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October 1sth 2017

Market Review

U.S. stocks rallied for the week, lifting two major averages to new records highs. For the week, the Dow Jones Industrial Average added 0.3 percent, to 22,405.09, missing its own record by about 7 points. Over the past month, the Dow is up 2.1 percent while over the quarter it rose 4.9 percent. The S&P 500 advanced 0.7 percent to 2,519.36, closing at a record for the 39th time this year. The benchmark index gained 1.9 percent over the month and has risen for eight consecutive quarters, gaining 3.9 percent since July. The Nasdaq closed at a record for a 50th time this year, at 6,495.96. The tech-heavy index rose 1.1 percent over the week and is up 1 percent over the month, while its quarterly gain is 5.8 percent. Its fifth straight quarterly advance. Most key S&P sectors ended in positive territory for the week, led by energy. Utilities were the only decliners. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended near 9.5.

Short-Term Technical Condition

As pointed out in our last call, the short-term oriented uptrend of the market remains well intact. As a matter of fact, the market is moving in line with our expectations. This is mainly due to the fact that the S&P 500 strongly increased for the week and managed therefore, to close 33 points above the bearish envelope line from the Trend Trader Index. 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 2,486 (bearish threshold from the Trend Trader Index). Furthermore, we can see that both envelope lines of this reliable indicator are still drifting higher. This is another constructive trend signal at the moment and indicates that the resistance/support levels for the S&P 500 are increasing as well. Also the gauge from the Advance-/Decline 20 Day Momentum Indicator keeps trading in solid bullish heights and is thus, confirming the current levels from the S&P 500. As this indicator tends to be a leading one, this is another piece of evidence that further gains into October can be expected. This bullish short-term uptrend is also widely supported by the solid readings of the Modified MACD, although they could be a bit stronger, given the records of the S&P 500.

This view 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. First of all we saw several healthy spikes in the number of stocks which are hitting a fresh yearly high, together with an outright low number of stocks which were pushed to a new yearly low. As a matter of fact, the High-/Low-Index Daily strengthened its bullish signal for the week and jumped therefore, to the highest level since July! This is another encouraging signal that the latest gains have not been caused by short-covering but they have been the result from stronger underlying demand across the whole market (especially within small-caps). Basically, the same is true if we focus on our short-term oriented breadth momentum indicators. The gauges from the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily also increased their bullish gaps. This is indicating that the underlying breadth momentum of the broad market remains constructive at the moment. This can be also observed if we focus on the percentage of stocks which are trading above their short-term oriented moving averages (20/50), as they continued to grow further into deep bullish territory. This indicates an outright supportive trend-structure at the moment. To be more precise, about 81/80 percent of all NYSE listed stocks are trading above their 20/50 day simple moving average; the highest numbers we have seen for months. In our opinion, with such strong signals all across the board, it is highly unlikely that the recent rally will run out of fuel. As a consequence, we think that the market is heading towards new records into October, which is definitely in line with our strategic bullish outlook.

Apart from the fact that the option market is a bit stretched, there are absolutely no threatening signals on the contrarian visible at the moment.  The NYSE Short Interest Ratio could be still a huge trigger to fuel the rally even more, whereas the WSC Capitulation Index continued to decline, which is another positive signal for a continuation of the current rally.

Mid-Term Technical Condition

The mid-term oriented uptrend of the market also strengthened for the week and is therefore, very bullish at the moment. This becomes pretty obvious if we focus on the gauge from the Global Futures Trend Index, which succeeded to stay above the extremely bullish 90 percent threshold. As a matter of fact, this reliable indicator is definitely confirming the current levels from the S&P 500! This can be seen as a quite important trend signal, as readings near or even above 90 percent are telling us that there is absolutely no risk for a stronger correction at the moment! As per last week’s report, the WSC Sector Momentum Indicator is also trading at a solid level, indicating that many sectors of the S&P 500 remain in a mid-term oriented uptrend. Also our Sector Heat Map reveals that the momentum score of all sectors (except consumer staples which dropped to 0 percent) remains above the momentum score from riskless money market (8.5 percent). Worth mentioning is the fact, that energy, which was at 0 percent for weeks, increased to 10 percent. Consequently, this sector looks like it is bottoming out.

This current mid-term oriented up-trend of the market is also widely confirmed by mid-term oriented market breadth. Our entire 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 reached new all-time highs. They are clearly confirming the recent level of the S&P 500! Moreover, mid-term oriented advancing issues and mid-term oriented up-volume are trading well above their bearish counterparts. Also our Modified McClellan Oscillator Weekly increased for the week, although only on a small level. And finally, the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) jumped to their highest level for months. This signals that the majority of all NYSE listed stocks are per definition in a robust mid-term oriented up-trend. These facts indicate that the total upside participation within the market is still gearing up momentum, which is another indication that it a bit too early to take the chips from the table.

Long-Term Technical Condition

As per last week’s report, the long-term uptrend of the market remains intact and therefore, the risk for another bear-market is virtually nonexistent. The Global Futures Long Term Trend Index is still indicating a technical bull market for the S&P 500 and trading at the highest levels for months. As we can see from the WSC Global Momentum Indicator, 92 percent of all local equity markets around the world remain within a long-term oriented uptrend. This can be also monitored if we focus on the WSC Global Relative Strength Index, as the relative strength of all risky markets keeps trading above the one from U.S. Treasuries. More importantly, long-term oriented market breadth still looks very constructive at the moment. The percentage of stocks which are trading above their 200 day simple moving average continued to strengthen last week and jumped to the highest level for weeks (67 percent). Also the amounts of stocks which are hitting a fresh 52 weeks high are trading far above their bearish counterparts, pushing our High-/Low Index Weekly to supportive levels. And also the Modified McClellan Volume Oscillator Weekly strengthened last week and increased its bullish gap.

Model Portfolios

As it was the last Friday of the month, we received a new allocation advice from the WSC All Weather Portfolio and the WSC Inflation Proof Retirement Portfolio. As the momentum score of financials rose above average and above the one from the S&P 500 within our Sector Heat Map, we buy a sell signal for that ETF within our WSC Sector Rotation Strategy. Moreover, as the MSCI Brazil is now ranked within the top 5 markets within our Global ETF Momentum Heat Map, it is now being added to the portfolio, whereas the strategy is selling the MSCI India.  Moreover, we are proud to announce that the WSC All Weather Portfolio reached a new all-time high again last week! Right now the year to date performance is 10.7 percent!

Bottom Line

The technical picture of the market continued to improve significantly compared to last week and therefore, our strategic bullish outlook remains unchanged. To be more precise, with broadening strengths all across the board the current rally is definitely not at risk of fading out at the moment. As a matter of fact, we strongly believe to see further record highs into fall. Therefore, 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!