Following four consecutive bullish weeks, stocks pulled back slightly this week, even though the major indices still managed to set record highs on Tuesday. The Dow hit another historic milestone, rising above the 28,000 level for the first time ever, but it also finished the week in the red due to the rising tension between the U.S. and China. The ongoing trade negotiations and the violent protests in Hong Kong continued to make headlines, and while the U.S. bill supporting the protesters could lead to a breakdown of the talks, on Friday, President Trump said that a finalized deal is still potentially very close. The trade uncertainty was likely behind this week’s shallow pullback, and the weakness in global stocks also weighed on domestic equities, but the large-cap benchmarks are still holding on to most of their recent gains ahead of the start of the holiday season.
This week was light on key economic indicators, but due to the release of the FOMC meeting minutes and the resurfacing trade-related worries, the Treasury market was very active. The housing market sent mixed signals, with the NAHB Housing Market Index, housing starts, and existing home sales all missing expectations, but with building permits surging higher unexpectedly in October. The meeting minutes were not a surprise for analysts, and it seems that the Fed may be done lowering interest rates for the time being. The Philly Fed Index and the Markit manufacturing PMI both signaled a slight improvement in the struggling sector, and the Markit services PMI also confirmed the continued slow growth of the U.S. economy.
The technical picture has not changed despite the pullback on Wall Street. All of the key trend indicators continue to point higher, as the major indices remain very close to their all-time highs. The S&P 500, the Nasdaq, and the Dow are still well above their rising 200-day moving averages, and the benchmarks are also above their steeply rising 50-day moving averages as well. Small-caps traded sideways this week, slightly outperforming the large-cap indices as measured by the Russell 2000, and the benchmark is still well above both its moving averages. The Volatility Index (VIX) remained in its short-term range in the face of the dip in stocks, as it finished the week flat, near the 12.5 level.
Market internals continue to show weakness from a short-term perspective, which could mean that the recent consolidation may continue next week. The Advance/Decline line was flat this week, as decliners outnumbered advancing issues by a 5-to-4 ratio on the NYSE, and by a 6-to-5 ratio on the Nasdaq. The average number of new 52-week highs dropped further on both exchanges, falling to 62 on the NYSE and 69 on the Nasdaq. The number of new lows ticked higher in the meantime, rising to 58 on the NYSE and 98 on the Nasdaq. The percentage of stocks above their 200-day moving average was stable, which is a very positive sign for bulls and confirms the resilience of stocks, even though the measure’s closing value of 60% is still relatively low.
Short interest remained stable this week, as the most-shorted issues performed in line with the broader market, despite the slight global risk-off shift. Planet Fitness (PLNT) has been grinding higher for almost two weeks, slowly squeezing shorts, and since the stock has a short interest of 45%, it might soon target its all-time high from earlier this year. MiMedx Group (MDXG) broke out of its short-term consolidation pattern this week, and its still very high short interest of 62% could fuel another rally in the stock. Henry Schein (HSIC) had a choppy but promising week, and since the stock has been consolidating its post-earnings gains for almost three weeks now, a breakout could be ahead, boosted by its very high days-to-cover (DTC) ratio of 17.
While this week’s slightly bearish price action could spill over to the coming holiday-shortened week, there will be plenty of key economic releases coming out in the first-half of the week that could affect financial markets. Tuesday’s CB consumer confidence number will be closely watched just days ahead of Black Friday, as investors will be looking for clues regarding the looming holiday season. The durable goods report will be out on Wednesday, together with the Chicago PMI, the core PCE Price Index, and personal spending, so we could still see fireworks ahead of Thanksgiving Day. The trade negotiations and the impeachment process will likely remain in focus, and since the U.S. and China both seem to be aiming to close the “phase-one” deal this year, we could be in for major announcements as soon as next week. Stay tuned!
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