The spectacular bull market that followed the “Great Recession” just turned eight last week, as the S&P 500 hit its generational low at the diabolical 666 level exactly on the 9th of March in 2009. Since then, the world’s most followed benchmark is up by more than 200%, with last week’s correction being only a minor blip, even just considering this year’s lofty gains. That said, the Gorilla remains only cautiously optimistic short-term, with still some bearish divergences visible “under the hood” of the current upswing. Small caps lagged the market throughout the week again, as the Russell 2000 posted seven straight negative days, after hitting a new all-time high in the first session of March.
Economic numbers were mixed once again last week, although the most anticipated non-farm payrolls number handily beat the consensus estimate, as 235,000 new jobs were reported. Hourly earnings disappointed for the second month in a row but, on a positive note, last month’s wage growth was revised higher. The trade deficit was the widest since the end of 2015, coming in slightly worse than expected, as imports grew quicker than exports. While Donald Trump might think that this is a negative sign, as long as global trade is on the rise, stocks should be just fine according to most reputable analysts. The sharp decline in the price of crude oil weighed heavily on the energy sector, as the WTI fell below the $50 per barrel level for the first time since December.
Technicals remained strong, despite the slight correction in the major indices, and the renewed relative strength of the Nasdaq made bulls smile toward the end of the week. The Dow and the S&P 500 both dipped below their 50-day moving averages, while staying well above their 200-day indicators. The Nasdaq closed the week back above both its long- and the short-term averages, as it remains just under its record highs. The Russell 2000 fell below its 200-day moving average as well after another bearish week. The small-cap benchmark is now unchanged for the year. The Volatility Index (VIX) is still encouragingly low, in the face of the mixed price action, as it remains in the vicinity of the 11.50 level.
Market internals reflected the weakness in small caps and the energy segment, as most of the key measures showed meaningful deterioration last week. The Advance/Decline was virtually unchanged again, as advancing issues slightly outnumbered declining stocks, by a 3-to-2 ratio on the NYSE and by a 2-to-1 ratio on the Nasdaq. The average number of new 52-week highs fell sharply on both exchanges, plunging to 49 on the NYSE, and 64 on the Nasdaq. The number of new lows jumped higher in the meantime, rising to 72 on the NYSE, and 51 on the Nasdaq. The ratio of stocks above their 200-day moving average also continued to decline, hitting 64% on Thursday, the lowest reading since November.
The energy sector saw increased short selling activity last week, thanks to the huge bearish move in the price of oil. The other segments of the market still sport a historically low level of short interest, as the major indices are still close to their all-time highs. Possible takeover target Fitbit (FIT) continues to struggle, as the stock is still hovering near its record low, with a short interest of 53%. The short squeeze in Pilgrim’s Pride (PPC) accelerated last week, as the shares of the company jumped by more than 5% despite the broad correction. Verisign (VRSN) is still at the top of the list of the stocks with the highest days-to-cover ratio (DTC), with a reading of 15. The stock keeps on creeping higher week after week, just as Intuitive Surgical (ISRG), which hit an all-time high earlier in March and currently has a DTC ratio of 10.
The Fed will likely take center stage this week, as the FOMC is expected to raise the benchmark rate by 0.25% one more time on Wednesday. The CPI and retail sales reports will also come out on that day, while the Philly Fed index and the U of M Consumer Sentiment Index will be released on Thursday and Friday respectively. The Gorilla thinks that the current short-term downswing is far from being a terrible thing for bulls. In fact, great buying opportunities might emerge as this normal correction runs its course. Technology stocks are already showing signs of strength, and according to seasoned traders that usually bodes well for the broader market. Coupled with the still-positive economic developments, the long-term uptrend seems safe. With that in mind, stay tuned for a busy week on Wall Street!