The slow COVID-19-related improvements continued this week globally. However, risk assets pulled back following the furious post-crash rally due to the mounting economic worries. Stocks finished the slightly chaotic week lower as the historic plunge in the price of oil spooked investors, raising tough questions about the long-term economic effects of the pandemic. The price of crude oil for May delivery fell to an insane minus-$38 per barrel due to the unprecedented demand shock. While energy markets settled down toward the end of the week, the pressure on the sector is unlikely to ease anytime soon. On a positive note, domestic stocks are showing clear signs of relative strength, which bodes well for bulls for the post-virus recovery.
This week’s key economic releases leaned bearish, both domestically and internationally, and the long-term impact of the worldwide lockdowns is still uncertain, despite the global easing efforts. The U.S. economy lost all of the jobs gained since the financial crisis, according to the more than 26 million unemployment claims filed in only five weeks. Durable goods orders, new home sales, and the U.S. and European manufacturing and services PMIs all missed expectations as well, with only the U.S. manufacturing PMI and the Housing Price Index providing something to cheer about for bulls. Treasury yields were drifting sideways this week, as safe-haven flows remain strong even amid the improving COVID-19 news flow.
The technical picture remains mixed on Wall Street, despite the deterioration in the first half of the week, and the Nasdaq is still easily the strongest looking benchmark according to the most reliable indicators. The S&P 500 and the Dow closed the weak near their declining 50-day averages, while the Nasdaq managed to rally back above its short-term moving average. The tech benchmark is also above its 200-day moving average, but the Dow and the S&P 500 remain well below their long-term indicators. Small-caps had a stable week, especially compared to their lackluster performance earlier in the month, but the Russell 2000 is still well below both its moving averages. While the Volatility Index (VIX) bounced higher as stocks pulled back, the fear gauge dipped back below its rising 50-day moving average and closed the week at 38, near its seven-week low.
Market internals continued to diverge in a negative fashion despite the Russell 2000’s stable week, so it’s still early to conclude that the COVID bear market is over. The Advance/Decline line moved in line with the major indices this week, as decliners outnumbered advancing issues by a 2-to-1 ratio on the NYSE, and by a 3-to-1 ratio on the Nasdaq. The average number of new 52-week highs rose on both exchanges, ticking higher to 16 on the NYSE and 28 on the Nasdaq. The number of new lows also increased, rising to 18 on the NYSE and 31 on the Nasdaq. The percentage of stocks above their 200-day moving average was stable despite wild moves this week, as the measure finished the week virtually unchanged near 18%.
Short interest ticked higher following last week’s historic short squeeze, as the collapse in the price of oil led to increased hedging activity and a broad risk-off shift. iRobot (IRBT) had a great week in the face of the broad pullback, and since the stock now erased all of the COVID-crash, its short interest of 51% could mean that a short squeeze lies ahead. Sea Limited (SE) has been trading just below its all-time high throughout the week, and its still very high short interest of 45% suggests that its technical breakout will soon resume. Rollins (ROL) popped up on the list with the highest days-to-cover (DTC) ratios, with a reading of 8 this week, and judging by the stock’s relative strength in recent months, its bull market is unlikely to be over.
Investors are in for a huge week of economic releases, corporate earnings, and central bank meetings, meaning that financial markets will likely be very active again. The Fed and the European Central Bank (ECB) will hold their monetary meetings on Wednesday and Thursday respectively, and the ECB has the potential to cause turmoil, especially if the leaders of the European Union (EU) fail to agree on a sizable stimulus package until then. The CB consumer confidence number will be released on Tuesday, the first reading of the first-quarter GDP is scheduled for Wednesday, the Core PCE Price Index and new jobless claims will come out on Thursday, and the week will end with the ISM manufacturing PMI. Stay tuned!
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