State of the Stock Market Analysis for the Week Ending on April 11, 2020 (Witnessing One of the Strongest Bear Market Rallies in History? |State of the Stock Market 4-11-20All You Need Is Jobs

Stocks had a decisively bullish holiday-shortened week, even considering the late-week weakness in the tech sector, as the improving global COVID-outlook, together with the next round of stimulus, gave a boost to cyclical issues and small-caps. While the virus spread rapidly in the U.S. and on the East Coast, in particular, the odds of a relatively short lockdown period helped risk assets globally, even though we could have only been witnessing one of the strongest bear market rallies in history. Investors started to focus more on the economic fallout of the pandemic this week, and the most-affected sectors remained under selling pressure amid the increasing fears of long-term travel restrictions and changing consumer habits.

While the week’s key economic releases were mixed again, most of the forward-looking measures showed weakness. The weekly number of new jobless claims was higher-than-expected for the third week in a row, and the while the 6.6 million was slightly lower than last week’s 6.8 million, the three-week total of 17 million claims will likely translate to a historic hit to the job market. The Michigan consumer sentiment number was also well below expected, but the JOLTS job openings estimate gave some hope for bulls with regard to the consumer economy. The Producer Price Index (PPI) and the core PPI were both above the consensus estimates amid the supply chain disruptions, and we got some encouraging reports from the European manufacturing sector despite the damaging lockdowns.

The technical picture is still bearish despite the strong rally of the past few weeks, with the key trend indicators still pointing lower across the board. The S&P 500, the Nasdaq, and the Dow are still all well below their declining 50-day averages and the benchmarks are also all below their now-declining 200-day moving averages. Small-caps finally had a strong week thanks to the increased stimulus measures, but the Russell 2000 still finished the week deep below both of its moving averages. The Volatility Index (VIX) continued to decline throughout the week, getting close to its 50-day moving average on Thursday, but it still closed the week above 40, despite the continued normalization.

Market internals improved again following last week’s deterioration, thanks to small-caps’ relative strength, but it’s still early to declare a new bull market based on the most reliable measures. The Advance/Decline line exploded higher, as advancing issues outnumbered decliners by a 15-to-1 ratio on the NYSE, and by a 12-to-1 ratio on the Nasdaq. The average number of new 52-week highs was once again close to zero on both exchanges, ticking higher to 5 on the NYSE and 8 on the Nasdaq. The number of new lows fell substantially, plunging to 14 on the NYSE and 23 on the Nasdaq. The percentage of stocks above their 200-day moving average finally bounced back into double digits, but Thursday’s closing value of 13.8% is still very low from a historical perspective.

Monday’s session saw one of the strongest short squeezes in the history of Wall Street, but while the most-shorted issues performed well this week, the total number of bearish bets remains high. After holding up very well amid the March-massacre, National Beverage (FIZZ) gained almost 30% this week, and the stock’s massive short interest of 59% could mean that a short squeeze is underway. PetMed (PETS) hit yet another 18-month high this week, and with the stock’s short interest still being 49%, the increased demand could propel PETS even higher in the coming weeks. Brown-Forman (BFG-B) has also been among the week’s winners, gaining more than 10%, and the stock’s high days-to-cover (DTC) ratio of 10 could signal that shorts will propel the stock back to its all-time high.

We might have a relatively calm day on Monday, barring a major shift in the COVID crisis as most of the European exchanges will be closed, and there will be no key economic releases coming out. The retail sales report will be out on Wednesday, together with the Empire State Manufacturing Index, building permits, housing starts, and the Philly Fed Index will be out on Thursday, while the week will end with the crucial G20 meetings. The evolution of the pandemic will remain at the center of attention. Hopefully, the U.S. will join Europe and Asia in the recovery, and we will get closer to the end of the damaging lockdown as well. Stay tuned!
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