Wall Street provided a week of promising price action for investors, despite a Monday that won’t go down in history as the most bullish day ever. The rest of the week, on the other hand, proved once again just how strong the U.S. stock market is right now. The major indices managed to climb back within a few percent of their all-time highs in a relentless rally that virtually erased the “Brexit” induced crash. The brief, but scary dip might have been enough to rebuild the “wall of worry”, and the Gorilla hopes that now everything is set for a rally to new, and lasting all-time highs. This week will be all about Friday’s non-farm payrolls release following last month’s disappointing number. Wednesday’s non-manufacturing PMI will also be closely watched by traders, after last week’s positive surprise from the manufacturing PMI.
One thing that seems sure now is that traders can forget rate hikes for the coming months, as it seems unlikely that the Fed would risk such a move in the face of the recent turmoil. The Bank of England and the European Central Bank both announced the extension and expansion of their respective Quantitative Easing programs, in a concentrated effort to calm financial markets. Treasuries reacted, as expected, with new record low yields across the curve. The ten-year yield collapsed to a shocking 1.40%, and the fact that the economy continues to grow at a modest pace, further adds to the amazement of the Gorilla.
The technical picture “healed” almost perfectly thanks to the strong rally, as the major indices clearly confirmed their long-term rising trends. The benchmarks all finished the week with significant gains, and the Dow, the S&P 500, and the Russell 2000 all surged back above the 50-day and 200-day moving averages. The Nasdaq that has been the laggard in recent weeks remained relatively weak, although it edged past both the short- and the long-term moving average near the end of the week. The Volatility Index (VIX) collapsed back below 20 after hitting 27 on Monday, and it closed the week just above 15, an encouraging sign for bulls indeed.
Market internals continue to support the bullish case as the most reliable indicators barely budged during the recent scare. The Advance/Decline line is still close to its all-time high, with the help of small caps, as advancing stocks outnumbered declining issues by a 6-to-1 ratio on the NYSE and by a 5-to-1 ratio on the Nasdaq. The average number of new 52-week highs jumped to 270 issues a day on the NYSE and to 70 on the Nasdaq. The number of new lows remained relatively low on both exchanges, with a reading of 44 on the NYSE, and 75 on the Nasdaq. The ratio of stocks above their 200-day moving average surged back above 62% on Friday, after dropping as low as 45% earlier during the week.
The Gorilla registered no significant changes on the list of the most shorted stocks on the NYSE and the Nasdaq, although some noticeable short-covering took place toward the end of the week. The short-interest in the number one stock on the list, Insys (INYS) dropped by 3 percentage points to a still very high 74%. SolarCity (SCTY) remained in the spotlight, and the short interest in the stock climbed above 41% once again, as shareholders and analysts continue to question the controversial takeover bid from Tesla (TSLA). VeriSign (VRSN) looks more and more interesting every week, as the day-to-cover ratio (DTC) is now at 33, and the stock continues to trade just below its all-time highs. Bears betting against Western Union (WU) are also in danger, as the DTC ratio is steadily increasing, and is now above 25.
It looks as though the “Brexit-storm” has passed without leaving meaningful damage, so the Gorilla hopes for a more peaceful July after last month’s rough ride. The earnings season, starting next Monday with Alcoa (AA), might hold some surprises for investors, but both the fundamentals and the technical picture look promising here. Volatility is back to normal, the general elections are still far away, so investors might just get to enjoy the summer from now on. That said, there are still some concerns regarding the financial sector and the labor market, so “Jobs Friday” could still turn out to be as volatile as usual. Stay tuned for an action-packed week on Wall Street!