State of the Stock Market Analysis for the Week Ending on January 10th Stocks Ready to Hectic Start to the Year | State of the Stock Market 1-10-20
Stocks had a hectic start to the year as bulls had to endure a rollercoaster ride the first three days of the week. U.S. politics took center stage due to the runoff elections in Georgia and the last steps of confirming Joe Biden’s victory, which took a tragic and chaotic turn. Volatility skyrocketed amid the political turmoil, but even though the global COVID picture remains worrisome, the market turned surprisingly quiet as soon as the “storm” passed. So, even though short-term risks remain high with respect to the global economy, the positive long-term picture, and the promise of further stimulus seem to be enough to maintain the bullish momentum in the stock market.
While the week’s economic releases were mixed, with the job market really giving bulls cause for concern. The ADP payrolls number, the Challenger job cuts estimate, and non-farm payrolls all disappointed, and even though the weekly jobless claims report and the unemployment rate were a bit better-than-expected, the consumer economy still faces headwinds. The ISM manufacturing and services both beat expectations by wide margins, with the former measure hitting its highest level in more than two years despite the COVID-related worries. Vehicle sales, factory orders, crude oil inventories all hinted at healthy demand in the face of the slightly troubling labor market trends.
Even though the Nasdaq showed notable weakness this week, the technical picture remains bullish across the board on Wall Street, with both the short- and long-term trends pointing upwards. The S&P 500, the Dow, and the Nasdaq are still all above their 50-day moving averages, and the benchmarks are also well north of their 200-day moving averages. Small-caps had a wild week amid the political uncertainty, but the Russell 2000 roared back following a bearish Monday session and close the week near its all-time high, above both its moving averages. The Volatility Index (VIX) spiked as high as 29 on Monday, but thanks to the recovery in stocks, it closed the week in the red, near the 21.5 level.
Market internals improved markedly in the second half of the week thanks to the broad-based rally, and all of the key breadth measures remain firmly in bullish territory. The Advance-Decline line surged to a new bull market high again to start the New Year, as advancing issues outnumbered decliners by an 8-to-1 ratio on the NYSE and a 5-to-1 ratio on the Nasdaq. The average number of new 52-week highs surged higher on both exchanges, rising to 241 on the NYSE and 203 on the Nasdaq. The number of new lows remained very low, edging lower plunging to 2 on the NYSE and 3 on the Nasdaq. The percentage of stocks above their 200-day moving average continues to creep higher, topping the 88% level for the first time in nearly a decade and finishing the week only slightly lower at 87.5%.
Short interest declined significantly despite a brief early-week spike, as the perceived political and economic uncertainty plunged. SunPower (SPWR) hit a new all-time high, erasing its late-December correction, and with its short interest still above 50%, it could be ready to push even higher in 2021. Nordstrom (JWN) also sports a very high short interest of 33%, and the battered retailer hit a new recovery high this week, hinting at another violent short squeeze. ViacomCBS (VIAC) remains in a furious uptrend as well, and it surged higher in the first days of the year, fueled, in part, by its days-to-cover (DTC) ratio of 10.
While we will get a few key economic releases next week, markets could settle down further following this week’s tumultuous trading, even though politics could provide surprises again. The NFIB Small Business Index will highlight Tuesday’s session, the Consumer Price Index (CPI) will be released on Wednesday, while the week will end with retail sales, industrial production, and the Michigan consumer sentiment number. The stimulus plans of President-elect Joe Biden could have the biggest impact on stocks, but the speculation regarding his tax and regulatory changes might also ramp up next week. Stay tuned!
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