The holiday-shortened week was far from boring for investors, and for the third week in a row, stocks enjoyed tailwinds thanks to the string of positive vaccine-related announcements. The reports of a 90%-efficient Russian vaccine candidate triggered a massive rally in the price of crude oil and the energy sector. The likely suppliers’ geographic diversity could be a major plus for the global economy and the travel industry, in particular. The most virus-sensitive issues had a bullish week in the face of still grim U.S. COVID numbers, and a lot of troubled retailers registered stellar gains. The fact that financials, as measured by the XLF ETF, hit their highest level since February is great news for the whole market, and the fact that President-elect Joe Biden named former Fed-Chair Janet Yellen as the next Treasury Secretary also contributed to the broad early-week rally.
While this week only boasted three full trading sessions, we still got plenty of key economic releases, with major positive and negative surprises to digest ahead of Thanksgiving Day. The much better-than-expected Markit manufacturing and services PMIs added to Monday’s buying pressure on the Street. Even though the Richmond Manufacturing Index missed the consensus estimate, the bullish durable goods orders surprise confirmed that manufacturing remains stronger than the services sector. The housing market continued to impress as well, as new home sales and the Case-Shiller Housing Price Index each beat expectations. The CB consumer confidence index and personal income added to the worries sparked by the spike in new jobless claims, but personal spending remained robust.
The technical picture remains bullish across the board concerning both the short- and long-term time-frames, and the major indices are just below their all-time highs going into the last month of this extraordinary year. The S&P 500, the Dow, and the Nasdaq are all above their 50-day moving averages, and the benchmarks are still well north of their 200-day moving averages as well. Small-caps enjoyed massive inflows thanks to the significant vaccine developments, and the Russell 2000 clearly led the way higher this week, hitting new record highs, and closing well above both its moving averages. The Volatility Index (VIX) closed at its lowest level since the start of the pandemic, and even though it finished above the widely watched 20 level, the improving long-term outlook could mean that the “fear gauge” will continue to drop.
Market internals improved significantly again thanks to the new highs among small-caps, and the most reliable breadth measures are all at or near their bull market highs. The Advance-Decline line surged higher in the first two days of the week, hitting new record highs, as advancing issues outnumbered decliners by a 5-to-1 ratio on the NYSE and a 4-to-1 ratio on the Nasdaq. The average number of new 52-week highs increased significantly on both exchanges, rising to 115 on the NYSE and 141 on the Nasdaq. The number of new lows remained very low in the meantime, staying at one on the NYSE and ticking higher to four on the Nasdaq. The percentage of stocks above their 200-day moving average hit new multi-year highs again, getting close to 85% before finishing the week near 84%.
Short interest continues to trend lower on Wall Street thanks to the improving outlook for 2021 and beyond, as the most-shorted issues performed relatively well yet again. SunPower (SPWR) hit its highest level since 2014 thanks to the continued short squeeze, and its short interest of 47% could provide more fuel for the rally. Stitch Fix (SFIX) also sports a very high short interest of 35%, and after hitting a two-year high this week, bulls now might have its all-time high in their crosshairs. ViacomCBS (VIAC) confirmed its technical breakout this week, and since its days-to-cover (DTC) ratio still stands at 10, the stock could continue its post-crash recovery.
December will start with another very busy week of economic releases, with a focus on the job market. The Chicago PMI and pending home sales will be out on Monday, the ISM manufacturing and Services PMIs will come out on Tuesday and Thursday respectively, while Wednesday’s ADP payrolls number and Friday’s government jobs report could both cause major waves across asset classes. The stimulus talks could be back in focus again, as the road for the Presidential transition seems easier, and with the job market’s weakness in mind, the consumer economy could definitely use more support. The major indices could be in for a crucial week from a technical perspective due to the proximity of their record highs, and bulls hope that the large-cap benchmarks will follow the lead of the Russell. Stay tuned!
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