The holiday-shortened week started off in a very positive fashion on Wall Street, as stocks skyrocketed to new all-time highs on Tuesday. However, for a lot of stocks, that initial surge marked their weekly highs as well. While the bull run, which already took the major indices past several yearly targets in less than a month is not over, there are some notable divergences “under the hood,” and the Gorilla thinks that a consolidation phase might have started after a stellar first two weeks of the year. The looming government shutdown made headlines throughout the week, weighing on investor sentiment, while the slightly “overbought” technicals are also to be blamed for the slightly weaker performance of equities.

Economic numbers were few and far between last week, and the most awaited releases mostly provided negative surprises. The Philly Fed Index missed expectations by a sizable margin, housing starts were also well below the consensus estimate, and consumer sentiment continued to slide unexpectedly lower. Before the disappointing figures, the week started off with a blow-out industrial production number, and capacity utilization reached a post-crisis peak as well. On another positive note, the recent jump in new jobless claims quickly reversed, while building permits also beat expectations by a hair in December.

The technical picture remained bright, despite the sideways price action on Wall Street, as the main benchmarks are clearly in rising trends by all measures, hovering just a tad below their all-time highs. The Dow, the S&P 500, and the Nasdaq are all still well above both their 50- and 200-day moving averages, although the indicators inched closer last week. The early relative weakness in small caps ended with a bang on Friday, as the Russell 2000 jumped by almost 1.5% in the final session of the week, and the index is also well above both of its moving averages. The Volatility Index (VIX) continued to diverge alarmingly from equities, hitting a one-month high above the 12 level, as traders placed defensive option bets after the strong rally.

Market internals also signal to a possible short-term correction, although the long-term trend is by no means in danger, with the most reliable measures still firmly in bull market territory. The Advance/Decline line drifted lower in the choppy conditions, and it failed to hit new highs for the second week in a row, although advancing issues still 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 slightly on both exchanges, falling to 247 on the NYSE, and 258 on the Nasdaq. The number of new lows jumped higher in the meantime, rising to 70 on the NYSE, and 41 on the Nasdaq. The ratio of stocks above their 200-day moving average dipped lower again, and it is still well below the levels usually associated with new record highs, currently standing at 67%.

Short interest continued to increase, albeit at a muted rate, and some of the most shorted stocks still performed well, despite the jump in the VIX and the less bullish investor sentiment. Wayfair (W) continues to defy the challenging competitive environment, as the stock hit another new all-time high, with short interest standing at the sky-high 48%. Microchip Technology (MCHP) gained 10% in a week, climbing to record levels again, while also moving up on the list of the stocks with the highest days-to-cover (DTC) ratios, with a reading of 15. C.H. Robinson (CHRW) also continued its relentless rally, rising almost 50% in the past six months, and with a DTC ratio of 14, the new all-time highs are likely hurting a lot of bears.

The Dow is at 26,000, the S&P 500 at 2,800, and the Nasdaq near 7,500. Not many analysts predicted anything in the ballpark after the elections a bit more than a year ago. But despite the constant troubles of Donald Trump, Wall Street seems to love the tax cuts. That said, the ongoing “Russia-Gate” is a lingering risk for bulls, besides the possible government shutdown, and the still edgy geopolitical situation. This week, the Davos meeting could provide a surprise or two from central bankers on Tuesday and Wednesday, while the advance GDP print and the durable goods report could trigger a jump in volatility on Friday. Before that, the housing market will be in focus domestically, with existing and new home sales coming out on Wednesday and Thursday, so the Gorilla thinks that investors will see plenty of action. Stay tuned!