June 23rd 2019

Market Review

After a short-lived consolidation period on Monday, U.S. stocks finished the week with solid gains. For the week, the Dow Jones Industrial Average gained 2.4 percent to close at 26,719.13. The S&P 500 advanced 2.2 percent over the week to 2,950.46. Both, the Dow Jones Industrial Average and the S&P 500 reached an all-time high during the week. The Nasdaq rose 3.0 percent over the past five days to 8,031.71. All three main benchmarks are also up for a third week in a row. All key S&P sectors ended in positive territory for the week, led by energy. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 15.4.

Short-Term Technical Condition

In line with our previous call, the short-term oriented trend of the market clearly strengthened last week. If we have a closer look at the Trend Trader Index, we can see that the S&P 500 managed to close 107 points (!) above the bearish envelope line of this reliable short-term oriented trend indicator. So from a pure price point of view, the short-term uptrend of the market remains intact as long as the S&P 500 does not drop below 2,843 (bearish threshold from the Trend Trader Index). In addition we can see that both envelope lines of this reliable indicator increased their bullish momentum, which is another constructive price driven trend signal at the moment. Basically, the same is true if we analyze the underlying trend-momentum of this powerful short-term oriented uptrend, as the Modified MACD showed a strong widening bullish gap last week (indicating further gains down the road). This view is widely confirmed by the Advance-/Decline 20 Day Momentum Indicator as its gauge jumped to its highest level for weeks. As this indicator often reacts before prices do, the recent jump was definitely an outright confirmative bullish signal, which is telling us that the risk of a sudden short-term oriented trend-break looks quite low at the moment.

More importantly, this view is also confirmed by our short-term oriented tape indicators as the latest rally was definitely quite broad-based in its nature. First of all, we saw a healthy spike in the number of stocks which are hitting a fresh yearly high (especially in the middle of the week), together with an outright low number of stocks which were pushed to a new yearly low. Consequently, the bullish gauge from the High-/Low-Index Daily hit the highest level this year and is, therefore, clearly confirming the latest high from the S&P 500! This is an outright encouraging signal as it shows that latest rally was not only caused by a few tech-mega caps but also the result from a strong demand all across the board. This can be also seen if we focus on the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily as both of them showed a strong widening bullish gap last week. This indicates that the underlying breadth momentum of the broad market is gearing up on a very fast pace. This is a quite healthy signal, since a trend can only be sustainable if it is driven by a broad basis and not only by a few heavy-weighted stocks in the index. This can be also observed if we look at the percentage of stocks which are trading above their short-term oriented moving averages (20/50). Both gauges also increased for the week (although they still have not succeeded to get back to bullish levels yet). However, given the strong demand all across the board, this bearish divergence can be definitely ignored at the moment.

On the contrarian side, we can see that a lot bears switched into the bullish camp last week or were forced to do so. A fact, we already predicted last week, which is one of the strongest catalysts for the current rally. However, if we have a closer look at the AII Bulls & Bears survey, we can see that there is still a lot dry powder left to push prices higher. This coincides with the fact that our reliable z-score from the option market has not reached contrarian levels yet, whereas the WSC Capitulation Index has also clearly confirmed the latest gains from the S&P 500. This is another supportive fact to see higher prices into early July. On a very short-time frame, the market is again facing the risk of a short-lived consolidation period (or of some nasty down-days) as we saw another strong spike in NYSE Volume on Friday.

