For a lot of investors, it might seem like this year, Good Friday was not a holiday, as there was enough action on Wall Street to fill not one, but even two weeks. Equities experienced volatile swings every day, and although it’s hard to speak about an established rising trend, the major indices finished well off their weekly lows, with the Dow, the S&P 500, and even the relatively weak Nasdaq edging higher. The tech benchmark was under pressure for most of the week, as two important members of the index, Facebook, (FB) and Amazon (AMZN) were hit hard, while the nosedive of Tesla (TSLA) also weighed on sentiment. Trade war fears continued to cause fear as well, although all-in-all, the Gorilla thinks that investors overreacted to the issue.
The last week of the quarter was not only short, but the economic calendar was also empty, leaving the market alone to deal with technicals and regulatory speculations, as the few indicators that came out were mixed. The final GDP print was revised significantly higher, and weekly jobless claims fell unexpectedly, boosting the outlook for the labor market. On the negative side, the CB Consumer Confidence Index was much weaker than expected, and the Chicago PMI signaled a slowdown in activity. Despite the lack of catalysts, the bond market was very active, as Treasury yields, especially at the long-end of the curve, reversed their recent gains and turned sharply higher. The “collapse” of the yield curve continued because of those factors, and the bond-gauge is now the flattest it has been in 11 years, as long-term growth prospects are being questioned.
The volatile consolidation left the technical picture virtually unchanged, with the conflicting long- and short-term signals still in place with regard to the major indices. The Dow, the S&P 500, and the Nasdaq are below their declining 50-day moving averages, but well above their 200-day indicators, signaling a bearish short-term and a bullish long-term trend. Small caps performed in-line with the broader market after a period of encouraging strength, and the Russell 2000 is now in a similar position to the majors relative to moving averages too. The Volatility Index (VIX) reflected the hectic price action, as it remained close to the line-in-the-sand 20 level, finishing way off the previous week’s high near 25.
Market internals improved notably thanks to the stability in stocks, and with positive divergences showing up in some key measures, the Gorilla is now more optimistic about the outlook. The Advance/Decline line is still showing resilience, as it outperformed the indices yet again, with advancing issues outnumbering declining stocks, by a 3-to-1 ratio on the NYSE and by a 3-to-2 ratio on the Nasdaq. The average number of new 52-week highs declined again on both exchanges, falling to 28 on the NYSE, and 44 on the Nasdaq. Interestingly, the number of new lows also declined, dropping to 120 on the NYSE, and 59 on the Nasdaq. The percentage of stocks above their 200-day moving average remained depressed despite the slight increase in the benchmarks, and it still stands just below 50%, indicating weak participation in the bull market.
The second half of the week was great for the most shorted stocks again, especially Thursday’s broad short-covering rally, as scared bears were looking for the exits before the long weekend. A classic short squeeze ensued in the market of furnishing store RH (RH), as the shares of the company climbed by more than 30% in two days, fueled partly by its short interest of 42%. Carvana (CVNA) continued to deliver returns despite the mixed market, adding another 10% during the week, while short interest only dropped to 48%. Public Storage (PSA) was one of the best performers of March and the last week of the month as well, and given its days-to-cover (DTC) ratio of 10, the stock could remain bullish in the second quarter too.
This week, there will be only a few crucial economic releases coming out again, but this time the Gorilla expects a bigger impact on stocks, at least as far as the government jobs report is concerned. Jobs Friday is always an exciting day for traders, and while the ISM manufacturing and non-manufacturing indices are less in the spotlight, the Fed monitors those closely as well. With that in mind, the recently active bond market could turn volatile on Monday and Wednesday too, but otherwise, technical factors could still play a very important part in price action. The Gorilla hopes that the U.S.-Chinese trade talks will remain on track, and that there won’t be any new entrants to the still mostly verbal tariff-wars. Thus, investors will turn back to the solid fundamentals, driving another leg higher in the bull market. Stay tuned!