State of the Stock Market Analysis for the Week Ending on March 24th, 2019 (Stocks Virtually Unchanged 03-24-19)
The bull market proved its strength yet again this week, as although there were more than enough negative catalysts to cause turmoil in financial markets. Stocks, however, finished the week virtually unchanged. Most of the gains came following the Fed’s scheduled meeting, but since Treasury yields only dropped below pre-Fed levels on Friday, it would be misleading to say that the Central Bank’s dovish message was the only thing that helped to support equities. That said, the fact that investors are now confident that the Fed won’t hike rates this year definitely helped risk assets, both domestically and globally. On the other hand, without stable growth and healthy corporate profits, there wouldn’t be enough to maintain the advance in stocks, and Friday’s bearish session proved just that in the wake of the dismal European economic numbers.
The Brexit saga and the trade talks with China continue to make headlines and affect day-to-day fluctuations on Wall Street, but from a broader perspective, economic trends have had a much bigger impact. This week, the most important indicators provided bullish surprises, with the Philly Fed Index, in particular, boosting investor confidence. Weekly new jobless claims were lower-than-expected, while the CB Leading Index also beat the consensus estimate. On a negative note, factory orders added to the concerns regarding the manufacturing sector, and the NAHB Housing Market Index also came in slightly below expectations.
The technical picture continued to improve thanks to the post-Fed advance, and the S&P 500 and the Nasdaq are now within striking distance of their all-time highs, with the relatively weak Dow not far behind. The three benchmarks are still all above their rising 200-day moving averages, while being well clear of their rising 50-day moving averages as well. Small-caps continue to look weak, as the Russell 2000 remains stuck below its February high and its declining 200-day moving average, although it is still north of its rising short-term moving average. The Volatility Index (VIX) finished the week higher, despite the rally in the major indices, finishing the week near the 15 level, after rocketing higher on Friday.
Market internals had a mixed week, as the most reliable measures deteriorated ahead of the Fed meeting, but rebounded strongly in the second half of the week thanks to the broad-based rally. The Advance/Decline line hit new bull market highs again, as advancing issues outnumbered declining stocks by a 3-to-1 ratio on the NYSE, and by a 4-to-1 ratio on the Nasdaq. The average number of new 52-week highs was stable on both exchanges, edging lower to 122 on the NYSE and climbing to 105 on the Nasdaq. The number of new lows increased slightly in the meantime, rising to 26 on the NYSE and 40 on the Nasdaq. The percentage of stocks above their 200-day moving average increased for the second week in a row, and the still weak measure topped 50% again, thanks to Thursday’s rally.
While short interest briefly spiked higher ahead of the Fed meeting, hitting its highest level in three months, the number of bearish bets declined somewhat in the second half of the week. Conn’s Inc. (CONN) fell by more than 50% in the second half of 2018, but the stock staged a nice recovery over the first three months of this year, and given its short interest of 40%, the rally could still gain momentum. Carvana (CVNA) continued to drift higher this week, and although the stock may need a breather in light of its recent stellar gains, its short interest of 60% means that bulls could be in for further profits. Rollins (ROL) also finished 2018 on a volatile note, but the stock is now close to its all-time high, and since it sports a days-to-cover (DTC) ratio of 11, a breakout could be imminent.
The last week of March will be a very busy one with regard to economic releases, with key reports coming out from several sectors. While the economic calendar will be empty on Monday, on Tuesday we will have the Case-Shiller Housing Price Index, building permits, housing starts, and the CB Consumer Confidence number. Needless to say, traders will be in for an eventful day. The trade balance and the current account balance will highlight Wednesday’s session, the final reading of the fourth quarter GDP and pending home sales will be out on Thursday, and the week will end with the core PCE Price Index, personal spending, and the Chicago PMI. While it’s difficult to predict anything regarding the Brexit saga, it currently seems likely that we will have another vote on British Prime Minister Theresa May’s plan sometime next week. However, another rejection could spell trouble for bulls. Stay tuned for another eventful week on Wall Street!
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