The major indices had a very busy trading week with wild swings in both directions, just to close virtually unchanged, amid the escalating trade war between the U.S. and China. The change in market behavior is stunning since the February crash, as this year, there have already been more than 20 sessions with the Dow trading in 400-point or more range, while in 2017 there was only one session all year. Besides the back-and-forth tariff announcements with China, Donald Trump also made headlines with his verbal crackdown on Amazon (AMZN) that weighed on the Nasdaq all week long. Given the negative news flow and the bearish investor sentiment, the performance of the benchmarks is commendable, even considering the rather ugly Friday session.

Regarding economic releases, all eyes were on the government jobs report on Jobs Friday, while the ISM manufacturing and non-manufacturing PMIs were also at the center of attention. The overall picture was clearly negative, with the headline payrolls number missing the consensus estimate by a mile, and the PMIs also coming in below expected. Adding to the negative news, the unemployment rate was unchanged at 4.1% in March, although analysts expected a slight decrease in the key indicator. Weekly jobless claims jumped higher unexpectedly, to a still low 242,000, and it’s no surprise that Treasury yields finished the week close to unchanged, as the economic outlook deteriorated slightly.

The technical picture hasn’t changed much despite the volatile days in equities, as the main benchmarks are still stuck between their declining 50-day and their rising 200-day moving averages. The S&P 500 is in the weakest technical position, as it spiked below its long-term average several times last week, and only closed a hair above the indicator. The Dow also touched its 200-day moving average on Monday, while the still relatively strong Nasdaq only got close to its measure. Small caps performed in line with the broader market once again, with the Russell 2000 finishing the week slightly in the red. The Volatility Index (VIX) continues to hover around the key 20 level, closing near 21.50 after Friday’s selloff, as investor sentiment is still dominated by fear.

Market internals continue to show modest positive divergences, as the broad mid-week rally helped in the healing of the most reliable measures. The Advance/Decline line is one of the most promising indicators, being well above its February low, as advancing issues outnumbered declining stocks by a 3-to-2 ratio on the NYSE and by a 3-to-1 ratio on the Nasdaq. The average number of new 52-week highs ticked lower on both exchanges, falling to 27 on the NYSE, and 37 on the Nasdaq. The number of new lows diverged, dropping to 77 on the NYSE, while rising to 83 on the Nasdaq. The percentage of stocks above their 200-day moving average is still below 50%, and Friday’s selloff pushed the measure down to the very low 45% level.

The most shorted issues were very active again, with several intraday short squeezes putting pressure on bears in the volatile environment, while overall, short interest increased a bit. SeaWorld (SEAS) had a blowout week after one and a half months of consolidation, with the stock gaining more than 10%, with the short interest standing at 41%. Diamond Offshore (DO) climbed to the top of the list with the highest days-to-cover (DTC) ratios, with a reading of 16, and the stock also hit a new 2-month high last week thanks to the almost 15% rally. Iron Mountain (IRM) had a positive week too, the second in a row, and given the DTC ratio of 12, the recovery might even accelerate in the stock.

Traders are in for a relatively calm week concerning economic releases, although the few indicators coming out could have a significant impact on stocks. Lately, the PPI and CPI indices, scheduled for Tuesday and Wednesday, respectively, were crucial for investors, as inflationary fears became mainstream again. The Gorilla expects nervous trading to continue, as Chinese-U.S. trade relations went from bad to worse last week, although a quick resolution of the dispute could be a major bullish catalyst. The fact that the major indices held up above the key technical support levels in the face of the horrible news flow should make bulls confident before the start of the earnings season. The Gorilla thinks that with the long-term trend still clearly being positive, the current correction could provide a healthy basis for another strong rally. Stay tuned for a busy week!