Wall Street had a very calm holiday-shortened week, as the major indices all drifted sideways following Martin Luther King Day. The Nasdaq continued to lead the market higher, as tech stocks finally regained their lost momentum in the last few weeks. As the scary British exit from the European Union was all the talk throughout the week, the sideways price action on Wall Street proved the relative strength of U.S. stocks once again. The market seemed to be ignoring the tension surrounding the inauguration of Donald Trump, and the Gorilla is curious if the “curse” of the new presidents will push stocks lower, as it has happened two-thirds of the time in the last century.
The few closely watched economic indicators all beat the consensus estimates last week, despite the fears of some investors that the “Trump Euphoria” will be short-lived. The Philly Fed index was especially bullish, beating estimates by a whopping 7 points with a reading of 23.6. Housing starts also came in handily above the expected number, while building permits matched the predicted reading. The European Central Bank didn’t change its monetary policies in its scheduled meeting, despite the pressure from the already tightening Federal Reserve. Fed Chair Janet Yellen underlined the intentions of the Fed regarding the planned interest rate hikes, despite Mr. Trump’s comments that labeled the dollar as “too strong for the economy.”
The Nasdaq is still the most bullish among the major indices, as technicals remain positive across the board, despite the lengthy consolidation period. The majors are still all above their long-term averages, with the S&P 500 and the Nasdaq closing the week slightly above their 50-day moving averages once again. The Dow stayed in between its short- and long-term moving averages, as mega caps continue to underperform the broader market. On an interesting note, the Russell 2000 is also lagging the S&P 500 and the Nasdaq recently, although the small-cap index finished the week with a strong session. The Volatility Index (VIX) confirmed the quiet price action, as it kept on drifting lower; towards its 3-year lows, finishing the week at 12.30.
Market internals continue to show encouraging stability, with no sign of a meaningful deterioration “under the hood.” The contrasting performance of the Nasdaq and the Russell 2000 led to a slightly less bullish week for the Advance/Decline line, although advancing stocks still outnumbered declining issues, by a 3-to-2 ratio on the NYSE and by a 3-to-1 ratio on the Nasdaq. The average number of new 52-week highs declined on both exchanges, falling to 81 on the NYSE, and 83 on the Nasdaq. The number of new lows remained low, rising slightly to 15 on the NYSE, and 30 on the Nasdaq. The ratio of stocks above their 200-day moving average also declined slightly amid the correction in small caps, closing the week below the recent highs at 67%.
Short interest hit a multi-year low last week following the post-election rally, as bears have scrambled for the exit during the past two months. The list of the most shorted stocks on the NYSE and the Nasdaq saw some increased activity, despite the generally calm conditions. Short interest in Weight Watchers (WTW) jumped as high as 62% recently, while the stock has traded violently so far this year. California Resources (CRC) continues to consolidate after doubling since the election, while the short interest in the company plunged to 31% last week. Garmin (GRMN) jumped higher on the list of the stocks with the highest day-to-cover ratios (DTC) with a reading of 14, as the stock drifted lower recently. Technology REIT Digital Reality Trust (DLR) hit a new 6-month high last week, possibly scaring short sellers as the DTR ratio rose to 12 in the meantime.
Wall Street is in for another quiet week regarding economic releases, but the previous comments of Donald Trump suggest that traders are unlikely to be bored. The advance GDP reading and the durable goods report will both come out on Friday, with only the regular weekly reports being released before that. The Gorilla will be interested to see how the first few days of the new presidency shape up, with a special focus on the proposed trade policy changes. The controversial border tax, for example, might have a profound effect on some segments of the market, and investors are still uncertain even regarding the general direction of the new cabinet on some topics. With that in mind, the Gorilla suggests that you keep your seatbelts tightened and get ready for another exciting week. Stay tuned!