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November 10th 2019

Market Review

U.S. stocks continued to rally, pushing the major indexes to new record highs. The Dow Jones Industrial Average posted a three-week winning streak and rose 1.2 percent to 27,681.20 last week. The S&P 500 rose for a fifth straight week, gaining 0.9 percent to 3,093.08. The Nasdaq rose 1.1 percent during the week to 8,475.31, extending its weekly winning streak to six. Most key S&P sectors ended in positive territory for the week, led by financials. Utilities led decliners. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended below 12.1.

Short-Term Technical Condition

Right in line with our recent outlook, the market continued to push significantly higher last week. As a matter of fact, it is not a big surprise at all that our entire short-term oriented trend indicators remain quite bullish at the moment – at least from a pure signal point of view. If we analyze the pure price driven trend, we can see that the S&P 500 is now trading 73 points above the bearish threshold from the Trend Trader Index. Consequently, the pure price driven uptrend of the S&P 500 remains remains intact as long as the S&P 500 keeps trading above 3,020. Given the fact that we have seen higher highs and higher lows within the past 20 days, both envelope lines of this reliable indicator are still drifting higher on a quite fast pace. Hence, the resistance/support levels for the S&P 500 are increasing as well, which is another quite constructive technical trend signal at the moment. If we focus on trend momentum, we can see that the Modified MACD also strengthened its bullish status during last week (highest level for months) and has, therefore, clearly confirmed the latest all-time high of the S&P 500. This view is also confirmed by the Advance-/Decline 20 Day Momentum Indicator which closed at quite solid bullish levels last week. Nevertheless, we can also see that it has not fully confirmed the latest record high of the S&P 500 (as the gauge slightly dropped during the week). As this indicator tends to be a leading one, we now received the first (trend-driven) signal that the pace of the current rally is likely to slow down a bit soon.

This view is also confirmed by the fact that some of our short-term oriented breadth indicators have also started to weaken recently (although the S&P 500 scored a new record high last week). Consequently, the current short-term oriented tape condition can be described as bullish but not fully confirmative at the moment. While the Modified McClellan Volume Oscillator Daily continued its bullish ride, the Modified McClellan Oscillator Daily almost flashed a bearish crossover signal last week. Hence, the momentum of advancing stocks turned almost negative, indicating that the air is getting thinner. This can be also seen if we focus on the percentage of stocks which are trading above their short-term oriented moving averages (20/50). Although both gauges are trading far above their 50 percent threshold, they have not fully confirmed the latest high of the S&P 500. Consequently, the latest high was mainly driven by large-caps and not by a stronger demand all across the board. This was also the reason, why we saw a small reduction in the number of stocks hitting a fresh yearly high last week. However, right now the High-/Low-Index Daily is still trading at outright solid level and is far away from being bearish. The main reason for such a strong bullish signal is caused by the fact that we have not seen any stronger spike/decline in the number of stocks hitting a fresh yearly low or yearly high yet. Consequently, it looks like that the current rally is slightly running out of steam and, therefore, it is possible to see a period of consolidation or at least some bullish biased sideways trading soon.

This view coincides with the fact that most of our contrarian indicators grew into negative territory last week, indicating a lot of complacent at the moment. This can be seen if we focus on all our option based indicators (Daily Put/Call Ratio All CBOE Options, AII CBOE Put-/Call Ratio Oscillator, Equity Options Put-/Call Ratio Oscillator, WSC Put-/Volume Ratio and the WSC Put-/Volume Ratio Oscillator) which grew into negative territory last week, or even if we focus on market sentiment (as the amount of bulls spiked significantly last week). On a short-time time perspective, these are quite bearish signals as they are telling us that lot of good news is already factored in, leaving the market quite vulnerable for negative driven news-flow. In such a situation, the chances for a consolidation period (volatile sideways trading) and/or even some nasty down-days are increasing on a fast pace. Such events normally dampen short-term optimism and would then be the basis for further gains afterwards. But this is only true if these events do not lead to a stronger deteriorating within market breadth. Right now, market breadth still looks quite constructive and, therefore, it is too early to get concerned about these facts.

Mid-Term Technical Condition

Unchanged compared to last week, the mid-term oriented trend condition of the market remains quite bullish (and, therefore, it is a way too early to get bearish from a pure strategically point of view). To be more precise, the Global Futures Trend Index is still trading in the upper part of its bullish consolidation range and far above its 60 percent threshold. So from a pure technical point of view, the market remains healthy at the moment. Nevertheless, we can also see that its gauge started to lose momentum (on quite bullish levels), which is another indication for our short-term consolidation scenario. However, as long as the Global Futures Trend Index keeps trading above 60 percent, any upcoming pullback/consolidation period should be limited in price and time. Also from a pure price point of view, the mid-term oriented uptrend of the market remains intact as the WSC Sector Momentum Indicator increased for the week. This is telling us that most underlying sectors within the S&P 500 have not broken below their mid-term oriented uptrend yet. This can be also seen if we examine our Sector Heat Map as the momentum score of all sectors (except energy which has been trading at 0 percent for weeks) remains above the one from riskless money market (which dropped to 4 percent). These facts are another indication that the risk appetite among investors remains quite high (and, therefore, our strategic bullish view remains unchanged).

The setting of the mid-term oriented up-trend is also 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 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) slightly increased for the week, reached their highest readings for months. Therefore, they are confirming the current high of the S&P 500! Another encouraging signal is coming from the percentage of stocks which are trading above their mid-term oriented moving averages (100/150) as both gauges have not shown any signs of weaknesses so far. Also mid-term oriented advancing issues as well as mid-term oriented up-volume gained momentum last week. As a matter of fact, we think it is a way too early to challenge our strategic bullish base scenario at the moment.

Long-Term Technical Condition

The long-term technical condition of the market has not shown any weaknesses in the last couple of trading sessions. We can see that the gauge from the WSC Global Momentum is trading at solid bullish levels, indicating that most local equity markets around the world (in detail 90 percent) are also participating within the current rally. This clearly supports our strategic bullish outlook. Also, the Global Futures Long Term Trend Index is still trading at solid levels (although it has been decreasing for weeks now). In addition, the relative strength of nearly all risky markets improved last week, which is another indication for the current risk-on market environment. However, the most important fact is that long-term market breadth in the U.S. still remains constructive and is, therefore, confirming the current long-term oriented trend of the market. This is mainly due to the fact that the Modified McClellan Volume Oscillator Weekly flashed a bullish crossover signal last week. In addition, the percentage of stocks which are trading above their long-term oriented moving averages (200) and also our High-/Low Index Weekly continued to strengthen their bullish signals.

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 Dynamic Variance Portfolio. Moreover, we are proud to announce that the WSC All Weather Model Portfolio reached a new all-time high last week.

Bottom Line

With quite supportive indicators all across the board (especially on a mid-term time horizon), we think it is a way too early to bet on a major trend reversal and, therefore, our strategically bullish outlook remains definitely unchanged at the moment. However, on a very short-time frame the optimism within the market is quite high and together with some stretched readings within our short-term oriented indicators, the air is getting definitely thinner on the upside. As a matter of fact, the chances for a bullish biased consolidation (even with some nasty pullbacks) are increasing on a very fast pace. So all in all, we would advise our conservative members to hold their equity exposure, whereas aggressive short-term traders should remain also bullish as long as our Big Picture Indicator keeps moving around within its bullish quadrants. However, given the fact that we could see some increased volatility/ side-ways trading ahead, we also think it is definitely time to reduce leverage/high beta trades or take profits from highly sensitive call options/short volatility trades.

Stay tuned!