January 14th 2018
The U.S. stock market finished the week with solid gains, sending the main indexes to new record highs. For the week, the Dow Jones Industrial Average gained 2.0 percent to 25,803.19. The S&P 500 booked a 1.6 percent gain over the week to end at 2,786.24. This was the second straight weekly gain for both the Dow and the S&P 500, as well as their seventh positive week of the past eight. The Nasdaq rose 1.7 percent over the past week to 7,261. Its second consecutive weekly advance. Among the key S&P sectors, industrials were the best weekly performer, while utilities dragged. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 9.2.
Short-Term Technical Condition
Right in line with our recent outlook, the market continued to push higher last week. As a matter of fact, it is not a big surprise at all that the short-term oriented uptrend of the market remains unchanged compared to last week and even strengthened, respectively. To be more precise, the S&P 500 is now trading 45 points above the bearish threshold from the Trend Trader Index. This signals that the short-term oriented up-trend of the market remains intact as long as the S&P 500 does not drop below 2.697. Furthermore, both envelope lines of this reliable indicator are still drifting higher on a quite fast pace, indicating that the resistance/support levels for the S&P 500 are increasing as well. This is quite a constructive technical signal as higher highs and higher lows are a typical pattern for a healthy uptrend. Moreover, the bullish status from the Modified MACD also strengthened last week and its gauge reached the highest level for months. Therefore, this indicator clearly confirmed the latest all-time high from the S&P 500. On top of that the gauge from the Advance-/Decline 20 Day Momentum Indicator keeps also trading at the highest levels for weeks. Thus, further gains into January can be expected.
Fundamentally, we receive the same picture if we analyze short-term market breadth as the current trend participation of all NYSE listed stocks within the current rally looks extremely healthy. Especially, the percentage of stocks which are trading above their short-term oriented moving averages (20/50) jumped into solid bullish territory. This indicates that the recent rally was not only driven by large caps as the underlying trend-structure of the whole market is gearing up positive momentum. On top of that we can see that the Modified McClellan Oscillator Daily and the Modified McClellan Volume Oscillator Daily continued their bullish rides and reached the highest level for months. This is telling us that the underlying breadth momentum of the market remains outright positive. Additionally, we saw excellent readings in the total number of all NYSE-listed stocks which reached a fresh 52 weeks high in combination with outright suppressed readings of stocks hitting a fresh 52 weeks low! Consequently, the bullish gauge of the High-/Low-Index Daily is trading far above its bearish counterpart. As long as this is the case, the current rally looks extremely healthy in its nature. All in all, with such strong signals all across the board, it is highly unlikely that the current rally will run out of fuel. As a consequence, we think that the market is heading towards new records into January, which is definitely in line with our strategic bullish outlook.
If we focus on our contrarian indicators, we can see that the Smart Money Flow Index and the WSC Capitulation Index clearly confirmed the latest highs as both of them are trading at outright confirmative levels at the moment. Moreover, we can see that apart from the CBOE All Options Call-/Put Ratio, most of our option based indicators (Equity Options Call-/Put Ratio Oscillator Weeky and Global Futures Put-/Volume Ratio Weekly) started to gradually move out from their bearish territory. The only red flag on the horizon right now is the fact that the amount of bulls on Wall Street climaxed within the last two weeks. As already mentioned last week, on a mid-term time perspective there might be no one left to push equity prices higher (as everybody is invested already), but on a very short timeframe this fuels the rally even more (as a lot of purchasing power is getting back into the market).
Mid-Term Technical Condition
Not surprisingly, also our mid-term oriented trend indicators remain extremely bullish. Mainly, since the reading from the Global Futures Trend Index keeps trading at the edge of the 90 percent threshold (bullish area). As long as this is the case, any weaknesses should be used to buy 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 also be observed if we have a closer look at our Sector Heat Map, as it shows that the momentum score of all sectors (except utilities which dropped to 0 percent last week) remains above the momentum score from riskless money market (0 percent).
The setting of the mid-term oriented up-trend is also strongly confirmed by mid-term oriented market breadth. Especially, the Modified McClellan Oscillator Weekly continued to widen its 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 Volume Line, Advance-/Decline Line Daily, Advance-/Decline Line in Percent, Advance-/Decline Line Weekly) rocketed for the week and reached their highest readings for months. Therefore, they are clearly confirming the current record 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). Also, mid-term oriented advancing issues as well as mid-term oriented up-volume strengthened sharply last week. As a matter of fact, we think that further gains can be expected.
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 88 percent) are also participating within the current rally. This clearly supports our strategic bullish outlook. Also, our Global Futures Long Term Trend Index is trading at the highest level for years. In addition, the relative strength of all risky markets keeps trading again far above the one from U.S. Treasuries, another indication for the current risk-on market environment. However, the most important fact is that long-term market breadth in the U.S. 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 as well as the percentage of stocks which are trading above their long-term oriented moving averages (200) continued to strengthen their bullish signals. Additionally, the High-/Low Index Weekly jumped to its highest level for months.
If we have a closer look at our Model Portfolios (WSC Inflation Proof Retirement Portfolio, the Global Tactical ETF Portfolio, the WSC Sector Rotation Strategy and the WSC All Weather Portfolio) we can see that there were no changes in the allocation last week. However, we are proud to announce that the WSC Sector Rotation Strategy and the WSC All Weather Portfolio reached a new al-time high last week.
In line with our recent call, 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 the first quarter of 2018. Therefore, our bullish outlook remains unchanged and would advise conservative members to hold their equity position, while aggressive short-term traders should definitely stay in the bullish camp.