July 09. 2016

Market Review

All three U.S. major averages posted hefty gains for a second straight week. The Dow Jones Industrial Average gained 1.1 percent from the prior Friday’s close to end at 18,146.74, its best level of 2016. The S&P 500 added 1.3 percent over the week to end at 2,129.83, closing a point below its previous all-time high level of 2,130.82 reached May 21, 2015. The Nasdaq added 1.9 percent from the week-ago close to 4,956.76. Most key S&P sectors ended in positive territory for the week, led by consumer discretionary. Telecommunications and energy were the only decliners on the week. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 13.2, a one-month low.

Short-Term Technical Condition

In line with our recent outlook, the short-term oriented up-trend of the market continued to gain more bullish ground last week. This is mainly due to the fact that the S&P 500 closed 62 points above the bearish threshold from the Trend Trader Index. Therefore, from a pure price point of view, the market remains in a short-term oriented uptrend as long as the S&P 500 does not drop below 2,067. Above all, we saw a quite encouraging bullish crossover signal from the Modified MACD last week, whereas the gauge from the Advance-/Decline 20 Day Momentum Indicator also has not shown any signs of weakness so far! So all in all, the underlying short-term oriented uptrend of the market continued to strengthen, although both envelope lines of the Trend Trader Index have not started to turn bullish yet. However, given the quite solid readings within our short-term oriented trend indicators, this small bearish divergence can be definitely ignored at the moment.

More importantly, the short-term oriented up-trend of the market is also strongly confirmed by short-term market breadth as the current trend participation of all NYSE listed stocks within the current rally looks extremely healthy at the moment. Especially, the percentage of stockss which are trading above their short-term oriented moving averages (20/50) continued to grow further into deep bullish territory, indicating an outright supportive trend-structure at the moment. To be more precise, about 73/64 percent of all NYSE listed stocks are trading above their 20/50 day simple moving average. On top of that, we can see that the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily have not shown any signs of weaknesses yet, indicating that the underlying breadth momentum of the market remains positive. Another encouraging fact is that we saw stable readings in the total amount of all NYSE-listed stocks which reached a fresh 52 weeks high, in combination with very low readings of new 52 weeks low! As a consequence, the High-/Low Index Daily is trading at quite encouraging levels and is, therefore, confirming the new yearly high we have seen by the S&P 500. 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 very short time frame. As a consequence, we think that the market is heading towards new record into July, which is strongly in line with our recent outlook!

As per last week?s report, the situation from a pure contrarian point of view remains quite supportive and, therefore, there are hardly any trend-breaking flags on the horizon. To be more precise, the fear among market participants remains persistence (Market Sentiment, WallStreetCourier Index, the WallStreetCourier Index Oscillator and the Daily Put-/Call Ratio All CBOE Options Indicator) and, therefore, they still remain underweight in equities. This is a very supportive situation as the continuation of the rally forces all those bears to get back into the market which will fuel the rally even more. In fact, this process is already going on as we have already seen the second 9-to-1 up day within two weeks, indicating strong demand/panic buying. On the other side, we can see that the big guys remain outright bullish as the Smart Money Flow Index has definitely confirmed the latest levels from the Dow Jones Industrial Average.

Mid-Term Technical Condition

Another reason why we stick to our strategic bullish outlook is due to the fact that the mid-term uptrend of the market remains well intact for the time being. This becomes quite obvious if we focus on the Global Futures Trend Index, which remains extremely bullish as it keeps trading within the top part of its bullish consolidation area. As long as this is the case, any pullback should only turn out to be a temporary weaknesses/consolidation within an ongoing bull market. We would get quite cautious if the gauge dropped below 60 percent (in combination with weakening/bearish mid-term oriented market breadth), as it would be an indication that a stronger correction lies ahead. Right now this is absolutely not the case and, therefore, it is a way too early to bet on a major trend-reversal for the time being. Also, from a pure price point of view, the mid-term oriented up-trend of the market remains intact as the WSC Sector Momentum Indicator has not shown any signs of weaknesses so far. This can be also seen if we have a closer look at our Sector Heat Map, as the momentum score of most sectors remains above the momentum score from riskless money market. Right now, utilities and consumer staples remain the strongest sectors for the time being.

Another outright encouraging fact is that mid-term oriented market breadth also strongly confirms the mid-term oriented trend of the market. Again, all of our advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line) continued their bullish rides and are, therefore, clearly confirming the current high of the S&P 500! Also the Modified McClellan Oscillator Weekly gained even more bullish ground last week, indicating that the underlying mid-term oriented market breadth momentum remains very supportive. The percentages of NYSE listed stocks which are trading above their mid-term oriented moving averages (100/150) also increased and, therefore, the broad upside participation remains intact for the time being. This broader tape confirmation can be also observed if we take a closer look on mid-term oriented advancing issues as well as mid-term oriented up-volume. Both indicators are trading well above their bearish counterparts. Thus, we think that further gains into mid-July can be expected.

Long-Term Technical Condition

The long-term technical condition of the market remains unchanged. The Global Futures Long Term Trend Index is still indicating a technical bull-market for US equities and the relative strength score of nearly all risky markets also increased in the last week. Furthermore, we can see that the global bull market is in force as 65 percent of all local equity markets around the word remain in a long-term oriented up-trend. This bullish long-term oriented trend is widely confirmed by long-term oriented market breadth. The percentages of all NYSE listed stocks which are trading above their mid-term oriented simple moving averages (200) are trading on solid bullish levels, whereas the Modified McClellan Volume Oscillator Weekly and the High-/Low Index Weekly also strengthened their bullish signals last week.

Bottom Line

On a very short-time frame, the market is a bit overbought and, therefore, the pace is likely to slow down within the next couple of trading sessions. Nevertheless, with quite improving/solid readings all across the board, we strongly believe that it is a way too early to take the chips from the table. As a matter of fact, our bullish outlook remains unchanged and, therefore, would advise conservative members to hold their equity position, while aggressive short-term traders should definitely stay in the bullish camp. Stay tuned!