The summer lull officially arrived on Wall Street last week. Trading volume was very low and volatility declined even more, as the post-Fed turmoil cooled down. Two political developments caused some woes during the week, namely the President’s tweet concerning North Korea, and the ultimatum given to Qatar by Saudi Arabia and its allies. The two geopolitical hot spots might disrupt the market in the coming weeks, but for now, investors shrugged off the risks and stocks finished the week generally higher. The major indices were mixed, with the rebounding Nasdaq leading the way, while the Dow and the S&P 500 drifted lower after a promising start.
The economic calendar was virtually empty, with only the housing market providing some surprisingly positive news last week. The segment has been consistently missing expectations recently as rising yields continue to hurt the market, even as housing prices just hit a new decade-long high. Both existing home and new home sales came in above expectations for the previous month, albeit by only a small margin. That said, Treasuries, especially long-term, continued their rising trend in the face of the recent rate hike by the Fed. The deterioration of the major economic indicators still seems to be affecting bonds, which might spell trouble for bulls in the coming months.
Technicals still show a bullish reading across the board, although small-caps remain a question mark for the Gorilla. There also seems to be a lack of momentum in the market. That said, all three of the major indices are still well clear of both their 50- and 200-day moving averages, with the Nasdaq’s healthy rally adding substantially to the positive picture. The Russell 2000 had a bearish week, but Friday’s advance helped the small cap benchmark pull away from its rapidly approaching short-term moving average. The Volatility Index (VIX) is also in summer mode, as the fear-benchmark fell back to single digits on Friday, despite all of the political worries.
Market internals are still mixed, reflecting the price action of the major indices and the two-faced performance that small caps and tech stocks have been showing lately. The Advance/Decline line failed to recover to a new high after the mid-week dip, but it remains the strongest looking measure, as advancing issues outnumbered declining stocks by a 3-to-1 ratio on the NYSE and by a 5-to-1 ratio on the Nasdaq. The average number of new 52-week highs was virtually unchanged on both exchanges, climbing to 123 on the NYSE, and 105 on the Nasdaq. The number of new lows remained stable, rising to 52 on the NYSE, and 53 on the Nasdaq. The ratio of stocks above their 200-day moving average remains suspiciously low compared to the strong position of the major indices, although the indicator edged slightly higher last week to close at 64%.
Another week, another drop in the price of oil. This leaves the energy sector as the only viable “target” for short sellers, as the other segments of the market are near all-time lows regarding short interest. Twilio (TWLO) is up by almost 30% in two weeks, and shorts might be in for more trouble, as short interest in the company is still at 53%. RH (RH) keeps on delivering for bulls, as it rose another 10% in two days, while still sporting a short interest of 43%. Verisign (VRSN) is still standing at the top of the list with the highest days-to-cover (DTC) ratio, with a reading of 18. VRSN hit a new all-time high towards the end of the week. Teradata (TDC) had a very bullish period as well, rising by close to 10%, as it is approaching the same levels where it started a short squeeze in February. Its DTC ratio is still at 11.
The Gorilla thinks that this week could be much more eventful thanks to coming crucial economic releases, but hopefully not due to the escalating geopolitical situation. Besides Monday’s durable goods orders report, Tuesday’s CB Consumer Confidence Index, and Thursday’s final GDP print, the city of Sintra in Portugal will be in the center of attention. The world’s most important central bankers will gather for a meeting there, and the Gorilla is certain that the markets will see some fireworks, as Kuroda, Draghi, and Janet Yellen will all be attending the summit. Since the Nasdaq seemingly survived the scary flash crash two weeks ago without any major scars, bulls have all the reasons to remain optimistic, despite the busy schedule. Stay tuned for an exciting week!