State of the Stock Market Analysis for the Week Ending on April 21st, 2019 (Mixed Major Indices | State of the Stock Market 04-21-19)

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The major indices were mixed this week, as although the Nasdaq drifted higher and the Dow closed virtually unchanged, the S&P 500 lost some ground ahead of the holiday weekend. This divergence is typical in earnings seasons, and it was even more pronounced between the key sectors. Healthcare stocks had a lackluster week, while tech stocks, consumer goods, and industrials all performed better than the broader indices. With the risk of a no-deal Brexit now out of the way, volatility and trading activity remained subdued, even in the wake of sizable earnings surprises. Although the other main risk factor (the trade war with China) continues to be concerning, the better-than-expected Chinese economic numbers and the global rally in risk assets gave bulls reason to smile.

Economic releases were decisively bullish this week, with especially the retail sales report blowing the consensus estimates away. Both the headline and the core indicators came in well-above-expectations, and the more stable core measure’s previous reading was also revised higher. The smaller-than-expected increase in wholesale inventories also confirms the demand-side strength in the economy, although the manufacturing sector continues to send mixed signals. The Empire State Manufacturing Index beat expectations in March, but industrial production, capacity utilization, and the Philly Fed Index all came in below forecast. Thanks to the upbeat releases both domestically and internationally, Treasury yields continued to climb higher, but that still was not even enough to cause a correction in equities.

The key technical indicators are still bullish across the board, despite the quiet and neutral week, and the major indices continue to trade in rising short and long-term trends. The Dow, the S&P 500, and the Nasdaq are each above their rising 200-day moving averages, while also being clear of their steeply rising 50-day moving averages. Small-caps remained alarmingly weak during the holiday-shortened week, as the Russell 2000 fell back below its 200-day moving average. The Russell is still above its 50-day moving average, though, despite being far away from its all-time high. The Volatility Index (VIX) continues to trend lower, as it fell as low as 11 this week, hitting yet another six-month low, and it closed the week near 12 on Thursday.

Market internals deteriorated somewhat in the latter half of the week due to the weakness in small-caps, but the most reliable breadth indicators remain bullish, even though an orderly pullback may be ahead. While the Advance/Decline line hit new bull market highs for weeks, it pulled back this week, even though advancing issues outnumbered declining stocks by a 3-to-2 ratio on the NYSE, and by a 2-to-1 ratio on the Nasdaq. The average number of new 52-week highs continued to edge lower on both exchanges, dropping to 97 on the NYSE and 83 on the Nasdaq. The number of new lows increased in the meantime, rising to 24 on the NYSE and 50 on the Nasdaq. The percentage of stocks above their 200-day moving average fell for the first time in several weeks, but the indicator is still well above the 50% threshold, finishing the week near 56%.

Although we saw increased hedging activity due to earnings season, the new Brexit deadline and the encouraging global trends pushed short interest even lower on Wall Street. While Conn’s (CONN) has been lagging the broader market this year, it has been steadily drifting higher for months, and given the fact that it has a short interest of 40%, the move could gather momentum in the coming weeks. Microchip Technology (MCHP) continued to impress in the wake of its recent breakout, and since the stock still sports a very high days-to-cover (DTC) ratio of 13, the rally could accelerate. Snap-on (SNA) has been consolidating since late-January, but it exploded higher on Thursday after releasing its earnings and boosted by its DTC ratio of 13, the stock could soon be headed toward last year’s high.

We will have a relatively calm week regarding economic releases, with the housing market and manufacturing being in focus. Existing home sales will be out on Monday, and new home sales, the Housing Price Index, and the Richmond Manufacturing Index will highlight Tuesday’s session. And on Wednesday, we will only have the weekly crude oil inventory data coming out. The week’s two most important releases, the durable goods report and the advance GDP print, will be out on Thursday and Friday, respectively. The second half of the week will likely also see more activity due to the holidays. With more than $4 trillion in market cap reporting, earnings will likely have a huge impact on stocks next week, and day-to-day volatility could increase substantially, especially in the tech, energy, and industrial sectors. Stay tuned!


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