Stocks enjoyed a mildly bullish and calm week until the sudden decline on Friday pushed the major indices into the red. Investors looking just at the U.S. market might have been scratching their heads as Wall Street registered its worst day in a month. The few economic releases of the week were all in-line with expectations, and consumer confidence even beat forecasts by a small margin on Friday. So, one has to search outside the U.S. to find the reasons behind the late weakness. Europe and China provided the catalysts for Friday’s move, as the Chinese yuan fell sharply along with European bank shares, reminding traders of the scary trends of the first two months of 2016.

International fears are not new by any means, but until now, U.S. stocks seemed bulletproof to any and all negative news coming from the emerging markets and Europe. A one percent move down from all-time highs, for the Dow and the S&P 500 at least, still looks quite bullish to the Gorilla, compared to some international indices that are down by 20-30% from their respective highs. The Fed meeting on Wednesday will surely be the highlight of the week, following Mrs. Yellen’s slightly hawkish speech from last week. The Bank of Japan’s and the Bank of England’s rate decisions are also scheduled for Thursday, while retail sales and the CPI report might make waves as well on Tuesday and Thursday.

The slight weekly decline didn’t change the overall bullish technical picture, and small caps outperformed the broader market yet again. All three of the major indices remained above their 50-day and the 200-day moving averages, but the recent relative strength of the Nasdaq is no more, as the Dow and the S&P 500 and even the Russell 2000 performed better than the tech benchmark. The Volatility Index (VIX) finally moved off its lows to a one-month high, as it jumped by more than 10% and surpassed the 15 level on Friday. Bulls hope that the current weakness will be transitory and that the major support levels just below the indices will limit losses this week.

Market internals continue to support the bullish case, as the strength in small caps pushed the Advance/Decline to new highs again. Advancing stocks outnumbered declining issues by a 2-to-1 ratio on the NYSE and by 3-to-1 ratio on the relatively weaker Nasdaq. The daily number of new 52-week highs fell to 95 issues on the NYSE and to 68 on the Nasdaq. The average number of new lows remained muted at 15 on the NYSE but rose to 36 on the Nasdaq. 66% of the listed companies traded above their 200-day moving average on Friday, which is actually above the previous week’s reading. The uptick means that the participation in the rally is still healthy, despite the correction at the end of the week.

There were some interesting new names on the list of the most shorted stocks on the NYSE and the Nasdaq, but the top 5 issues remained the same last week. The short interest in video game retailer GameStop (GME) rose to 38%, as the stock declined by more than 10% last week. On-line retailer Wayfair is also among the top 10 most hated issues with a short interest of 43%. The short interest in Bofi Holding (BOFI) increased again by two percentage points, to 44%. The day-to-cover ratio (DTC) of Marriott Hotels (MAR) is now above 22, up from 16 at the end of May, as the pressure on shorts continues to increase. Domain provider Verisign (VRSN) still has the highest DTC ratio with a reading of 29.

The next two weeks could have more volatility in store for traders, as Wednesday’s much-awaited Fed decision, and the British referendum next week both have the potential to cause turmoil. A rate hike would be a shock at this point, especially before the possible “Brexit” that looks more and more likely according to recent polls. Stocks seemed more vulnerable to negative news last week, but the Gorilla hopes that the underlying positive trend will prevail, despite the current uncertainties. So fasten your seatbelts and stay tuned for an exciting fortnight to end a mostly positive second quarter!