The major U.S. indices have risen by 8%-10% in the three weeks since the bottom of the “Brexit-panic,” and the healthy bounce has now carried the majority of stocks to new all-time highs. Investors continued to focus on overseas topics, as the European and Japanese developments took center stage. Rumors surfaced in Japan about the “next stage” of monetary easing, also known as “helicopter money” after Mr. Bernanke’s famous quote, sending the yen tumbling and stock markets soaring around the globe. Thursday’s tragic attack in Nice cast a shadow on investor sentiment, but the week still finished on a slightly positive note.
Bulls continue to enjoy the unique mix of modest economic growth, record low-interest rates, and international worries, which provide a near perfect mix for the stock market. That said, traders should be prepared for anything, as “Mr. Market” sometimes throws a curveball when things begin to look simple. The still low number of new unemployment claims and the bullish retail sales and CPI reports pushed the 10-year yield back above 1.50%, after dipping as low as 1.32%. That move might signal a change in expectations regarding the Fed’s rate hike schedule. As the Fed stopped tightening after raising the benchmark rate by only 0.25%, the economy and equities still haven’t proved themselves strong without the helping hand of central banks.
The technical setup is as bullish as it gets, as the major indices seemingly left behind the long-standing technical resistance that frustrated bulls since late-2014. All of the benchmarks finished the week well clear of the rising 50-day and 200-day moving averages, with the previously weaker Nasdaq also closing in on its all-time high. The Russell 2000 continued to outperform the large cap indices, but the Gorilla noted some weakness in small caps towards the end of the week, which could be considered as an early warning sign of a correction. The Volatility Index (VIX) dropped further, and now it’s at levels not seen since early-2015.
Market internals remained positive, despite the slightly worrying performance by small caps in the second half of the week. The Advance/Decline line continued to hit new highs last week, and advancing stocks outnumbered declining issues again, by a 5-to-1 ratio on the NYSE and by a 6-to-1 ratio on the Nasdaq. The average number of new 52-week highs increased to 288 issues on the NYSE and 210 on the Nasdaq. The average number of new lows barely changed, as it declined to 21 on the NYSE, and to 28 on the Nasdaq. The ratio of stocks above the 200-day moving average surged to a new high above 70% as well, thanks to the broad rally.
The list of the most shorted stocks on the NYSE and the Nasdaq was mostly unchanged, but an interesting new name popped up. The short interest in Cliff Resources (CLF) rose to 42% last week, as the highly volatile stock doubled in June alone, while it’s up by almost 6-times this year. Biotech companies still dominate the list, as Insys (INSY), Relypsa (RLYP), and Sarepta (SRPT) are all in the top ten with short-interests of 75%, 49%, and 48% respectively. VeriSign’s (VRSN) day-to-cover ratio (DTC) of 26 is still highest among large caps, but the strong rally drove the DTC ratio of payment provider Western Union (WU) and Marriott (MAR) significantly lower to 15 and 14.5.
The list of the most shorted stocks on the NYSE and the Nasdaq was mostly unchanged, but an interesting new name popped up. The short interest in Cliff Resources (CLF) rose to 42% last week, as the highly volatile stock doubled in June alone, while it’s up by almost 6-times this year. Biotech companies still dominate the list, as Insys (INSY), Relypsa (RLYP), and Sarepta (SRPT) are all in the top ten with short-interests of 75%, 49%, and 48% respectively. VeriSign’s (VRSN) day-to-cover ratio (DTC) of 26 is still highest among large caps, but the strong rally drove the DTC ratio of payment provider Western Union (WU) and Marriott (MAR) significantly lower to 15 and 14.5.
The great non-farm payrolls number sparked a robust rally on Wall Street, and it seems that stocks finally entered the next phase of the bull market. This week will be another very quiet one regarding economic releases, with only the incoming quarterly earnings reports providing some excitement for traders. That said, the Gorilla hopes that the rally will continue to delight bulls as it did during the past two weeks. Volatility is near historic lows, the economy is modestly growing, and even the struggling financial sector seems to be holding up relatively well. Not everything is rosy, though as the Chinese economy (the second biggest in the world mind you) and the European economies are not in a great shape, but domestic stocks still look immune to global woes, With all that in mind, stay tuned for a calm, and hopefully bullish, week!