admin No Comments

November 10. 2013

Market Review

Last week, all three major U.S. averages finished the week with a mixed performance. The Dow Jones Industrial Average added 146.23 points, or 0.9 percent, to close the week at a record 15,761.78. The blue-chip benchmark advanced for a fifth consecutive week. The S&P 500 increased 0.5 percent to 1,770.61 over the five days, extending the benchmark index?s rally also to a fifth straight week, the longest advance since Feb. 15. The Nasdaq climbed declined 0.1 percent to 3,919.23, its second straight weekly loss. Seven out of the 10 main industries in the S&P 500 advanced for the week, led by materials. The Chicago Board Options Exchange Volatility Index (VIX) slid 2.9 percent to 12.90, after two weeks of gains. The measure is down 28 percent this year.

Short-Term Technical Condition

Despite the fact that the market has shown decent gains last week, the short-term oriented uptrend of the market has slightly started to deteriorate. This is mainly due to the fact that our reliable Modified MACD has been pushed into bearish territory on Friday, while the Advance-/Decline 20 Day Momentum Indicator is about to follow if we will not see a strong week of gains ahead. Moreover we can see that the gauge of the Advance-/Decline 20 Day Momentum Indicator is trading sideways on very low levels and has, therefore, not confirmed the recent high we have seen by the S&P 500. Right now it is a bit too early to get concerned about those bearish divergences as the S&P 500 is still trading 32 points above the bearish threshold from the Trend Trader Index. Nevertheless, we think that the market is quite vulnerable for a serve pullback/consolidation period into deeper November as short-term market breadth has also started to deteriorate significantly and is, therefore, not confirming the current uptrend of the market!

Despite the fact that the High-/Low Index Daily remains bullish from a pure signal point of view, we can see that the number of stockss which are hitting a fresh yearly high have decreased significantly for the week, while the number of stockss dropping to a fresh yearly low have started to increase, which is a quite bearish divergence if we consider the current level from the S&P 500. This can be also seen if we have a look at short-term up-volume, which remains outright weak at the moment. Furthermore, the Modified McClellan Oscillator Daily has continued to gain more bearish ground during the week, after it has flashed a bearish crossover signal on Tuesday. Another warning sign is coming from the percentage of stockss which are trading above their short-term oriented moving average (20/50), as the 20 days gauge has been pushed into bearish territory, while the 50 days gauge has slid quite significantly for the week, indicating that the current trend participation is quite weak-kneed.

The readings from our contrarian indicators remain unchanged compared to last week. The crowd remains too optimistic in our point of view as the gauge from the Daily Put-/Call Ratio All CBOE Options Indicator is trading at quite low levels, the percentage of bulls have reached the highest level since January 2013 plus dumb money is chasing the current rally aggressively. Furthermore we can see that our reliable WSC Capitulation Index has shown some strength on low levels recently. All in all we have received more evidences for a serve pullback/consolidation period into deeper November, before seasonal tendencies should bring some relief.

Mid-Term Technical Condition

The mid-term uptrend of the market remains intact so far, despite the fact that the gauge of the Global Futures Trend Index slightly dropped into the bullish consolidation area last week. Normally, as long as the Global Futures Trend Index remains above its 60 percent threshold, any upcoming weaknesses should only be seen as a temporary bullish biased consolidation period within the ongoing bull market. In addition, the WSC Sector Momentum Indicator is far away from being bearish, indicating that most sectors within the S&P 500 are per definition in a strong mid-term oriented uptrend. This can be also seen if we focus on our Sector Heat Map, as all sectors have a higher percentage momentum score than riskless Money Market.

More importantly, this strong mid-term oriented uptrend is widely being confirmed by mid-term oriented market breadth. Especially, the percentage of stockss which are trading above their mid-term oriented moving average (100/150) are far away from being bearish plus the Modified McClellan Oscillator Weekly continued to strengthen for the week, indicating that the market internals are improving. This can be also seen if we focus on the Advance-/Decline Index Weekly as well as on the Upside-/Downside Volume Index Weekly. Both indicators have shown quite encouraging improvements recently and as long as mid-term oriented up-volume and advancing issues are trading above their bearish counterparts, the risk of a stronger correction remains quite low.

Long-Term Technical Condition

The long-term uptrend of the market (WSC Global Momentum, Global Futures Long Term Trend Index and the WSC Global Relative Strengths) remains well in-force,, therefore, our long-term bullish outlook has not been changed so far. Especially, the gauge of the WSC Global Momentum Indicator remains stable above 70 percent, telling us that the vast of global market ETFs (all denominated in USD) are per definition in a strong long-term oriented uptrend and, therefore, the global bull-market looks quite healthy at the moment. This can be also seen if we have a look at the Global Futures Long Term Trend Index, which still indicates a technical bull market while the relative strength of the U.S is trading well above its bearish zero percent thresholds. More importantly, long-term market breadth remains quite bullish as the percentage of stockss which are trading above their long-term oriented moving average (200) are giving no reason to worry right now, while the Modified McClellan Volume Oscillator Weekly continued to strengthen, although it still remains slightly bearish from a pure signal point of view. However, it is quite encouraging to see that the amount of long-term new highs have started to regain momentum whereas long-term new lows continued to decrease, which can be seen as another positive long-term tape signal.

Bottom Line

The bottom line: since the short-term uptrend of the market has not been broken yet, our short-term bullish outlook has not changed so far. Nevertheless, we would not be surprised to see a short-lived pullback/consolidation period into deeper-November, if we see a short-term trend break ahead. Such a consolidation period would dampen short-term optimism and would leave the market better positioned for a yearend rally. For that reason, we would advise our short-term traders not chase the market too aggressively on the upside rather than buying into weaknesses. Moreover, conservative members should hold their equity position, as our long-term bullish outlook has not been changed so far. Nevertheless, we think it might be a good idea to take profits, if we see a break in our short-term trend indicators, able to average down your portfolio if necessary. Stay tuned!
The bottom line: since the short-term uptrend of the market has not been broken yet, our short-term bullish outlook has not changed so far. Nevertheless, we would not be surprised to see a short-lived pullback/consolidation period into deeper-November, if we see a short-term trend break ahead. Such a consolidation period would dampen short-term optimism and would leave the market better positioned for a yearend rally. For that reason, we would advise our short-term traders not chase the market too aggressively on the upside rather than buying into weaknesses. Moreover, conservative members should hold their equity position, as our long-term bullish outlook has not been changed so far. Nevertheless, we think it might be a good idea to take profits, if we see a break in our short-term trend indicators, able to average down your portfolio if necessary. Stay tuned!