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July 23rd 2017

Market Review

U.S. stocks finished the week with a mixed performance, but still all three major indexes notched record highs last week. The Dow Jones Industrial Average lost 0.3 percent in five trading days to end at 21,580.07. The blue-chip index snapped a two-week win streak. The S&P 500 logged a 0.5 percent gain for the week to finish at 2,472.54; for a third week of gains. The Nasdaq Composite added 1.2 percent to 6,387.75 for the five days and logged its third week of gains. Among the key S&P sectors, utilities was the best weekly performer, while financials dragged. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 9.4.

Short-Term Technical Condition

Despite the fact that U.S. stocks finished the week with a mixed performance, the short-term oriented uptrend of the market improved significantly last week. As a matter of fact, the market is moving in line with our expectations. To be more precise, the S&P 500 closed 39 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 2,433. Furthermore, we can see that both envelope lines of this reliable indicator have started to drift higher, indicating that the resistance/support levels for the S&P 500 are increasing as well. This can be seen as another quite encouraging technical signal. The same is true if we focus on the trend lines from the Modified MACD, as they increased rapidly and also extended their bullish gap. On top of that we can see that the gauge from the Advance-/Decline 20 Day Momentum Indicator rocketed to bullish heights we haven’t seen for months and thus, confirming the current levels from the S&P 500. As this indicator tends to be a leading one, this is another piece of evidence that further gains into summer can be expected.

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 that we have seen a strong pick-up in the total amount 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 rocketed to its 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 pretty mixed at the moment. The Smart Money Flow Index kept trading at quite moderate bullish levels, whereas the WSC Capitulation Index is telling us that the risk appetite among investors is getting back on track. On the other hand, we can see that this risk appetite is getting increasingly a burden for the market as the option market looks a bit too complacent at the moment (Daily Put/Call Ratio All CBOE Options Indicator and the Global Futures/Put Volume Ratio). In our opinion, this is not a huge deal-breaker at the moment but from a pure contrarian point of view, we would not be surprised to see a period of slow growth ahead as the market has digest this huge optimism first.

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 strengthened last week. This is mainly due to the fact that our reliable Global Futures Trend Index jumped to the upper edge if its bullish consolidation range last week. This can be seen as a very constructive signal, as it indicates that the correction risk is outright low at the moment (as its gauge closed far above the “threatening” 60 percent together with a stronger recovery in short- to mid-term market breadth). Basically, the same is true if we analyze the current momentum score of all major key sectors within the S&P 500. There we can see that most industries continued to show a strong form of positive momentum last week. This is mainly due to the fact that the gauge from our WSC Sector Momentum Indicator is trading in solid bullish territory. This can be also seen if we focus on our Sector Heat Map as the momentum score of all sectors (except energy like in the previous weeks) remains above the one from riskless money market (currently at 13.2 percent).

This broader based momentum can be also seen if we focus on mid-term oriented market breadth. The Upside-/Downside Volume Index Weekly, the Advance-/Decline Index Weekly as well as our entire our advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line) have shown strong signs of strengths recently and have also reached new record highs. Also the Modified McClellan Oscillator Weekly showed a widening bullish gap last week, indicating that the momentum of advancing stocks is improving. Only the percentage of stocks which are trading above their mid-term oriented simple moving average (100/150) could be a bit stronger in the context of the record highs of the major indexes. All in all, the mid-term oriented technical picture has even more improved compared to last week, since the trend- as well as the breadth-structure of the market has given some encouraging signals. As a matter of fact, we received even more confirmation for our preferred scenario, where we are expecting to see further gains into summer (summer rally scenario) before major troubles might get due.

Long-Term Technical Condition

The long-term uptrend of the market remains unchanged. The Global Futures Long Term Trend Index is still indicating a technical bull market for the S&P 500. Also our WSC Global Momentum Indicator is trading at solid levels and indicates that 78 percent of all global markets remain within a long-term oriented uptrend. Examining our WSC Global Relative Strength Index reveals that the relative strength of all risky markets keeps trading above the one from U.S. Treasuries (except commodities). Even our Modified McClellan Volume Oscillator Weekly, which has been in a paralyzed status for weeks, finally flashed a bullish crossover signal. The percentage of stocks which are trading above their 200 day simple moving average are also trading at solid levels. And in addition, the amounts of stocks which are hitting a fresh 52 weeks high increased significantly and are thus, trading far above their bearish counterparts, leaving our High-/Low Index Weekly on very supportive levels.

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 Global Tactical ETF Portfolio, WSC All Weather Portfolio and the WSC Inflation Proof Retirement Portfolio. As the momentum score of financials rose above average and above the one from the S&P 500 within our Sector Heat Map, we received again a buy signal for that ETF within our WSC Sector Rotation Strategy. Moreover, we are proud to announce that the WSC All Weather Portfolio and the WSC Sector Rotation Strategy reached again new all-time highs last week.

Bottom Line

The technical picture of the market remains pretty unchanged compared to last week. With quite bullish indicators all across the board we have not seen any typical signs for a major top-building process yet and therefore, we expect to see further record highs into deeper summer. However, with quite stretched sentiment signals on the contrarian side, the market might enter a period of slow growth within the next couple of trading days. However, our bullish outlook remains unchanged and therefore, we would advise conservative members to hold their equity position, while aggressive short-term traders should definitely stay in the bullish camp.

Stay tuned!