Stocks completed a mixed week before the long Labor Day weekend, but the major indices finished the period with a decisively upbeat session. Small caps and tech stocks quickly shrugged off the slight weakness that the Gorilla noticed previously, leading the broader market higher, following the somewhat bearish non-farm payrolls number. The mostly positive reaction to the disappointing news is widely considered a good sign for bulls, especially in the light of the miss in hourly earnings, and the also weak ISM manufacturing PMI that was published earlier on during the week. The consumer confidence index on Tuesday painted a more positive picture of the services sector, which remains the “engine of growth” without a doubt.

Interestingly enough, Treasury yields remained strong, despite the mostly negative economic releases, as investors still expect a rate hike by the Fed in the near future. The Gorilla would be delighted to see the continuation of the current trends in stocks and bonds, as they point to a much-needed normalization after the protracted period of “extraordinary monetary conditions.” This week will not only be shortened, but there won’t be many major releases coming out, with only the ISM non-manufacturing index likely making waves on Tuesday. Internationally, central banks will be the center of attention, as the Bank of Canada and the ECB will announce their benchmark interest rates on Wednesday and Thursday, respectively.

The technical picture remained mixed with a bullish bias, as the major indices are now close to their short- and long-term moving averages after one month of low-volatility consolidation. The Nasdaq, the Dow, and the S&P 500 are all within 2% of their respective all-time highs, with the technology index being the strongest, finishing above their 50-day and the 200-day moving averages. The Russell 2000 outperformed the large cap benchmarks once again, as it drifted higher throughout the week, staying above both moving averages, and hitting a new 52-week high on Friday. The Volatility Index (VIX) declined sharply on Job’s Friday after hitting a weekly high above 15. The benchmark closed the week back near the 12.50 level, as traders remain fairly confident regarding the prospects of the rally.

Market internals improved towards the end of the week, as the correction seemed to run out of steam, and small caps continued to shine. The Advance/Decline line marched to new all-time highs again, as advancing stocks outnumbered declining issues, by a 2-to-1 ratio on the NYSE and by a 4-to-1 ratio on the Nasdaq. The number of new 52-week highs was stable on both exchanges, with 154 on the NYSE and 136 on the Nasdaq, while the number of new lows was virtually unchanged at 10 on the NYSE and 26 on the Nasdaq. The ratio of stocks above their 200-day moving average remained close to its 3-year high, near 76% throughout the week, despite the ongoing consolidation.

The list of the most shorted stocks on the NYSE and the Nasdaq was mostly unchanged, as short interest continued to decline, although some new names appeared amid the correction. Fitness band manufacturer Fitbit (FIT) has been in the crosshairs of short sellers all year long, and short interest in the stock increased to over 50% recently, despite a more than 20% rally in the shares since June. Banking product provider Bofi Holding (BOFI) is experiencing a classic “short squeeze,” as the stock exploded by 40% in August alone, with a short interest currently still above 42%. The day-to-cover ratio (DTC) of Verisign (VRSN) caught up with Marriott (MAR) once again, as both stocks registered DTC ratios of 25 on Friday, placing the domain service provider and the hotel chain on the top of the list.

Stocks are entering a period of negative seasonality, as September and October are the two worst months of the year on Wall Street according to the statistics. That said, the Gorilla doesn’t see dark clouds gathering on the horizon, as the relative strength of the “risk-on” segments of the market looks promising for bulls. More and more stocks are hitting new all-time highs, and as long as the economy keeps growing at a modest pace and technicals remain positive, the inevitable “dips” might still provide good entry points. On a negative note, the steep correction in the price of oil could be a cause for concern in the coming weeks, at least for the energy sector and related issues. With that in mind, stay tuned for this holiday-shortened, but interesting week!