State of the Stock Market Analysis for the Week Ending on October 11th 2020 Major Indices Hit One Month Highs | State of the Stock Market 10-11-20All You Need Is Jobs

The short-term technical picture turned clearly bullish as the major indices hit new one-month highs and left their lows from September behind, and the advancing long-term trend is in no danger. The S&P 500, the Dow, and the Nasdaq are now all above their 50-day moving averages, and the benchmarks are also well clear if their 200-day moving averages. Small-caps experienced an explosive rally, as the Russell 2000 finished the week significantly above both its moving averages after hitting its highest level since February. The Volatility Index (VIX) continued to be trapped between its short and long-term moving averages, and the “fear gauge” remains at a very high level compared to the price action in the major indices despite hitting a one-month low on Friday.

Market internals improved significantly thanks to the Russell’s blowout week, and several key breadth measures reached their most bullish levels of the post-crash recovery in the wake of the broad-based rally. The Advance-Decline line surged to a new bull market high, as advancing issues outnumbered decliners by a 9-to-1 ratio on the NYSE and a 6-to-1 ratio on the Nasdaq. The average number of new 52-week highs increased on both exchanges yet again, surging to 106 on the NYSE and 108 on the Nasdaq. The number of new lows declined in the meantime, plunging to 4 on the NYSE and 5 on the Nasdaq. The percentage of stocks above their 200-day moving average hit a new recovery high as well, blowing past 60% and closing the week near the 64% level.

Short interest declined significantly on Wall Street, despite the still high level of economic and political risk, and the most-shorted issues had a memorable week as small-caps soared to new recovery highs. Current GorillaPick, National Beverages (FIZZ), popped higher this week, which could mean that the stock’s correction is over, and its short interest of almost 60% might lead to another short squeeze. Another current GorillaPick, Robot (IRBT), also looks ready to continue its strong bullish trend on the heels of this week’s gains, with the help of its very high short interest of 40%. Snap-On (SNA) already hit a new recovery high this week, erasing almost all of its COVID losses, and its very high days-to-cover (DTC) ratio of 10 could mean that an old-fashioned short squeeze is ahead.

The week will be packed with key indicators, such as Tuesday’s Consumer Price Index (CPI), Wednesday’s Producer Price Index (PPI), Thursday’s Philly Fed Index, and Friday retail sales report on Friday. The earnings season will start to heat up too. Because of the extraordinary circumstances, the mega-cap banks’ numbers will likely be even more closely-watched than following a normal quarter. It seems likely that the second presidential debate will not happen next week, but that does not mean that politics and the campaign will not take center stage. The stimulus saga will surely have a huge impact on the market, but another batch of positive economic releases would likely be enough to keep the rally going. Stay tuned!

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