Stocks experienced a mixed and ultimately slightly negative week, as the major indices traded without a clear direction, despite the encouraging underlying trend in the vast majority of the market. The election cycle entered its final stretch with the first Presidential debate on Monday. The positive reaction to Mrs. Clinton’s comfortable performance was the first real sign that investors actually care about the outcome. The surprising agreement among OPEC nations concerning a production cut, the first one since the crisis in 2008, also temporarily lifted stocks on Wednesday. The battered energy sector was the main beneficiary of the surge in the price of oil, but the broader market also reacted well to the news, before heading back lower towards the end of the week.

Economic releases were overwhelmingly positive, and the better-than-expected consumer confidence index and GDP numbers might have cheered up bulls, despite the “boring’ price action. Bond markets signaled some stress in the financial system, as the mounting worries about German giant Deutsche Bank (DB), caused a sizeable dip in treasury yields. This week could also turn out to be crucial regarding both the economic prospects and the future of the Fed’s monetary policies. The ISM manufacturing and non-manufacturing indices will be released on Monday and Wednesday respectively, while the employment numbers for September will be published on Friday.

Technicals remained favorable across the board, as the most important indices continued to trade in advancing long-term trends, despite the recent correction. The Nasdaq is still above both its 50- and 200-day moving averages, while the Dow and S&P 500 are in a somewhat more neutral position, thanks to the weakness in financials. Small caps continue to outperform the broader market, as the Russell 2000 opens the week above both of its moving averages again. The Volatility Index (VIX) drifted higher earlier on last week, as traders feared that international worries will “infect” the U.S. financial system. The VIX finished above its recent lows near 15; still well below the closely watched 20 level.

Market internals are still bullish, although the negative divergence in new 52-week highs in the past two weeks raised the Gorilla’s eyebrow. The Advance/Decline line continues to hover around its all-time highs, as advancing stocks outnumbered declining issues, by a 2-to-1 ratio on the NYSE and by a 3-to-1 ratio on the Nasdaq. The number of new 52-week highs remained low on both exchanges, with 81 on the NYSE and 82 on the Nasdaq, while the number of new lows increased slightly to 19 on the NYSE and 54 on the Nasdaq. The ratio of stocks above their 200-day moving average remained in bullish territory all week long and closed above 75% on Friday, as a majority of stocks still trade in healthy uptrends.

Short interest generally trended lower once again, and the list of the most shorted stocks on both the NYSE and the Nasdaq reflected that as well. Beauty product manufacturer Coty (COTY) moved near the top of the list, as the stock joined the S&P 500 index recently. The short interest in the company increased by 26%, to 53% while the shares declined by 15% in September. LendingTree (TREE) is also back in the top five, as the short interest in the stock climbed back to 42%. The list of the stocks with the highest the day-to-cover ratios (DTC) also experienced a bullish shift, as even Western Union (WU), the “leader,” has a relatively low DTC ratio of 18. Advertising holding Omnicom (OMC) jumped to the third place with a DTC ratio of 16, despite the stock trading just below its all-time high.

The major indices still trade close to their prior consolidation zones, as the rally failed to gain momentum in the past few weeks. That said, tech stocks and small caps provide a healthy “leadership” for the market, and a pick-up in economic growth could provide a significant lift in the coming months. The Gorilla expects more negative news from the financial sector, as the European problems are not yet resolved, but the possible turmoil could very well provide a good entry point for bulls. The Presidential campaign could also provide further thrills until Election Day, so the Gorilla thinks that investors will not be bored in October. Stay tuned for another action-packed week!