The end of one of the best years for stocks in recent memory is rapidly approaching, and despite a brief risk-off period last week, the stage looks to be set for a Santa Claus rally to wrap up an already stellar 2017. The Gorilla paid close attention to the recent performance of the Nasdaq. The tech benchmark led the broad early-week selloff that started out in Asia before the healthy bounce in the crucial segment in the second half of the week. Chinese assets and commodities have experienced worrisome selling pressure lately. China’s growth worries are among the biggest risk factors for the next year, but U.S. equities shrugged off the weakness yet again.

The progress made toward a final tax bill gave a head start to the market on Monday, but as rumors surfaced regarding a larger-than-expected corporate tax rate, the most affected small caps turned lower. The sizable miss in the ISM non-manufacturing PMI caused more concern on Wall Street, as economic numbers remained subdued throughout the week. However, the closely-watched payrolls growth was slightly better-than-expected on Jobs Friday. Given the disappointing pace of wage growth and the negative revisions in hourly earnings and payrolls, the government jobs report was mixed at best, while consumer sentiment also deteriorated unexpectedly in November.

The technical picture is encouraging before the last three weeks of the year, although the major indices all drifted closer to their key moving averages thanks to the brief correction. The S&P 500 and the Dow are right at their all-time high on a closing basis, while the Nasdaq is slightly off its record level after a short period of relative weakness. The Russell 2000 continues to flirt with its 50-day moving average, as small caps have been noticeably lagging the broader market, but the index is still well above its long-term indicator. The Volatility Index (VIX) made bulls smile towards the end of the week, as it collapsed back to single digits after almost hitting 15 recently, signaling unabated risk appetite among investors.

Market internals are somewhat diverging, as the weaker performance of small caps has been weighing on some of the most reliable measures. The Advance/Decline line is among the more bullish-looking indicators, as it advanced to a new high even as the major indices consolidated, with advancing issues outnumbering declining stocks by a 3-to-1 ratio on the NYSE and by a 2-to-1 ratio on the Nasdaq. The average number of new 52-week highs took a nosedive on both exchanges, plunging to 123 on the NYSE, and 116 on the Nasdaq. The number of new lows fell to 38 on the NYSE, while climbing 59 on the Nasdaq. The ratio of stocks above their 200-day moving average continued to drift lower amid the small caps weakness, and it currently stands at the very low 63%.

The plunge in the VIX and the approaching Christmas period lull delivered another hit to the few remaining bears on Wall Street, as short interest edged lower again, getting close to the lows of the year. Wayfair (W) continues to march higher, adding another 5% last week, and with short interest still standing at 59%, shorts could be in for more pain. Bears are also being squeezed by RH Corp (RH), with the stock pushing to a new all-time high last week, despite the short interest of 45%. Current GorillaPick, Garmin (GRMN), has been gathering strength below its record high recently, and a short squeeze might be in the works, as the stock quickly moved up on the list with the highest days-to-cover (DTC) ratio, hitting 15 on Friday.

The geopolitical landscape got even more complicated after Donald Trump recognized Jerusalem as the capitol of Israel, and with tension already high in the Middle East and the growing North Korean threat, the Gorilla sees the highest risk for bulls in international politics. Investors are in for another busy week of economic releases, with the PPI, CPI, and retail sales reports coming out on Tuesday, Wednesday, and Thursday respectively, while the Fed is expected to raise its benchmark rate by one notch to 1.5% on Wednesday as well. Given the mixed technical picture, and the last rush of trading activity before Christmas, an increase in volatility wouldn’t be a surprise this week, but the Gorilla thinks that the rising trend is still in place. Stay tuned!