It’s a year of records for the Dow, as the mega cap index hit 20,000, 21,000, and 22,000 for the first time in a six-month period, as the “Trump-Rally” seems to be favoring the largest companies. The broader benchmarks have been lagging the Dow recently, as the index closed at an all-time high for a record-breaking eight times in a row. The investigation regarding the Russia’s “interference” in the election reached the phase where markets started to care, as the bipartisan moves could be hints of a possible impeachment try down the road. Either way, uncertainty is something that investors don’t like. In the meantime, the earnings season is slowly drawing to an end, but the largest public company, Apple (AAPL), provided a boost to the market last week, beating estimates across the board.

Before Friday’s government jobs report, economic numbers continued to disappoint the market, putting further downward pressure on Treasury yields and the dollar. The ISM manufacturing and non-manufacturing PMIs both missed expectations, the latter by a wide margin, signaling more weakness in the consumer segment. Pending home sales came in above consensus, but it took a decent jobs report to finally change the “slowing economy” narrative, at least for now. Non-farm payrolls rose by 209,000 in July, and the June number was also revised upwards, with hourly earnings growth finally matching expectations. Stock traders were not that impressed by the report, as the major indices barely budged on Friday.

Technicals are still mostly bullish, but last week was full of divergences, and especially the negative performance of small caps, which is a worrisome sign. The Dow continued to lead the market higher, but the Nasdaq and the S&P 500 also remained above their 50- and 200-day moving averages, despite their relative weakness. The Russell 2000 dropped below its 50-day average thanks to its lackluster performance, and although the long-term average is still below that level, the Gorilla will keep an eye on small caps in the coming weeks. Still, the major indices are only slightly off their all-time highs, and the Volatility Index (VIX) is also showing optimism among investors, closing back in single digits after the spike above 11 just ten days ago.

Market internals took another hit, as the largest companies led the advance while small caps dragged it down. The Advance/Decline line declined in the second half of the week, although advancing issues still outnumbered declining stocks, by a 2-to-1 ratio on the NYSE and by a 3-to-2 ratio on the Nasdaq. The average number of new 52-week highs dropped further on both exchanges, falling to 138 on the NYSE, and 84 on the Nasdaq. The number of new lows more than doubled as another sign of weakness, rising to 45 on the NYSE, and 97 on the Nasdaq. The ratio of stocks above their 200-day moving average continued to decline as well, hitting 64% in the second half of the week.

Short interest remains at depressed levels despite the recent weakness, as the energy sector is still the primary pick for bears. The earnings season provided some interesting setups, such as the situation of GoPro (GPRO). The shares of the battered company jumped by 20% on a favorable report, and with short interest still at 44%, shorts could be in for a wild ride. Seritage Properties (SRG) also had a strong week, as it got close to $50 per share with a 7% gain, with the short interest still standing at 56%. Iron Mountain (IRM) jumped to second place on the list with the highest days-to-cover (DTC) ratio with a reading of 17, while the stock hit a new 6-month high. Hanesbrands (HBI) also continued to burn shorts after its earnings release, and with a DTC ratio of 13, there might be a lot left in the tank.

With the Fed admittedly being worried about the level of inflation, Friday’s CPI report is arguably the most important economic release of the otherwise quiet week. The PPI index will also come out on Thursday, but other than that, only the speeches of some of the FOMC members could cause turmoil. All eyes will be on the next chapter of the Trump-Russia saga, especially after the summoning of the Grand Jury by Special Counsel Mueller on the matter. While the investigation might take a long time, the surrounding uncertainty could be weighing on the already fragile market in the coming weeks. That said, the Gorilla hopes that the resilience of equities will be back with a vengeance and that the broader indices will join the Dow in the rally. Stay tuned!