Stocks started the week where they left off on Friday, as quiet, albeit slightly nervous, trading continued the first two days of the week. As COVID-related headlines got worse and worse, volatility picked up again in the second half of the week, with the resurfacing of trade-related worries and continued economic uncertainty also weighing on risk assets. On a positive note, geopolitical tensions eased in Asia, and despite the resurgence of the virus in the U.S., financial markets stabilized ahead of the weekend break. That said, the divide between the tech sector and the rest of the market remains apparent. The Nasdaq hit a new record this week, mind you, but with the pandemic still raging in several fragile countries, volatility might stay with us for a long time.
The key economic releases again painted a mixed picture, with sizable bullish and bearish surprises both in the U.S. and globally. The durable goods report, the Richmond Manufacturing Index, the Core PCE Price Index, and new home sales all beat the consensus estimates, but the Markit manufacturing and services PMIs, new jobless claims, personal spending, and existing home sales missed expectations. The jobless claims report was not all negative, though, as the number of continuing claims dropped below 20 million for the first time in a month, despite the grand total of 47 million claims in the past few months. The fact that the European PMIs beat expectations across the board also made bulls smile as the global economy will need a lot of support from the developed world in light of the pandemic’s impact on emerging markets.
The technical picture deteriorated again on Wall Street, due to Wednesday’s steep selloff, but while the Dow and the S&P 500 have not made much progress in the past few weeks, the market-leading Nasdaq remains in a strong bullish trend. The S&P 500, the Dow, and the Nasdaq all closed the week above their 50-day moving averages, and apart from the Dow, the indices are also above their 200-day moving averages. Small-caps lagged the broader market this week as the Russell 2000 was hit very hard on Wednesday, and the index closed the week below its 200-day moving average. The Volatility Index (VIX) had a choppy week, spiking above the 34 level several times before finishing above its 50-day moving average, confirming the lingering COVID-related uncertainty.
Market internals suffered a blow on Wednesday as well, but despite the broad selloff, most of the key breadth measures still support the bullish case. The Advance/Decline ratio continued to closely track the major indices, as decliners outnumbered advancing issues by a 5-to-1 ratio on the NYSE, and by a 4-to-1 ratio on the Nasdaq. The average number of new 52-week highs increased on both exchanges, edging higher to 25 on the NYSE and 75 on the Nasdaq. The number of new lows also ticked higher in the meantime, rising to 7 on the NYSE and 6 on the Nasdaq. The percentage of stocks above their 200-day moving declined due to the relative weakness of small-caps, closing the week near 34%, well below the recent high.
Short interest was relatively stable this week, although with considerable changes during the week, as the most-shorted issues turned volatile together with the broader market. Match Group (MTCH) hit a new all-time high again this week, showing clear signs of relative strength, and given its short interest of 73%, bears might be in for a very hot summer. While Angi Homeservices (ANGI) followed the major indices lower in the second half of the week, it remains near its recent high, and its short interest of 59% means that the stock could soon resume the rally. Current GorillaPick, Hormel Foods (HRL), has been consolidating since April, settling down in a narrow range, but should the stock break out of its range, its days-to-cover (DTC) ratio of 11 could provide ample support for a strong move.
The job market will be in focus next week, in terms of economic releases, and given the huge surprises of the past weeks, both negative and positive, traders will not be bored. Pending home sales will be released on Monday, the CB consumer confidence number will be out on Tuesday, the ADP payrolls number and the ISM manufacturing PMI will highlight Wednesday’s session. The week will end with the government jobs report on Thursday, ahead of the long July 4 weekend. The end of the second quarter could also lead to wild swings across asset classes as a lot of institutions will be forced to rebalance their portfolios in the wake of the COVID crash and the subsequent recovery, so buckle up for a tumultuous holiday-shortened week. Stay tuned!
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