The bulletproof vest of equities seems to still be working perfectly, as the major indices continue to defy all the negative economic releases and geopolitical worries that emerge. While for a weaker market, Friday’s dismal retail sales report or the earlier North Korean missile launch could have been enough to tank it, but this bull shrugged of both with ease. Although only the Dow and the S&P 500 posted all-time highs last week, the Nasdaq is also just a hair below its record level. Traders took a step back before this Wednesday’s Fed meeting, pushing volume and volatility lower. The strength in small caps could mean that strong hands have been accumulating stock before the next leg higher.

With some of last week’s economic releases being distorted by the effects of Harvey and Irma, investors shouldn’t rush to quick conclusions based on them, but overall, the numbers were on the bearish side. The already mentioned retail sales report missed across the board, and even the healthy July readings were revised lower. On a positive note, the CPI index came in slightly better-than-expected, and job openings reached a cyclical high according to the JOLTS report. The negative surprises in the PPI index and industrial production should also be considered before the key rate decision, but as the Bank of England joined the BOC and the ECB on the “hawkish” path last week, the Fed is now less likely to slow down its tightening schedule.

The broad rally boosted the technical picture considerably last week, and the major benchmarks are all clearly in rising short- and long-term trends once again. The Dow, the S&P 500, and the Nasdaq are well above their 50- and 200-day moving averages, and the Dow outperformed its peers following a brief period of weakness. The biggest improvement came from the Russell 2000, as the small cap index soared back above its short-term indicator, and it is now within striking distance of its all-time high. The Volatility Index (VIX) took a nosedive in the beginning of the week, and it continued to drift lower in the calm environment, closing near the 10 level; a one-month low on Friday.

The rally in small caps helped the healing process in market internals, and the Gorilla is delighted that the recent red flags were false alarms. The Advance/Decline line got back onto its steadily rising path, hitting a new bull market high, as advancing issues outnumbered declining stocks by a 5-to-1 ratio on the NYSE and by a 4-to-1 ratio on the Nasdaq. The average number of new 52-week highs edged higher again, climbing to 138 on the NYSE, and 164 on the Nasdaq. The number of new lows fell significantly, dropping to 9 on the NYSE, and 22 on the Nasdaq. The ratio of stocks above their 200-day moving average bounced back after the prior dip, but it’s still alarmingly low at 63%, even as the most important indices are near record highs.

Short interest trended lower all week long, as volatility crashed, and although the prior record lows are still not in danger, bears are nowhere to be seen on Wall Street. Our prior pick, RPC Inc. (RES), continued to squeeze shorts, adding another 10% to its recent gains, as short interest remains sky high at 53%. Shake Shack (SHAK) has an even higher short interest of 58%, and after finding support at $30, the stock is starting to show clear signs of strength. Microchip Technologies (MHCP) posted a new all-time high last week, and with a days-to-cover (DTC) ratio of 13, shorts of the stock might already be in panic mode. Under Armour (UA) is also near the top of the list with the highest DTC ratios, sporting a reading of 12, and the stock continued its bullish September, now more than 10% higher.

All eyes will be on Janet Yellen and the Fed Wednesday, as investors are eager to hear exactly how the Central Bank plans to reduce its huge balance sheet, the result of the nearly decade-long quantitative easing program. Bond markets are torn on the prospects of the coming months, as Treasury yields are up year-to-date, but they hit multi-week lows recently amid the hawkish turn in global central bank rhetoric. With only building permits and housing starts coming out before the meeting on Tuesday and given the recent strength in stocks, the Gorilla expects calm trading until Wednesday afternoon. Things could get more exciting on Thursday, with the release of the Philly Fed Index and the Bank of Japan’s rate decision earlier on, and the second half of the week might prove very busy for investors. Stay tuned!