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July 17. 2016

Market Review

U.S. stocks closed at their third straight week of gains, with the S&P 500 and the Dow posting new record highs. The Dow Jones Industrial Average added 2.0 percent over the week to end at a record high of 18,516.55. The S&P 500 recorded a weekly 1.5 percent gain to close at a record high of 2,161.74. The Nasdaq advanced 1.5 percent from last Friday’s close to finish at 5,029.59. Among the key S&P sectors, materials were the greatest gainer for the week, while utilities were the only negative sector for the week. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded higher, near 13.

Strategy Review

After our members had successfully predicted/side-stepped the January correction, it was one of our key calls that 1,810 represented an important low, as our indicator framework was telling us that the market had definitely hit rock bottom. As a consequence, we advised our members to get back into the market quite quickly afterwards and since then our strategic bullish outlook has not been changed so far. Despite the fact that the market faced a couple of critical make or break situations since then, our systematic approach gave us strong guidance and confidence in those volatile markets. As a matter of fact, our members have been able to participate in that incredible 20 percent rebound/rally as we held onto our new highs scenario. Moreover we are proud to announce that most of our model portfolios have scored double digit returns on a year-to-date basis!

Short-Term Technical Condition

Anyhow, the market is moving right in line with our recent outlook and, therefore, it is not a big surprise at all that the short-term oriented uptrend of the market remains well in force. The S&P 500 is currently trading 75 points above the bearish threshold from the Trend Trader Index. This means that the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 2.086. Furthermore, we can see that both envelope lines of this reliable indicator started to drift 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 a quite strong technical signal as higher highs and higher lows are a typical pattern for a healthy uptrend. The same is true if we focus on the trend lines from the Modified MACD, as they increased very sharply and are trading at very high levels as well. On top of that we can see that the gauge from the Advance-/Decline 20 Day Momentum Indicator also rocketed and has, therefore, clearly confirmed the new record high from the S&P 500.

This view is also strongly confirmed by short-term market breadth as the trend participation of all NYSE listed stocks within the current rally still looks extremely healthy at the moment. The Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily continued to gain even more bullish ground last week, indicating that the underlying breadth momentum of the broad market remains outright strong at the moment. The percentage of stockss which are trading above their short-term oriented moving averages (20/50) jumped to the highest level for months, indicating an outright supportive trend-structure at the moment. To be more specific, about 83/76 percent of all NYSE listed stocks are trading above their 20/50 day simple moving average. Additionally, we saw stable readings in the total amount of all NYSE-listed stocks which reached a fresh 52 weeks high, in combination with outright low readings of new 52 weeks low! As a consequence, the High-/Low-Index Daily strengthened its bullish signal and has also clearly confirmed the latest level from the S&P 500. So all in all, the readings from our short-term oriented tape indicators are indicating that the underlying trend condition of the market remains extremely healthy at the moment and, therefore, further gains can be expected!

The situation on the contrarian side remains supportive. As already mentioned last week, a lot of bears are forced to get back into the market and they are, therefore, acting as an additional catalyst for the current rally. As per last week?s report, the readings from the WallStreetCourier Index, the WallStreetCourier Index Oscillator Weekly, the Smart Money Flow Index and the WSC Capitulation Index remain supportive and, therefore, the market does not look ready for a sentiment driven washout. This can be also seen if we focus on the option market, as the greed within the market remains within its normal range and, therefore, it is a way too early to bet on a major trend reversal for the time being!

Mid-Term Technical Condition

Another reason why we remain outright bullish at the moment is the fact that the mid-term oriented uptrend of the market remains well intact. This is mainly due to the fact that the reading from the Global Futures Trend Index passed the 90 percent threshold last week and is now trading within its extremely bullish area. As long as this is the case, any weaknesses should be used to buy aggressively into the market as any pullback should only turn out to be a temporary weaknesses/consolidation within an ongoing bull market. Additionally, 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 riskless money market keeps trading at zero percent, indicating that all underlying sectors within the S&P 500 should perform absolutely positive on a mid-term oriented time horizon.

The current mid-term oriented up-trend of the market is also strongly confirmed by mid-term oriented market breadth. Especially, the Modified McClellan Oscillator Weekly continued to show a widening bullish gap last week, indicating that the overall tape momentum remains quite positive for the time being. And once again, all our advance-decline indicators (Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly and the Advance-/Decline Volume Line) increased for the week and, thus, reached their highest readings for months. Therefore, they are clearly confirming the current high of the S&P 500! Moreover, we can see that mid-term oriented advancing issues as well as mid-term oriented up-volume are trading far above their bearish counterparts and, therefore, there we can see that the underlying demand is giving no reason to worry right now. Another encouraging signal is coming from the percentage of stockss which are trading above their mid-term oriented moving averages (100/150). If we focus on their recent development, we can see that both indicators (100/150) have reached their highest level for weeks. This indicates that the total upside participation within the market looks completely broad based, which is another indication that it might be a bit too early to take the chips from the table.

Long-Term Technical Condition

Also the long-term uptrend of the market has not been broken yet 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 70 percent of all global markets have not broken below their long-term uptrend yet. The same is true, if we have a look at our Global Relative Strengths Indicator. The relative strength of U.S. Treasuries is trading nearly below all risky markets, which is a good sign when the market is in a long-term risk-on mode. Also our long-term oriented High-/Low Index Weekly is trading at quite 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 stockss which are trading above their longer-term oriented moving averages (200)!

Bottom Line

The technical picture of the market remains quite unchanged compared to last week. With quite bullish indicators all across the board we have not seen any typical signs for a major top-building process yet and, therefore, we expect to see further record highs into deeper summer. As a matter of fact, our bullish outlook remains unchanged and, therefore, would advise conservative members to hold/increase their equity position, while aggressive short-term traders should definitely stay in the bullish camp. Stay tuned!