rally. Therefore, would advise conservative members to hold their equity position, while aggressive short-term traders should definitely buy aggressively into any upcoming weaknesses!

Stay tuned!