Mid-Term Technical Condition

If we focus on the mid-term oriented technical condition of the market, we get the same set-up as we have on a short-term time frame. The mid-term uptrend of the market strengthened significantly last week and, therefore, the corrective top building process scenario is definitely off the table – at least for now. First of all, our reliable Global Futures Trend Index increased and finally got back into the middle of its bullish consolidation area. This is telling us that the mid-term oriented up-trend of the market regained momentum and has, therefore, clearly confirmed the latest gains we saw. As always stated in our market forecast, as long as this indicator is showing positive signs of momentum and keeps trading above 60 percent (in combination with supportive mid-term market breadth), the risk of a stronger and sustainable trend-reversal is literally zero. Also from a pure price point of view, the mid-term oriented trend of the market remains well in place, as our WSC Sector Momentum Indicator grew to solid bullish levels last week. An indication that most sectors within the S&P 500 are still in a strong price-driven mid-term oriented up-trend. This can be also observed if we focus on our Sector Heat Map, as the momentum score of all sectors keeps trading above the one from riskless money market (currently at 11.2 percent) – the only exception is the energy sector, which is at 0.0 percent.

More importantly, mid-term oriented market breadth also showed stronger signs of confirmation and has, therefore, started slowly to confirm the current mid-term oriented up-trend of the market. First of all, the Modified McClellan Oscillator Weekly (slightly) increased its bullish gap, telling us that the underlying breadth momentum of the broad market is regaining strength. In addition, the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) increased, whereas the gauge from the 150 days frame even passed its bullish threshold. This is indicating that the current upside participation within the whole market is getting back on track (a fact which is absolutely necessary if the market wants to grow higher into summer)! Above all, we can observe that the gauges from the Advance-/Decline Index Weekly and the Upside-/Downside Volume Index Weekly stabilized/or has shown at least some form of positive momentum lately. However, right now both indicators are still far away from being confirmative. If this bearish divergence will not be wiped out within the next 2-4 weeks, it might be possible to see at least another correction leg later this year. Nevertheless, for now we keep ignoring this fact as both indicators remain at least somehow supportive, whereas our remaining indicators remain outright strong at the moment. Especially, if we focus on our advance-decline indicators (Advance-/Decline Volume Line, Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly) since all of them reached a new all-time high last week. So all these facts are telling us that the current break-out definitely looks healthy at the moment and, therefore, further new record highs into deeper summer look quite likely.

Long-Term Technical Condition

Unchanged compared to the previous weeks remains the long-term oriented trend of the market. The WSC Global Momentum Indicator regained strength and touched the bullish threshold. This indicates that now 50 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 signal that the current global bull-market has regained momentum. Also our Global Futures Long Term Trend Index increased and reached its highest level for months, signaling that the long-term oriented trend of U.S. equities remains intact. Another encouraging signal for a risk-on market environment is the fact that the relative strength of all markets remains above 50 percent within our WSC Global Relative Strength Index. This risk-on market environment is also confirmed by our long-term oriented tape indicators (High-/Low Index Weekly, Modified McClellan Volume Oscillator Weekly, percentage of stocks which are trading above their 200 day moving average) as all of them improved compared to the previous week (whereas the Modified McClellan Volume Oscillator Weekly even flashed a bullish crossover signal last week).

Model Portfolios

Last week, there were no changes within the WSC All Weather Model Portfolio, the WSC Inflation Proof Retirement Portfolio, the WSC Sector Rotation Strategy and the WSC Global Tactical ETF Portfolio. Moreover, we are proud to announce that the WSC All Weather Model Portfolio reached another new all-time high last week.

Bottom Line

The technical picture of the market continued to improve compared to last week and, therefore, our bullish outlook remains unchanged at the moment. To be more precise, with quite supportive/bullish readings within our indicator framework (especially on a mid-term time horizon), we think that the current rally still looks quite healthy in its nature. Moreover, from a pure contrarian point of view, the market still has further potential to grow before market sentiment is hitting extreme overbought levels. Therefore, we strongly believe to see further gains into deeper summer. On a short-term time perspective a short-lived consolidation period or even some nasty down-days cannot be ruled out at the moment. Nevertheless, such an event would be not a big deal at all, given the quite bullish readings all across the board. Therefore, we would advise our conservative members to remain invested, whereas aggressive traders should remain in the bullish camp.

Stay tuned!