Things got back to normal for traders last week following the most volatile period in quite some time, as the sharp correction in financials faded, and the major indices drifted slowly, but surely towards their all-time highs again. The Nasdaq continued to outperform the broader market, and small caps were also ahead of the pack, rising much more than the large cap benchmarks during the week. The financial sector remained in focus, as investors continued to mull the Fed’s 2017 roadmap, following the second interest rate hike of this cycle. Banking stocks were among the biggest winners of the post-election rally so far, but they were hit hard by the dovish tone of the Central Bank and the uncertainty concerning the new healthcare bill a week earlier.
The most awaited economic releases were both positive surprises, as the final GDP print was a tad higher than expected at 2.1%, while the CB Consumer Confidence Index posted its highest reading since mid-2011. Somewhat surprisingly, the speech of Mr. Evans, the President of the Chicago Fed, sparked the biggest reaction on the Street, as he hinted at the possibility of as many as 3-4 more rate hikes this year. As he is considered one the most dovish members of the Federal Open Market Committee (FOMC), rate hike odds jumped after the speech, and the dollar also got a boost in the first half of the week. Stocks shrugged off the initial weakness, and later also ignored the jump in new jobless claims, as well as the lower-than-expected increase in personal spending.
The technical picture improved thanks to the broad rally, as even the previously lagging segments of the market experienced a healthy period. The major indices still show a perfectly bullish picture, as the Dow, the S&P 500 and the Nasdaq all finished the week above their 50- and 200-day moving averages. The tech benchmark actually registered a new all-time high on a closing basis on Thursday, while the Dow and S&P 500 are still 2% off their all-time highs. The Russell 2000 finally caught up with the broader market, climbing back above its short-term moving average in the second half of the week. The Volatility Index (VIX) retreated from its yearly high as the correction fizzled out, and it closed the period close to 12, despite breaching the 15 level on Monday.
Market internals improved big time, thanks to the strength of small caps and the rebound in the price of oil. The Advance/Decline line pushed higher all week long and hit new highs again, as advancing issues outnumbered declining stocks by a 4 -to-1 ratio on the NYSE and by a 5-to-1 ratio on the Nasdaq. The average number of new 52-week highs edged higher on both exchanges, rising to 81 on the NYSE, and 116 on the Nasdaq. The number of new lows declined significantly, falling to 16 on the NYSE, and 44 on the Nasdaq. The ratio of stocks above their 200-day moving average surged higher amid the strong rally, and it topped 70% for the first time since February.
The energy sector continues to dominate the list of the most shorted stocks, even after the recent bounce in both natural gas and oil. EP Energy (EPE) is still in the top three of the list, with a short interest of 55%, in spite of the 15% rally in the stock from its March low. Home furnishing company RH (RH) is causing severe headaches for bears recently, as the stock has almost doubled since mid-February, while the short interest is still close to 50%. Verisign (VRSN) is still leading the list of the stocks with the highest days-to-cover ratio (DTC), with a reading of 16, as the stock kept on climbing throughout March. Office REIT Digital Realty (DLR) got close to Verisign on the list last week, as the DTR ratio of the stock reached 14, while the stock rose by 4% toward its all-time high.
The UK officially began the Brexit process last Tuesday, and although some analysts feared a negative reaction by the market, the effects of the announcement were minuscule. European markets actually outperformed the global indices during the week, and the resilience that stocks demonstrated towards negative news had the Gorilla smiling once again. This week, the ISM manufacturing and non-manufacturing indices will probably move the tape on Monday and Wednesday respectively, before the always crucial “Jobs Friday.” The major benchmarks continue to nicely work their way through the current consolidation period, and April might prove to be a month of new all-time highs again. Wall Street closed its 5th positive quarter in a row, and the Gorilla hopes that traders will be in for a beautiful and bullish spring too. Stay tuned!