Apart from the Nasdaq, which hit new all-time highs almost every day this week, the major indices spent most of the week in a narrow range with typical holiday trading conditions dominating Wall Street. That said, we witnessed plenty of brief intraday wild swings in this light-volume environment. The pandemic, along with domestic and global politics, provided plenty of headlines that moved the market. The monster rally in Chinese stocks supported global risk assets throughout the week. However, since a lot of emerging market economies are still under pressure due to the virus, it is way too early to conclude that the COVID-crisis is over. This is especially true given the record number of daily cases, both in the U.S. and globally, even though the fatality rate is declining as more and more tests are completed.
The key economic releases leaned bullish for the second week in a row, and the weekly unemployment report really put a smile on the faces of bulls. New claims dropped more-than-expected to a still very high 1.31 million, while the number of continuing claims also provided a positive surprise, falling to 18 million. The JOLTS job openings estimate blew expectations as well, and a quick job market recovery would be great news for the consumer economy. The ISM non-manufacturing PMI was also very strong, coming in at 57.1, its best reading in over a year, signaling a strong rebound in the crucial services sector. On a negative note, the IBD/TIPP sentiment number was well below expected, and the surge in crude oil inventories could mean that the second wave of outbreaks is starting to take its toll on demand.
Technicals were little changed this week, at least at the level of the large-cap indices, but the Nasdaq’s impressive relative strength and the Russell 2000’s weakness were both apparent. 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 clearly above their 200-day moving averages. Small-caps had a bearish week, especially compared to the tech benchmark, and the Russell 2000 closed the week below its 200-day moving average again, after touching its 50-day moving average on Thursday. The Volatility Index (VIX) dipped briefly below its 200-day moving average at the 25 level this week, for the first time in a month, but the fear gauge bounced back in the latter half of the week and closed near 28.
Market internals suffered a small hit due to the relative weakness of small-caps, but most of the key breadth measures continue to support the bullish case. The Advance/Decline turned lower, lagging behind the major indices this week, as decliners outnumbered advancing issues by a 3-to-2 ratio on the NYSE, and by a 6-to-5 ratio on the Nasdaq. The average number of new 52-week highs was virtually unchanged on both exchanges, jumping to 48 on the NYSE, but falling to 97 on the Nasdaq. The number of new lows also rose in the meantime, ticking higher to 5 on the NYSE and 12 on the Nasdaq. The percentage of stocks above their 200-day moving average was virtually unchanged in the low-volatility environment, closing the week slightly lower near the 38% level.
Short interest was stable this week as trading activity plunged across the board, but several heavily-shorted stocks made headlines as the Nasdaq continued to march higher. Angi Homeservices (ANGI) continued its breakout, hitting new recovery highs again, and the stock still sports a very high short interest of 60%, despite its lofty gains. Tesla (TSLA) continued to hit new record highs this week, to the horror of its short-sellers, the stock’s short interest is still in the double-digits, which means that bears are still under a lot of pressure. Current GorillaPick, Charter Communications (CHTR), crept higher in the quiet environment, getting very close to its all-time high, and given its days-to-cover (DTC) ratio of 8, it could be ready for a technical breakout in the coming weeks.
We will have a much busier week with regard to economic releases, with earnings season also kicking off, so although volume will likely remain light, volatility might tick higher. The Consumer Price Index (CPI) will be out on Tuesday, industrial production will be released on Wednesday, retail sales and the Philly Fed Index will highlight Thursday’s crazy session, and the week will end with housing starts, building permits, and the Michigan consumer sentiment number. The Bank of Japan (BOJ) and the European Central Bank (ECB) will also be in action, and the ECB’s monetary meeting, in particular, has the potential to have a significant impact on financial markets on Thursday. Investors will be closely watching the COVID-related numbers, especially the hot spots in the Sun Belt, but from a long-term perspective, the trends in the hardest-hit emerging markets will also be crucial. Stay tuned!
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