July 7th 2019

Market Review

U.S. stocks finished the week in positive territory, with all three benchmarks reaching all-time highs during the week. The Dow Jones Industrial Average added 1.2 percent for the week to end at 26,922.12. The S&P 500 advanced 1.7 percent from last Friday’s close to finish at 2,990.41. The Nasdaq climbed 1.9 percent over the week to 8,161.79. All three equity gauges finished at all-time highs on Wednesday. Most key S&P sectors ended in positive territory for the week, led by technology. The energy sector was the only decliner. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 13.3.

Short-Term Technical Condition

In line with our recent call, the short-term oriented uptrend of the market remains well intact as the readings from our entire short-term oriented trend-indicators continued to strengthen last week. The S&P 500 is now trading 75 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 2,915. Additionally, both envelope lines of this reliable indicator are increasing on a fast pace, indicating that the resistance/support levels for the S&P 500 are rising 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 short-term uptrend is also clearly supported by the readings of the Modified MACD, which reached the highest levels for weeks and which are, thus, indicating further gains ahead. Above all, the gauge from the Advance-/Decline 20 Day Momentum Indicator also finished the week at a quite bullish level and has, therefore, confirmed the recent all-time high of the S&P 500.

We basically receive the same picture, if we focus on short-term market breadth. Especially, the percentage of stocks which are trading above their short-term oriented moving averages (20/50) continued to grow further into bullish territory. This is telling us that the underlying trend-structure of the market is broadening, which is a quite healthy tape signal. To be more precise, about 58/62 percent of all NYSE listed stocks are trading above their 20/50 day simple moving average; for both gauges the highest numbers we have seen for months. On top of that, the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily also gained further bullish ground and even increased their bullish gaps. This indicates that the underlying breadth momentum of the market is also very positive. Another encouraging fact is that we have seen a stable development in the total number of all NYSE-listed stocks 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 strengthened its bullish signal for the week. 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 short-term time perspective. Thus, we think that the market will continue to crawl slowly towards further record highs within the next couple of weeks, which is definitely in line with our strategic bullish outlook.

Right now, the only negative signals are coming from the contrarian side. There we can see that the option market is getting increasingly bullish. If this trend continues, it could be possible that the market is running into an intermediate top soon. However, right now we are not there yet, as there is still enough dry powder on the side-line to push prices higher as the total number of bears on Wall Street still remains quite high. Nevertheless, we will monitor this situation quite closely over the next couple of days/weeks. On a very short-time frame, the market is slightly overbought (Advance-/Decline Ratio Daily and the Upside-/Downside Volume Ratio Daily) and, therefore, it is highly likely that the pace will slow down a bit within the next couple of trading sessions.

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 last week and is, therefore, giving no reason to worry – at least for now. To be more precise, the gauge from the Global Futures Trend Index keeps trading well above its bearish 60 percent threshold, whereas the WSC Sector Momentum Indicator is also trading at quite solid bullish levels. This is telling us that the underlying mid-term oriented trend of the market remains well in force. This can be also seen if we focus on our Sector Heat Map as the momentum score of all sectors (except energy at 0 percent) remains above the one from riskless money market (currently at 10 percent). Although this is a quite bullish set-up on a mid-term time perspective, we can also see that both trend-indicators should have much higher readings (if we consider the current levels from the S&P 500). Right now, this bearish divergence can be definitely ignored since the short-term oriented condition of the market looks quite healthy, plus both indicators remain quite bullish from a pure signal point of view.

Another reason, why we believe that the market still has some room left to grow is the fact that mid-term oriented market breadth remains quite confirmative at the moment. Especially, the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) continued to increase, indicating the current upside participation within the whole market is getting quite broad-based! Moreover, the Modified McClellan Oscillator Weekly also strengthened last week and even increased its bullish gap, telling us that the underlying breadth momentum of the broad market is gaining strength. The most encouraging breadth signal is coming from our entire 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 have confirmed the latest high of the S&P 500. This is another indication, that the broad market is gaining momentum at the moment. The only weak signals are coming from the Advance-/Decline Index Weekly and from the Upside-/Downside Volume Index Weekly as both indicators should be much stronger if we consider the current level of the S&P 500. As already mentioned above, right now it is a bit too early to get too concerned about this bearish divergence, but we will definitely monitor their development quite closely within the next couple of weeks.

Long-Term Technical Condition

The long-term oriented trend of the market remains unchanged compared to the previous weeks. The WSC Global Momentum Indicator gained more bullish ground last week and indicates that now 55 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 lines. A clear signal that the current global bull-market is regained momentum. Also our Global Futures Long Term Trend Index continued its bullish ride and also reached its highest level for months. This is signaling that the long-term oriented trend of U.S. equities remains intact. The only week signal is coming from our WSC Global Relative Strength Index as the relative strength of all risky markets dropped for the week. In contrast, our long-term oriented tape indicators (High-/Low Index WeeklyModified McClellan Volume Oscillator Weekly, percentage of stocks which are trading above their 200 day moving average) also improved compared to the previous week.

Model Portfolios

If we have a closer look at our Model Portfolios, we can see that there have been no changes in the allocation advice from the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio and the WSC Sector Rotation Strategy. As the underlying risk management indicator (WSC Global Momentum Indicator) of the WSC Global Tactical ETF Portfolio flashed a bullish environment for global risky assets, the portfolio is now switching back into risky assets (the 5 most attractive markets according to our Global Momentum Heat Map). Moreover, we are proud to announce that the WSC All Weather Model Portfolio reached another new all-time high last week.

Bottom Line

In line with our recent call, the technical picture of the market continued to improve significantly compared to last week and, therefore, our strategic bullish outlook remains unchanged. To be more precise, with broadening strengths all across the board the current rally is definitely not at risk of fading out at the moment. As a matter of fact, we strongly believe to see further record highs into deeper summer. Therefore, our bullish outlook remains unchanged and we would advise conservative members to hold their equity position, while aggressive short-term traders should definitely stay in the bullish camp.

Stay tuned!