Even though this week could have been a very quiet one following the volatile Election Week and the major indices traded in relatively narrow ranges around Veteran’s Day, Monday’s epic vaccine rally will likely go down in history. The much better-than-expected vaccine test result from Pfizer changed the long-term outlook for whole asset classes while giving hope for a quick global economic recovery in 2021. Despite the positive development, the current wave of outbreaks still poses huge health and economic risk for the U.S. and Europe alike, and the hardest-hit industries will still likely face headwinds for several months. The reality of the rapidly rising number of infections triggered a sobering pullback in risk assets in the latter half of the week, with possible legal issues concerning the elections also weighing on sentiment.
This week’s economic releases were notably weaker than what we became used to in recent months, although the economic calendar was relatively light on key releases following last week’s deluge. The weekly jobless claims reported provided something to cheer about for bulls, and since the JOLTS job openings estimate was only slightly below the consensus estimate, the job market recovery still seems to be on track. The Consumer Price Index (CPI), the Producer Price Index (PPI), and the core CPI and core PPI all hinted at softening demand in October. However, the NFIB Small Business Index and the IBD/TIPP sentiment number missed expectations as well, with a slew of bearish European indicators weighing on sentiment too.
While the major indices are clearly in bullish short- and long-term trends and technicals confirm the ongoing bull market, the mid-week dip might be the start of a nervous period on Wall Street, with all eyes on the worrisome COVID numbers. The S&P 500, the Dow, and the Nasdaq are all above their 50-day moving averages, and the benchmarks are also well clear of their 200-day moving averages. As measured by the Russell 2000, small-caps hit a new all-time high for the first time in more than two years, and although the index finished the week below its new record high, it is comfortably above both of its moving averages. The Volatility Index (VIX) had another very active week, and even though the “fear gauge” finished above its multi-month low due to COVID-related worries, it closed well below both of its moving averages on Friday, near the 23 level.
Market internals also had a hectic week, but thanks to the Russell’s new all-time high, most of the key breadth measures are at or near their recovery highs. The Advance-Decline line surged to a new bull market high, and while the late-week pullback hurt the measure, as advancing issues still outnumbered decliners by a 6-to-1 ratio on the NYSE and a 4-to-1 ratio on the Nasdaq. The average number of new 52-week highs increased on both exchanges, ticking higher to 68 on the NYSE and surged to 92 on the Nasdaq. The number of new lows flatlined in the meantime, dropping to 3 on the NYSE and 8 on the Nasdaq. The percentage of stocks above their 200-day moving average hit a new recovery high, blasting over 75% on Monday, and the measure finished the week near the 76.5% level.
Short interest plummeted in the wake of Pfizer’s announcement, and we saw an epic, albeit brief rally among the most-shorted issues due to reversal of the “lockdown trade”. Current GorillaPick, National Beverage (FIZZ), mostly ignored the wild moves in the major indices, but it still hit a new three-week high in the second half of the week, and with its short interest now above 65%, it could soon hit a new recovery high. With short interest in Stitch Fix (SFIX) still at 37%, the pressure on bears remains very high. Robert Half Int. (RHI) popped up on the list with the highest days-to-cover (DTC) ratios, with a reading of 9, and following this week’s explosive rally, the stock could be ready for a short squeeze.
Apart from the pandemic, the fate of the delayed stimulus package will likely be at the center of attention next week, as the economic calendar will once again be relatively light on key releases. The retail sales report and industrial production will be out on Tuesday, building permits and housing starts will be released on Wednesday, while the Philly Fed Index and existing home sales are scheduled for Thursday. Friday’s session proved that the vaccine rally remains intact despite the mid-week pullback, and since technicals remain supportive of further gains, stocks could continue to climb the “wall-of-worry” in the coming weeks. Stay tuned!
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