April 26. 2015

Market Review

U.S. stocks ended the week with solid gains pushing the main indices to new record highs. The Dow Jones Industrial Average added 1.4 percent over the week to end at 18,080.14. The S&P 500 recorded a 1.8 percent gain over the week to close at a record high of 2,117.70. The Nasdaq advanced 3.3 percent from last Friday’s close to finish at a record high of 5,092.08. The technology-laden index posted the biggest weekly gain since October 2014. All key S&P sectors finished positive for the week, led by technology. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 12.

Short-Term Technical Condition

In line with our recent call, the S&P 500 managed to break above new all-time highs last week. As a matter of fact, the broad benchmark is moving in line with our cyclical roadmap (Charts of Interest and Cycles), where we had expected to see a move towards new highs into May, before any troubles might be due. Not surprisingly, the short-term uptrend of the market started to strengthen last week. This is mainly due to the fact that the S&P 500 managed to close 38 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 2,079. Furthermore, we can see that both envelope lines of this reliable indicator are still strongly drifting higher. This is telling us that within the last couple of weeks, we saw higher highs and higher lows, which is another typical pattern for a strong short-term oriented uptrend. This bullish short-term uptrend is also supported by the readings of the Modified MACD, which have not shown any signs of weaknesses yet. Above all, the gauge from the Advance-/Decline 20 Day Momentum Indicator finished the week at quite encouraging levels.

Although we can see some small signs of exhaustion, our entire short-term tape indicators are still confirming the current short-term oriented uptrend of the market! This becomes quite obvious if we focus on the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily. Despite the fact that both indicators remain quite bullish from a pure signal point of view, their short-term oriented gauges are showing some form of fatigue. This indicates that the overall breadth momentum is slowing down and is, therefore, showing some form of non-confirmation. The same is true if we focus on the High-/Low Index Daily and the NYSE New Highs-/New Lows Indicator. Although the amount of new lows remains outright subdued, their bullish counterparts should be much higher if we consider the current levels from the S&P 500. Anyhow, as long as we do not see any bearish crossover signal within those indicators, it is too early to get concerned about this fact. In addition, the percentage of stockss which are trading above their short-term oriented moving averages (20/50) are trading at outright bullish levels. As a matter of fact they are clearly confirming the recent level from the S&P 500. This indicates broad based participation within the recent rally. This is a very positive sign as a purely large cap driven rally/breakout is hardly sustainable in the long run.

From a pure contrarian point of view, the situation is quite supportive. Dumb Money has not turned greedy yet, whereas our reliable Smart Money Flow Index has not shown any signs of a threatening divergence so far. Moreover, the option market also remains quite neutral at the moment. Nevertheless, we can see that the amount of calls being bought increases as the z-score of All CBOE Options Put-/Call Ratio Indicator dropped below zero for the first time since early January. Right now the gauge remains quite neutral, but if this trend continues it drops into bearish territory. In our opinion, this might be the case within the next couple of weeks as our cyclical roadmap is indicating some headwinds in mid-May.

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 remains intact and, therefore, it is too early to switch into the bearish camp for the time being. This is mainly due to the fact that our reliable Global Futures Trend Index keeps trading slightly below its extremely bullish 90 percent threshold and is, therefore, still confirming the current levels from the S&P 500. Moreover, it is worth to mention that as long as the gauge from this indicator remains above its 60 percent threshold, any upcoming weaknesses should be limited in price and time (if additionally mid-term market breadth remains strong). Above all, the WSC Sector Momentum Indicator is indicating that most sectors within the S&P 500 remain in a strong mid-term uptrend, and, therefore, the current up-trend of the market looks quite healthy at the moment. If we have a closer look at our Sector Heat Map, we can see that consumer discretionary and health care are/remain the strongest sectors within the S&P 500, whereas utilities remain the weakest ones.

More importantly, mid-term oriented market breadth remains quite bullish and is, therefore, strongly confirming the mid-term oriented trend of the market. Especially, the Modified McClellan Oscillator Weekly continued to gain more bullish ground last week, indicating that the underlying market breadth momentum remains quite supportive, albeit on quite low levels. More importantly, most 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 to strengthen in the last couple of trading sessions and have, therefore, confirmed the recent high! Basically, the same is true if we focus on the percentage of stockss which are trading above their mid-term oriented moving averages (100/150) as they have definitely reached bull market levels. This can be seen as an outright strong confirming tape signal as the current rally looks quite broad based. Such a broader tape confirmation can also be seen 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. As a matter of fact, we think that further gains into mid-May can be expected.

Long-Term Technical Condition

The long-term oriented technical picture of the market remains almost unchanged compared to last week. The Global Futures Long Term Trend Index is still indicating a technical bull market for the S&P 500. In addition, we can see that the current bull market still remains quite broad based and global in scope as the WSC Global Momentum Indicator increased to 62 percent. This can be also monitored if we focus on the Global Relative Strength Index, as the relative strength of most risky markets (apart from commodities) have not turned bearish yet. More importantly, long-term oriented market breadth still looks quite constructive at the moment. The percentage of stockss which are trading above their 200 day simple moving average continued to strengthen last week and are, therefore, definitely confirming the current levels from the S&P 500. Also the amounts of stocks which are hitting a fresh 52 weeks high are trading well above their bearish counterparts. Above all, the Modified McClellan Volume Oscillator Weekly did not show any signs of weaknesses last week, indicating that the tape structure of the market remains quite healthy at the moment.

Bottom Line

The bottom line: the technical picture of the market remains quite unchanged compared to last week. With quite bullish indicators all across the board, we think to see further gains into mid-May before troubles might be due. Given the fact that we can already see some exhaustion within our short-term oriented tape indicators, it might be quite likely that the pace is likely to slow down a bit. However, our outlook remains unchanged so far and, therefore, we would advise conservative members to hold their equity position, while aggressive short-term traders should remain long until our short-term indicator framework remains supportive. Stay tuned!