The “summer lull” continued on Wall Street, as the major indices consolidated just below their all-time highs for a second week in a row. Most stocks traded in a very narrow range last week, as the S&P 500 moved less than 1% throughout the past ten sessions. Trading volume was low once again, as the Olympic Games still took center stage, and economic releases were few and far between. The earnings season concluded with better-than-expected numbers on average, while the Philly Fed index came in very close to the consensus estimate, slightly in positive territory as well.
Trading conditions might stay calm this week, at least until Friday’s session when the much awaited preliminary GDP growth number will be published. Traders will be closely watching the second quarter data, as the Fed will likely place a huge weight on it when deciding on the next rate hike. Bond markets were more active last week than stocks, and yields trended slightly higher, as international fears eased and traders were factoring in the slightly better-than-expected economic numbers. The minutes from the last FOMC meeting didn’t give any new clues about the future of the Fed’s policies, as the committee reiterated its “data-dependant” stance.
The technical picture remained bullish despite the sideways price action, as the major indices traded in close proximity to the rising 50-day moving averages. The benchmarks are well clear of the 200-day moving averages, which also remain in positive trends for the Dow, the S&P 500, and the Nasdaq as well. Small caps also had an encouraging week, as the Russell 2000 remained closely correlated with the broader market, edging ever closer to its all-time high. The Volatility Index (VIX) spiked as high as 14 on Wednesday, as the stock market experienced a short period of elevated volatility, but it finished the week near the record low 11.50 level once again.
Market internals are still strong, as the rally continues to enjoy a broad “base,” with the majority of stocks trading in bullish trends. The Advance/Decline line continues to climb steadily to new all-time highs, as advancing stocks outnumbered declining issues again, by a 3-to-1 ratio on the NYSE and by a 4-to-1 ratio on the Nasdaq. The number of new 52-week highs declined significantly on both exchanges, to 140 on the NYSE and 126 on the Nasdaq, as the number of new lows rose to 8 on the NYSE and declined to 26 on the Nasdaq. The ratio of stocks above their 200-day moving average rose again, as it continued hitting new multi-year highs, to finish the week at 75%.
The short interest on the list of the most shorted stocks continued to decline on both the NYSE and the Nasdaq. Even the battered energy sector experienced short-covering last week, thanks to the strong rally in the price of oil. The short-interest in EP Energy (EPE) took a nosedive, to 49%, as the stock exploded higher last week. Biotech manufacturer Insys (INSY) remains on the top of the list, despite the drop in the short interest to 68%. Payment service provider Western Union (WU) still has the highest day-to-cover ratio (DTC) of 23 last week, but the DTC of Marriott (MAR) also rose to 22. Bears have been “squeezed” hard recently, as the global hotel chain rallied by almost 20% since the end of June.
The Gorilla still expects low volatility on Wall Street this week, but again, that shouldn’t bother bulls too much. The “boring” environment is usually considered a positive sign for the stock market, and the stream of the good, but not great, economic numbers continues uninterrupted. The British exit from the European Union, the “Brexit”, still concerns investors worldwide, but the actual economic releases suggest that the local economy is still doing relatively well. As the end of the summer approaches, the market is expected to get more active in the coming weeks, and the Gorilla thinks signs are still promising for investors in general. Stay tuned for another relaxed week!