We had yet another bullish and quiet session on Friday, and the fact that all of the key sectors closed the day in the green is a positive sign following a hectic week in financial markets. The risk-on and risk-off sectors rallied hand in hand on Friday, which is slightly unusual, small-caps were relatively strong and volatility remained low, and those could mean that the bull run is far from being over.
The week ended with a very quiet afternoon on Friday, and despite the tumultuous morning session, the major indices all finished with modest gains thanks to President Trump’s encouraging comments on trade. The Dow gained 109 or 0.4%, to 27,876, the Nasdaq was up 14, or 0.2%, to 8,520, while the S&P 500 rose by 7, or 0.2%, to 3,110. Advancing issues outnumbered decliners by a 3-to-2 ratio on the NYSE, where volume was well below average.
Following four consecutive bullish weeks, stocks pulled back slightly this week, even as the major indices still set record highs on Tuesday. The Dow hit another historic milestone, rising above the 28,000 level for the first time ever, but it also finished the week in the red due to the rising tensions between the U.S. and China. The ongoing trade negotiations and the violent protests in Hong Kong made headlines, and while the U.S. bill supporting the protesters could even lead to the breakdown of the talks, on Friday, President Trump said that a finalized deal is potentially very close. The trade uncertainty was likely behind this week’s shallow pullback, but the weakness in global stocks also weighed on domestic equities, but the large-cap benchmarks are holding on to most their recent gains ahead of the start of the holiday season.
This week was relatively low on key economic indicators, but due to the release of the FOMC meeting minutes and the resurfacing trade-related worries the Treasury market was very active. The housing market sent mixed signals, with the NAHB Housing Market Index, housing starts, and existing home sales all missing expectations but with building permits surging higher unexpectedly in October. The meeting minutes haven’t surprised analysts, and it seems that the Fed is done with cutting rates, for the time being. The Philly Fed Index and the Markit manufacturing PMI both signaled a slight improvement in the struggling sector, and the Markit services PMI also confirmed the continued slow growth of the U.S. economy.
The technical picture hasn’t changed despite the pullback on Wall Street, and all of the key trend indicators continue to point higher, and the major indices remain very close to their all-time highs. The S&P 500, the Nasdaq, and the Dow are still well above their rising 200-day moving averages, and the benchmarks are also above their steeply rising 50-day moving averages. Small-caps traded sideways this week, slightly outperforming the large-cap indices as measured by the Russell 2000, and the benchmark is still well above both its moving averages. The Volatility Index (VIX) remained in its short-term range in the face of the dip in stocks, and it finished the week flat, near the 12.5 level.
Market internals continue to show weakness from a short-term perspective, and that could mean that the consolidation will continue next week. The Advance/Decline line was flat this week, as decliners outnumbered advancing issues by a 5-to-4 ratio on the NYSE, and by a 6-to-5 ratio on the Nasdaq. The average number of new 52-week highs dropped further on both exchanges, falling to 62 on the NYSE and 69 on the Nasdaq. The number of new lows ticked higher in the meantime, rising to 58 on the NYSE and 98 on the Nasdaq. The percentage of stocks above the 200-day moving average was stable, and that is a very positive sign for bulls, confirming the resilience of stocks, even though the measures closing value of 60% is still relatively low.
Short interest remained stable this week, and the most-shorted issues performed in line with the broader market, despite the slight global risk-off shift. Planet Fitness (PLNT) has been grinding higher for almost two weeks, slowly squeezing shorts, and since the stock has a short interest of 45%, it might soon target its all-time high from earlier this year. Our previous pick, MiMedx Group (MDXG) broke out of its short-term consolidation pattern this week, and its still very high short interest of 62% could fuel another rally in the stock. Henry Schein (HSIC) had a choppy but promising week, and since the stock has been consolidating its post-earnings gains for almost three weeks now, a breakout could be ahead, boosted by its very high days-to-cover (DTC) ratio of 17.
While this week’s slightly bearish price action could spill over to the coming holiday-shortened week, there will be plenty of key economic releases coming out in the first half of the week that could affect financial markets. Tuesday’s CB consumer confidence number will be closely watched just days ahead of Black Friday, as investors will be looking for clues regarding the looming holiday. season The durable goods report will be out on Wednesday, together with the Chicago PMI, the core PCE Price Index, and personal spending, so we might see fireworks ahead of Thanksgiving Day. The trade negotiations and the impeachment process will likely remain in focus, and as the U.S. and China surely aim to close the ‘phase one’ deal this year, we could be in for major announcements next week. Stay tuned!