Stocks finished last week on a positive note, after a period of consolidation that followed the healthy rally of the previous three weeks. The slightly worrying signs that the Gorilla noticed last week only led to a minor correction, which is probably a good sign for bulls, as the majority of stocks still trade near all-time highs. Looking under the hood, it’s easy to see that the correction itself was nothing more than a change in the “leadership,” as technology stocks finally had their time to shine. Seasoned traders call this phenomenon “sector rotation,” and it’s usually considered an encouraging sign regarding the future of the rally.

Economic indicators continue to give mixed signals, with notable weakness in export-related segments. The Philly Fed manufacturing index dipped below zero again, but the labor market and the housing market both show signs of resilience. This week could change the narrative altogether, as the Fed will hold its scheduled monetary policy meeting on Wednesday, while the consumer confidence index and the quarterly GDP will be released on Tuesday and Friday, respectively. Treasury yields rose substantially in the last couple of weeks, as Brexit fears eased and the economy showed no signs of serious trouble, but another “dovish” Fed statement could send yields back down towards their recent record lows.

The technical picture still makes bulls smile, as technical measures have remained positive across the board, confirming the recent broad “breakout” to new all-time highs. The major indices finished another week above the rising 50-day and 200-day moving averages, although the Dow and the S&P 500 breached their respective short-term averages during the correction. The Russell 2000 caught up to the large cap benchmarks after a brief period of relative weakness, while the Nasdaq significantly outperformed the other indices. The Volatility Index (VIX) hit another 52-week low near 11.50 last week, before finishing slightly higher at 12.20 on Friday.

Market internals are still strongly bullish, especially after the great performance by small caps towards the end of the week. The Advance/Decline line marched to new highs once again, as advancing stocks outnumbered declining issues by a 4-to-1 ratio on the NYSE and by a 7-to-1 ratio on the Nasdaq. The number of new 52-week highs decreased to 186 issues on the NYSE and 118 on the Nasdaq. The average number of new lows also fell to 5 on the NYSE and 24 on the Nasdaq. The ratio of stocks above their 200-day moving average continued to rise steadily to new highs, as 73% of stocks finished above this level on Friday for the first time since 2013.

The list of the most shorted stocks on the NYSE and the Nasdaq was influenced by broad short covering, as the short interest in most issues on the list declined. Cliff Resources (CLF) was one of the exceptions, as the short interest in the battered mining company rose another percentage point to 43% last week. The short interest in Wayfair (W) also increased to 48%, as the stock still trades in a narrow range, possibly preparing for a large move. Online lender LendingTree (TREE) had a short interest of over 50% before this week’s earnings report. The day-to-cover ratio (DTC) of Digital Reality Trust (DTR) increased to 14, as the REIT suffered losses following the Brexit referendum because of its relatively high European exposure.

Earnings reports will continue to arrive throughout the week, and so far the overall picture seems to be encouraging, as positive surprises outnumbered negative ones by a healthy margin. On a negative note, European and Asian benchmarks still substantially lag domestic indices, and the Gorilla thinks that the situation is worth monitoring. The oil market is also showing early signs of distress again, as the crucial commodity drifted lower by almost 20% in the last month, after a historic 85% rally. Despite the negatives, the overall price action still looks healthy to the Gorilla, so bulls can enjoy another relaxed and bullish week. Stay tuned!