Stocks finished the week slightly lower, following a string of choppy sessions, with several sudden intraday shifts making traders dizzy on Wall Street. Despite the pressure of the looming elections, the stimulus saga continued throughout the week. The second European COVID wave got even worse, while the number of cases crept higher in the U.S. as well. However, the pressure on the domestic healthcare system remains manageable, and the economic recovery seems to be on track. The new multi-month highs in Treasury yields also hint at an improving economic outlook, despite the global risks, and corporate earnings rebounded strongly in the third quarter as well, according to this week’s reports.
While this week was relatively short on crucial economic releases compared to last week’s data bonanza, we still got several encouraging reports, especially from the housing market. Building permits, the NAHB Housing Market Index, and existing home sales all beat expectations in September, and even though housing starts missed slightly, the sector remains one of the engines of growth in the U.S. The weekly jobless claims report was bullish across the board as well, as new claims dropped below 800,000 for the first time since mid-March, while continuing claims also fell by over 1 million again, finally plunging below 10 million. The Markit manufacturing PMI slightly missed expectations, but the very strong services PMI means that the domestic economy continues to grow at a healthy pace.
While the rally has hit a brick wall in the past two weeks, the technical picture remains bullish in all time-frames, with the major indices holding slightly below their recent highs. The S&P 500, the Dow, and the Nasdaq all managed to stay above their 50-day moving averages, and the benchmarks remain well above their 200-day moving averages as well. Small-caps continue to be relatively strong from a technical perspective, which is great news for the broader market too, and the Russell 2000 finished the week clearly above both its moving averages again. The Volatility Index (VIX) spiked above 30 amid the choppy pullback this week, hitting a one-month high in the process, but the “fear gauge” remains stuck between its 50- and 200-day moving averages despite the considerable political and economic uncertainty.
Market internals remained generally bullish despite this week’s mixed price action, and since small-caps held their ground, the basis of the rally still seems solid. The Advance-Decline line remains below its recent bull market high, as decliners outnumbered advancing issues by a 6-to-5 ratio on the NYSE and a 3-to-2 ratio on the Nasdaq. The average number of new 52-week highs declined on both exchanges, falling to 45 on the NYSE and 49 on the Nasdaq. The number of new lows crashed in the meantime, plunging to 12 on the NYSE and 23 on the Nasdaq. The percentage of stocks above their 200-day moving average was virtually unchanged this week, despite dipping lower in the first half of the week, as the measure closed the week near the 64% level again.
Short interest ticked higher at the beginning of the choppy week, but while the total amount of bearish bets is above the levels seen in August, there is still no sign of a major risk-off shift on Wall Street. Current GorillaPick, National Beverages (FIZZ), continued to march higher this week, hitting a fresh two-year high, and with its short interest now standing at 63%, the stock could soon spike back above the $100 per share level. Revolve Group (RVLV) also sports a sports interest of 47%, and in light of this week’s breakout, the stock might be ready for another leg higher in its recovery. Snap-on (SNAP) got even closer to its all-time high thanks to its post-earnings pop this week, and since the stock has a very high days-to-cover (DTC) ratio of 14, shorts could soon be under a lot of pressure.
The pre-election week could see an increase in volatility on Wall Street, especially as liquidity might take a hit before the vote, but there will be plenty of crucial economic releases for the market to “digest.” New home sales will be out on Monday, durable goods orders and the CB consumer confidence number will highlight Tuesday’s session, the advance GDP print and pending home sales will be released on Thursday, and the week will end with the Core PCE Price Index, personal spending, and the Chicago PMI. The European Central Bank’s (ECB) monetary meeting could also significantly impact financial markets, especially since the Old Continent continues to suffer from the most serious COVID outbreak in the world. Stay tuned!
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