March 5th 2017

Market Review

Last week all three major U.S. indexes finished another week with gains. The Dow Jones Industrial Average gained 0.9 percent from the prior Friday’s close to end at 21,005.71. The blue-chip index recorded a fourth consecutive weekly gain. The S&P 500 added 0.7 percent for the week to close at 2,383.12; its sixth consecutive weekly advance. The Nasdaq climbed 0.4 percent in five days to 5,870.75. All three main indexes were up between 6 percent and 9 percent year to date. Nearly all S&P sectors ended higher, led by financials. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 10.9.

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. To be more precise, the S&P 500 closed 49 points above the bearish threshold from the Trend Trader Index. Above all, both envelope lines of this reliable indicator are still drifting higher on a very fast pace. This is another indication for a strong short-term oriented uptrend. The same is true if we focus on the readings from the Modified MACD, as they have not shown any signs of a threatening bearish crossover signal yet. On top of that we can see that the gauge from the Advance-/Decline 20 Day Momentum Indicator remains also pretty bullish, although it has been trading sideways the last couple of trading sessions. As already mentioned last week, given the fact that this indicator tends to lead price movements, such movements could indicate that a period of (bullish biased) consolidation might be ahead soon.

Analyzing short-term market breadth, we get a quite stretched setting. Currently, our entire short-term oriented tape indicators remain quite supportive, but we can see a lot of non-confirmation within their readings. Particularly, the gauges of the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily showed exhaustions last week. Both indicators flashed a bearish crossover signal and are thus, signaling that the overall breadth momentum is currently slowing down. This view is also confirmed if we have a look at the percentage of stocks which are trading above their short-term oriented moving average (20/50). Despite the fact that they are still trading at the bullish edge, they have decreased slightly recently. This can be also seen if focus on the NYSE New HighsNew Lows Indicator as the total amount of stocks hitting a fresh 52 weeks high has lost some steam recently (although the market kept trading at record levels). Consequently, the High-/Low-Index Daily weakened last week, but is still trading at quite solid levels. So in the end, there was hardly any real strength within the short-term oriented tape structure visible, although the market finished slightly higher for the week. As a consequence, the current underlying technical condition of the market is signaling that the recent break-out is somehow running out of steam. However, in combination with the quite supportive readings within our short-term indicator framework the chances for a bullish biased sideways trading/consolidation period is increasing.

The situation on the contrarian side is somehow quite unspectacular, as there are hardly any extreme readings visible at the moment. The Smart Money Flow Index still looks quite confirmative, whereas the WSC Capitulation Index is still indicating an extremely risk-on market environment. Moreover, we saw a reduction in the total amount of calls being bought and therefore, the Daily Put/Call Ratio All CBOE Options and the All CBOE Options Call/Put Ratio Oscillator grew back almost towards normal levels. Only market sentiment measured by Market Vane is indicating extreme complacent. Right now it is a bit too early to get concerned about that fact (given the quite solid readings), but this optimism is indicating that a lot of good news has been priced in already. As a matter of fact, this issue could definitely become a burden later this year.

Mid-Term Technical Condition

The mid-term uptrend of the market remains well intact for the time being and therefore, it is still a bit too early to issue a strategic sell signal at the moment. Although the gauge from our reliable Global Futures Trend Index dropped last week, it still remains on the upper end of its bullish consolidation area and therefore, the mid-term oriented uptrend of the market remains intact. Nevertheless, we should not forget that its gauge has started to lose momentum recently and has therefore, not 100 percent confirmed the latest break-out by S&P 500. Consequently, it is pretty likely that the pace of the recent rally is slowing down (if we do not see any additional momentum in that indicator). However, as long as the gauge from the Global Futures Trend Index stays above 60 percent (in combination with bullish market breadth), we have no ultimate confirmation for a market top. Additionally, from a pure price point of view, the mid-term oriented uptrend of the market remains also intact as the WSC Sector Momentum Indicator continued to increase and therefore, most underlying sectors within the S&P 500 have not broken below their mid-term oriented uptrend yet. This can be also seen if we have a closer look at our Sector Heat Map, as the momentum score of riskless money market remains at zero percent, whereas technology and financials remain the strongest sectors for the time being.

More importantly, mid-term oriented market breadth is still confirming the current mid-term oriented uptrend of the market. Our Modified McClellan Oscillator Weekly continued to increase slightly last week, indicating that the underlying mid-term oriented market breadth momentum remains pretty supportive. Additionally, all of our advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line) have not shown any weaknesses in the last couple of trading sessions and are therefore, clearly confirming the current level of the S&P 500! This can also be observed if we focus on mid-term oriented advancing issues as well as mid-term oriented up-volume as both indicators are trading well above their bearish counterparts. Only the percentage of stocks which are trading above their mid-term oriented simple moving averages (100/150) have come down recently, although they remain pretty bullish from a pure signal point of view.  As a matter of fact, it is a bit too early to change our strategic bullish outlook at the moment.

Long-Term Technical Condition

As per last week’s report, the long-term uptrend of the market remains intact and therefore, our long-term bullish outlook has not been changed so far. The Global Futures Long Term Trend Index is indicating a technical bull market, whereas the WSC Global Momentum Indicator shows that 75 percent of all global markets remain within a long-term oriented uptrend. Unchanged compared to last week, we can see that the relative strengths of all risky markets keeps trading far above the one from U.S. Treasuries. Also, long-term market breadth is giving no reason to worry currently and therefore, we think that the current long-term uptrend of the market is not in danger at all (for the time being). Especially our long-term oriented High-/Low Index Weekly is still trading at supportive levels, indicating that the long-term tape of the market remains well intact. This can be also seen if we have a look at the Modified McClellan Volume Oscillator Weekly as well as looking at the number of stocks which are trading above their longer-term oriented moving averages (200)!

Model Portfolios

Last week, there have been no changes within the WSC All Weather Model Portfolio, the WSC Sector Rotation Strategy and the WSC Inflation Proof Retirement Portfolio. The WSC Global Tactical ETF Portfolio is selling Canada (EWC) and is therefore, adding Latin America (ILF). The main reason for the sell signal of Indonesia is the fact that its relative strengths score dropped out of the top 10 within our WSC Global ETF Momentum Heat Map and therefore, the next highest relative score market (ILF) will be added. Moreover, we are proud to announce that the WSC All Weather Model Portfolio reached a new all-time high last week.

Bottom Line

Our view remains unchanged compared to last week. Given the bullish but somehow non-confirmative readings within our short-term oriented tape indicators a period of consolidation or even increased volatility looks pretty likely. However, if we consider the still quite solid and bullish readings within our mid- to long-term oriented indicators, we think any upcoming weaknesses should be limited in price and time (at least from the current point of view). Therefore, we would advise our conservative members to hold their equity position, while aggressive short-term traders should stay in the bullish camp as long as we do not see a significant drop within short-term market breadth.

Stay tuned!