State of the Stock Market Analysis for the Week Ending on April 28th, 2019 (Bullish Trends Remain Intact | State of the Stock Market 04-28-19)
While we had a very hectic week on Wall Street, as one would expect in the middle of earnings season, the underlying bullish trend remains clearly intact in stocks. The tech sector, in particular, provided significant earnings surprises, both positive and negative, as about 80% of the reporting companies have beaten analysts’ estimates. Microsoft (MSFT) and Facebook (FB) boosted the market-leading tech sector the most, while Intel (INTC) provided the worst surprise of the week, together with the 3M Company (MMM), and Caterpillar (CAT). Although Amazon (AMZN) released a mixed report, with some weakness in its booming cloud business, the stock finished the week at a fresh six-month high, helping push the Nasdaq to a new record high.
Following last week’s positive releases, the most important economic numbers were yet again bullish, although we saw a few red flags, especially in the housing and manufacturing sectors. The advance GDP print was much stronger-than-expected, coming in at 3.2% vs. the 2.2% expected, and given the fact that the GDP price index was way below the consensus estimate, these developments clearly favored bulls. As for the housing sector, existing home sales and the Housing Price Index both missed expectations in March, but the positive surprise in new home sales, together with declining mortgage rates were positive developments for the sector. On the flipside, the durable goods report was the most bullish report in almost a year, which is great news for the manufacturing sector, as it still faces strong global headwinds.
Despite the choppy and mixed week, the technical picture remains positive, with the most reliable trend indicators all confirming the advancing short and long-term trends. The Dow, the S&P 500, and the Nasdaq are all above their rising 200-day moving averages, while also above their steeply rising 50-day moving averages, even though the industrial average edged closer to its short-term indicator. Small-caps had a highly volatile, but positive week, and although the Russell 2000 is still clearly lagging the broader market, it closed the week above both its short and long-term moving average. The Volatility Index (VIX) spiked briefly above its 50-day moving average for the first time in a month, but it finished the week virtually unchanged, below the 13 level again.
Market internals recovered following last week’s deterioration, thanks mostly to small-caps, and while some of the key measures are still showing internal weakness, the overall picture remains encouraging. The Advance/Decline line hit a new bull market high this week, as advancing issues outnumbered declining stocks by a 3-to-1 ratio on the NYSE, and by a 4-to-1 ratio on the Nasdaq. The average number of new 52-week highs was stable on both exchanges, dropping to 95 on the NYSE and 82 on the Nasdaq. The number of new lows increased in the meantime, rising to 29 on the NYSE and 53 on the Nasdaq. The percentage of stocks above their 200-day moving average increased following last week’s dip, finishing near 58%, just below its recent multi-month high.
Short interest continued to decline on Wall Street, even though the VIX briefly spiked higher. And as the major indices are approaching their all-time highs, even more bears will likely be looking for the exits in the coming weeks. Carvana (CVNA) had another huge week, gaining more than 10%, and since the stock has a short interest of 56%, last year’s highs are now within reach. While EQM Midstream (EQM) edged lower this week, it held up well despite the correction in the price of oil, which could mean that another strong rally is ahead, especially given the stocks’ short interest of 68%. Although Snap-On (SNA) consolidated in a volatile fashion following its recent breakout, the stock still sports a very high days-to-cover (DTC) ratio of 14, so bears are not out of the woods yet.
We will have a very busy week of economic releases next week, with the core PCE Price Index coming out on Monday, the CB consumer confidence number highlighting Tuesday’s session, and the Fed’s rate decision and the ISM manufacturing PMI is scheduled for Wednesday. Thursday will be relatively quiet, but the week will end with a bang, as the government jobs report and the ISM non-manufacturing PMI will both come out on Friday. Earnings season will also continue next week, and the tech and healthcare sectors will be at the center of attention, with the likes of Apple (AAPL), Pfizer (PFE), Merck (MRK), and current GorillaPick, Alphabet (GOOGL) reporting. Mastercard (MA) and unconfirmed GorillaPick, McDonald’s (MCD) will also publish their quarterly numbers, and should the bullish surprises continue to dominate, the Dow and the S&P 500 will likely follow the Nasdaq to record highs. Stay tuned!
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