State of the Stock Market Analysis for the Week Ending on March 31th, 2019 (Bullish Price Action | State of the Stock Market 03-31-19)

All You Need Is Jobs

Although the major indices failed to make meaningful progress this week, seasoned investors would likely agree that in light of the negative catalysts and the turmoil in the bond market, the price action in the stock market has been decisively bullish. The Dow, the S&P 500, and the Nasdaq each traded in narrow ranges throughout the week, and on a positive note, the S&P 500 and the Nasdaq remained above their key technical levels, which have been in focus for weeks now. The Dow, which has been under pressure lately due to Boeing’s (BA) woes, also showed positive signs toward the end of the week, and despite the continued Brexit chaos, the sharp economic slowdown in Europe, and the still ongoing trade talks with China, there is no doubt that the recovery is on track.

Economic numbers provided mostly negative surprises, but despite the apparent slowdown, domestic growth remains stable, especially in light of continued global weakness. Treasury markets had a very active week, with yields plunging lower across the curve, and the decline in rates has been a global phenomenon in recent weeks due to the growing recession-related fears. The CB Consumer Confidence number, the Case-Shiller Housing Price Index, building permits, housing starts, the Core PCE Price Index, personal spending, and personal income all missed expectations, while the Chicago PMI confirmed the slowdown in the manufacturing sector. The job market still looks very promising, and even the more forward-looking new jobless claims number remained very low this week.

The technical picture continues to improve on Wall Street slowly, and although the major indices were little changed this week, the key trend indicators agree that the bull market is well and alive. The Dow, the S&P 500, and the Nasdaq are still all above their flat 200-day moving averages, while being well clear of their rising 50-day moving averages as well. Small-caps finally started to show signs of strength this week, with the Russell 2000 clearly outperforming the broader benchmarks. The index is still above its declining 200-day moving average, and it is also above its rising short-term moving average. While the Volatility Index (VIX) caused concerns for bulls last week, it fell significantly this week, finishing near the 13 level on Friday, confirming the bullish trend in stocks.

Market internals improved slightly thanks to the relative strength of the Russell 2000, as most of the key measures remain positive, despite the choppy price action. The Advance/Decline line diverged from the benchmarks in a bullish fashion, as advancing issues outnumbered declining stocks by a 2-to-1 ratio on the NYSE, and by a 3-to-1 ratio on the Nasdaq. The average number of new 52-week highs declined on both exchanges, edging lower to 118 on the NYSE and climbing to 81 on the Nasdaq. The number of new lows increased for the second week in a row, rising to 32 on the NYSE and 55 on the Nasdaq. The percentage of stocks above their 200-day moving average finished slightly lower following the choppy week. However, the indicator closed near 49% again, which remains very low for a bull market.

Short interest continued to decline on Wall Street, thanks to the broad-based rally and the declining volatility, and the overall level of bearish bets is still very low historically. While Carvana (CVNA) drifted sideways throughout the week, it remains very strong from a technical perspective, and given its short interest of 61%, another leg higher seems likely. EQM Midstream (EQM) also has a short interest of 57%, and the stock jumped higher in the last couple of days, which might be the start of an old-fashioned short squeeze. Current GorillaPick, Sempra Energy (SRE), sports a days-to-cover (DTC) ratio of 13, despite this year’s lofty gains, and after three weeks of consolidation, the stock could be ready to hit new all-time highs in April.

April will start with a hectic week regarding economic releases, with crucial reports coming out covering manufacturing and the consumer economy. In light of the broader weakness in Europe, the ISM manufacturing and non-manufacturing PMIs, coming out on Monday and Wednesday respectively, could even have a bigger impact than Friday’s government jobs report this month. Apart from the PMIs, the durable goods report will be released on Tuesday while the ADP payrolls number will be out on Wednesday, and the Challenger job cuts number is scheduled for Thursday release. Besides the economic numbers, the Brexit process will likely remain at the center of attention, and bulls are hoping for a push for a longer extension to the deadline to avoid a possibly chaotic no-deal Brexit. Stay tuned!


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