State of the Stock Market Analysis for the Week Ending on September 16th, 2018 The Stock Market Recovers From Last Week 9-16-18)
Stocks recovered well after kicking off September on a negative note, and the major indices are once again just below their all-time highs following last week’s healthy rally. The Dow led the market for the second week in a row, hitting an eight-month high on Thursday. It is now very close to fully erasing the correction that began in January, following in the footsteps of the Nasdaq and the S&P 500. While overseas markets are not looking much better, despite last week’s improvements, investors continue to focus on the booming economy, while shrugging off international headwinds, the threat of Hurricane Florence, rising yields, as well as trade war worries.
The economic calendar was once again very busy, with the last half of the week bringing the most excitement. Despite the miss in the highly anticipated retail sales report, stocks survived the Friday data bonanza unscathed, since the stronger-than-expected industrial production and Chicago sentiment numbers saved the day. Before that, both consumer and producer prices missed the consensus estimate, which cooled down inflation fears going into next week’s crucial Fed meeting on Wednesday, September 26th. Despite the relatively slow price increases, Treasury yields continued to rise, especially with regards to the shorter end of the curve, but the 10-year yield also topped 3% for the first time since May, thanks to great economic trends.
Technicals improved once again thanks to the rally in the major indices, as the short- and long-term trends are both clearly positive according to the most important indicators. The Dow, the S&P 500, and the Nasdaq are still above their rising short-term moving averages, and all three benchmarks are well north of their rising 200-day moving averages as well. The Russell 2000 slightly lagged the broader market last week, but on Friday, the Russell 2000 outperformed the major indices, which is a great sign for the coming week. The Volatility Index (VIX) opened above 15 on Monday, but declined sharply throughout the week and finished near 12, as investor sentiment improved significantly.
Market internals are causing some headaches for bulls, though, as not all of the most reliable measures followed the major indices higher, in part, because of the slight weakness in small-caps. Although the Advance/Decline line edged higher last week, it failed to gain momentum, even 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 virtually unchanged on both exchanges, rising to 103 on the NYSE and 125 on the Nasdaq. The number of new lows edged higher, rising to 98 on the NYSE and 89 on the Nasdaq. Bulls were glad to see that the percentage of stocks above their 200-day moving average ticked higher, even though Friday’s 51% level is still far from being stellar.
The most-shorted issues continued to perform in-line with the broader market, but as investor sentiment improved, there were several outstanding performances in the segment. Match Group (MTCH) finally broke out of a consolidation pattern and surged by almost 15% in a week, boosted by its sky-high short interest of 52%. Current GorillaPick Hormel Foods (HRL) confirmed its previous week’s bullish move, getting closer to its all-time high. Additionally, the days-to-cover (DTC) ratio is still at 16, which could mean more upside in the days ahead. Snap-on (SNA) also continued to squeeze shorts, hitting a new all-time high for the first time this year, and with a DTC ratio of 12, the stock could extend its rally in the coming weeks.
The first half of the week will be relatively quiet with regard to key economic releases, with only the Empire State Index coming out on Monday. On Wednesday, the housing market will be in the spotlight, with building permits and housing starts both being released before the bell. We will have the Philly Fed Index, existing home sales, and the CB Leading Index coming out on Thursday, and there are no key releases scheduled for Friday. Trade tariffs will likely stay in the spotlight after the President’s announcement on Friday, while the East Coast tries to recover from the devastation of Florence. Bulls still have every reason to remain positive, though, given the resilience of the major indices, along with the constructive technicals. Stay tuned!
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