Traders continue to enjoy the perks of a robust bull market on Wall Street, as the major indices once again proved their resilience to negative news. Volatility remained tame, even considering the hectic trading around the release of minutes from the recent FOMC meeting. The Fed’s rhetoric remains the center of attention, and the hints on the reduction of the Central Bank’s balance sheet sparked some selling on Wednesday, after the announcement. The missile attack in Syria also caused overnight weakness in equities on Friday, besides the “knee-jerk” buying in gold and crude oil. Despite that, even after the mixed employment report, stocks finished the week in a bullish fashion, without experiencing any meaningful technical damage.
Economic numbers were mostly encouraging once again, although non-farm payrolls disappointed the markets with a monthly growth of only 98,000. Earnings grew in line with expectations following two disappointing readings, and on a positive note, February’s number was also revised higher. The recent rise in new jobless claims might prove to be just a temporary thing after all, as this week’s reading was back below 240,000; close to its post-crisis low. The ISM non-manufacturing PMI was also a negative surprise, but the manufacturing PMI, the trade balance, and factory orders were all promising, while the services segment is also showing continued expansion.
The Gorilla sees no reason for the Fed to change its roadmap for the coming months, which could mean a fairly stable backdrop for stocks in the coming period.
The major indices found support near their 50-day moving averages this week, and they are still trading well above their 200-day moving averages, as technicals remain in line with a healthy bullish trend. The Nasdaq continues to lead the market higher, but the Dow and the S&P 500 also had a solid week, as the performance of the benchmarks evened out. The Russell 2000 lagged the broader market once again and dipped back below its short-term moving average, although it’s still north of the long-term average, even after the 4-month long consolidation. The Volatility Index (VIX) edged higher in the second half of the week amid increasing political tension, but it remains way below the danger zone, finishing the period near 12.75.
Market internals improved further, despite the mixed price action last week, and the negative divergences that the Gorilla monitored became less pronounced. The Advance/Decline line hit another new high, continuing its breakout after the correction in March, as advancing issues outnumbered declining stocks by a 2 -to-1 ratio on the NYSE and by a 3-to-1 ratio on the Nasdaq. The average number of new 52-week highs declined across the board, falling to 76 on the NYSE, and 66 on the Nasdaq. The number of new lows was stable, inching higher to 21 on the NYSE, and 47 on the Nasdaq. The ratio of stocks above their 200-day moving average was virtually unchanged after last week’s surge, and it currently sits at 69%, thanks in part to the recovery in the energy sector.
Short interest is still near historical lows on Wall Street, even after the quite lengthy correction in the major indices. Shorts of Pilgrim’s Pride (PPC) continue to suffer, as the stock is marching on in its relentless uptrend, while the short interest is still at 44%. Railroad equipment manufacturer Greenbrier (GBX) could cause troubles for bears in the coming period, as the stock jumped higher by 15% after a great earnings report, and the short interest in the stock is at 35%. Garmin (GRMN) continued to rise on the list of the stocks with the highest days-to-cover ratio (DTC), reaching a reading of 13, as the stock is still in a consolidation pattern below its recent all-time high. Communications services provider CenturyLink (CTL) registered ten positive sessions in a row, and the exits might prove crowded for shorts, with the DTC ratio currently being at 11.
The U.S. military intervention in Syria will likely make more waves in the coming weeks, and although the market impact is expected to be muted, one could only hope for a quick ending to the bloodshed in the devastated country. That said, a significant escalation of the conflict could cause turmoil on Wall Street, so the Gorilla will keep an eye on the situation. Easter-week will be low on crucial economic releases, with Friday being the busiest day once again (although the stock market will be closed), thanks to the release of the CPI and retail sales reports. The Fed will also be closely monitoring the U of M Consumer Sentiment Index that will be released on Thursday. The Gorilla hopes that the recent technical strength will soon translate into a healthy rally in stocks, and that bulls can finally forget the current choppy consolidation. Stay tuned for a promising week!