July 14th 2019

Market Review

U.S. stocks posted solid gains for the week with the major indexes passing multiple milestones and reaching new record highs. The Dow Jones Industrial Average added 1.5 percent over the week to end at 27,332.03. The Dow Jones Industrial Average closed above 27,000 for the first time on Thursday. The S&P 500 recorded a weekly 0.8 percent gain to close at 3,013.77. This week, the broad index notched its first close above 3.000. The Nasdaq advanced 1.0 percent from last Friday’s close to finish at 8,244.14. Among the key S&P sectors, energy was the greatest gainer for the week, while health care led decliners. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, dropped to 12.4.

Short-Term Technical Condition

The market is following exactly our projected path so far, as it continued to chase one multi-record high after another. Right now, we strongly believe to see further rallying (at least on short-term time perspective) as the positive short-term oriented time-series momentum of the market remains well intact. If we have a closer look at our trend indicators, we can see that the S&P 500 closed 71 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 2,942. Furthermore, we can also see that both envelope lines of this reliable indicator are still drifting higher on a quite fast pace, indicating that the resistance/support levels for the S&P 500 are increasing as well. This can be seen as another quite encouraging technical trend signal, as the market continued to make higher highs and higher lows within the past 20 days. This solid short-term oriented up-trend is also confirmed by the Modified MACD, as both trend-lines have not shown any signs of weaknesses so far. The only small negative signal is coming from the Advance-/Decline 20 Day Momentum Indicator. Despite the fact that its gauge closed in outright bullish territory, it has not fully confirmed the latest all-time high from the S&P 500. As this indicator tends to be a leading one, it could be possible to see a short-lived but healthy consolidation ahead before further gains into summer can be expected.

Another main reason, why we remain bullish is due to the fact that the underlying trend participation all NYSE listed stocks within the current short-term oriented up-trend looks quite broad-based at the moment. This is probably the important ingredient for sustainable gains on the horizon. In particular, the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Dailystrengthened 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 saw solid readings in the total number of all NYSE-listed stocks which reached a new yearly high, in combination with quite depressed readings of stocks which dropped to a new yearly low! As a consequence, the High-/Low-Index Daily strengthened its bullish signal. 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 market will lead to a major trend reversal at this point in time.

The technical condition on the contrarian side also looks quite supportive at the moment. An interesting fact is that even though the market has been rallying for several weeks, overall market sentiment is far away from being extreme. According to the AII sentiment survey, the total amount of bulls still remains subdued and, therefore, there is still some firepower left on the sideline. This can be also seen if we focus on the Daily Put/Call Ratio All CBOE Options Indicator, as its z-score has started to gradually move out from its bearish territory (which can be seen as quite positive signal). Therefore, it is not a big surprise at all that the gauge from the WSC Capitulation Index is still indicating a risk-on market environment. The only negative signals are coming from our option based oscillators (Equity Options Call/Put Ratio Oscillator and the All CBOE Call/Put Ratio Oscillator), indicating that the greed is increasing (although from a very low basis).

Mid-Term Technical Condition

Analyzing the mid-term oriented technical condition of the market reveals almost the same picture as on a short-term time perspective, as it also continued to strengthen last week. Especially, the gauge from our reliable Global Futures Trend Index jumped to the upper edge if its bullish consolidation range last week, indicating that the risk of a sudden correction is outright low at the moment. Mainly because its gauge closed far above the “threatening” 60 percent threshold, plus short- to mid-term market breadth remains outright confirmative at the moment. Basically, the same is true if we analyze the pure price driven mid-term oriented trend of the market as our WSC Sector Momentum Indicator has not shown any signs of weakness so far. 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 6.1 percent).

This broader based up-trend participation can also be observed if we focus on mid-term oriented market breadth. First of all, the Upside-/Downside Volume Index Weekly and the Advance-/Decline Index Weekly slightly strengthened their weak bullish signals. This is a very important fact, since bearish (non-confirmative) readings in these two indicators have always been a super red flag on the horizon. However, the most encouraging signal is coming from 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), as all of them reached new record levels last week. In addition, the Modified McClellan Oscillator Weekly also showed a widening bullish gap last week, indicating that the momentum of advancing stocks is still improving. Only the percentages of stocks which are trading above their mid-term oriented simple moving average (100/150) could be a bit stronger, if we consider the fact that the market reached a new-all time high last week. Anyhow, right now it is a bit too early to get concerned about this fact as the overall mid-term oriented technical picture continued to improve last week. As a matter of fact, we received even more confirmation for our preferred scenario, where we are expecting to see further gains into deeper summer (summer rally scenario) before major troubles might get due.

Long-Term Technical Condition

The long-term bullish status of the market remains unchanged. The Global Futures Long Term Trend Index is still indicating a technical bull-market for the S&P 500, whereas our WSC Global Momentum Indicator gained even more bullish ground last week. This is telling us that 57 percent of all global markets which are covered by the Global ETF Momentum Heat Map are trading above their long-term oriented trend-lines, indicating that the majority of equity markets around the world are participating within the ongoing rally. The only week signal is coming once again from our WSC Global Relative Strength Index as the relative strength of all risky markets slightly dropped for the week. But on the other hand side, our Modified McClellan Volume Oscillator Weekly succeeded to widen its bullish gap, while the High-/Low Index Weekly and the percentage of stocks which are trading above their 200 day moving average were holding up quite well.

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 a 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. Consequently, 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!

Stay tuned!