State of the Stock Market Analysis for the Week Ending on December 1st, 2019 (What Happened Over the Holiday-Shortened Week? | State of the Stock Market 12-01-19)
The Nasdaq and the S&P 500 hit new all-time highs on Monday and continued to push higher throughout the holiday-shortened week. Even the slightly lagging Dow managed to reach unchartered territory ahead of the Thanksgiving holiday. The broad-based rally to new highs also lifted small-caps, and all of the key risk-on sectors gained ground following last week’s weak pullback. The positive shift in trade-related sentiment was the main driver behind the move, as the few key corporate earnings reports and the most important economic releases were mixed. While a finalized “phase-one” deal with China still hasn’t been announced, this week’s reports and rumors all agreed that the two sides are very close to an agreement, although the bill supporting the Hong Kong protests could lead to renewed tension if it is not resolved.
Even though we only received economic releases on Tuesday and Wednesday this week, there were still plenty of key indicators coming out from all of the key sectors. The housing sector provided the most input, and while the indicators were mixed, the homebuilding sector hit an almost two-year high on Wednesday. Pending home sales declined unexpectedly, but new home sales were very strong, and the Case-Shiller Housing Price Index finally increased, confirming the rebound. As for manufacturing, durable goods orders beat across the board, although the Richmond Manufacturing Index and the Chicago PMI both missed expectations. Consumer-related releases were weak, with the CB consumer confidence number and the Core PCE Price Index both ticking higher, but since the third quarter GDP print was revised higher, the outlook for the holiday season remains bright.
The technical picture continues clearly positive, and the major indices, including the recently weaker Dow, are still in advancing trends on all time-frames according to the most reliable trend indicators. 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 as well. After trading sideways for more than three weeks, small-caps surged higher this week, with the Russell 2000 hitting its highest level in over a year, and the index is still well above both of its moving averages. The Volatility Index (VIX) spent the week at its lowest levels of the year, but due to Friday’s pullback, it finished the week flat near the 12.5 level.
Market internals improved significantly thanks to the broad-based rally and the relative strength of small-caps, as all of the key measures continue to confirm the bullish trend in stocks. The Advance/Decline line broke out to a new bull market high this week, as advancing issues outnumbered decliners 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 bounced back on both exchanges, rising to 85 on the NYSE and 88 on the Nasdaq. The number of new lows declined in the meantime, falling to 19 on the NYSE and 47 on the Nasdaq. The percentage of stocks above their 200-day moving average remained stable, and even following the dip on Friday, it finished the week near 62%.
Short interest declined across the board this week, leading to a significant short squeeze among the most-shorted stocks, which performed better than the broader market. National Beverage (FIZZ) had a very strong week, and the stock got close to its high from last month, which could mean that a long-term bottom is forming, helped by the stock’s short interest of 65%. MiMedx Group (MDXG) surged higher following last week’s breakout, gaining more than 15% this week, and since the stock sports a short interest of 61%, the rally could continue. Current GorillaPick, Hormel Foods (HRL) hit a fresh one-year-high this week, and since the stock’s days-to-cover (DTC) ratio increased to 18, shorts could be in for more pain.
Although the trade talks with China will likely continue to make headlines next week, especially in the wake of the passing of the U.S. bill supporting the Hong Kong protests, the economic calendar will also be full. The ISM manufacturing PMI will be out on Monday, total vehicle sales will be published on Tuesday, while the ADP payrolls number and the ISM non-manufacturing PMI will highlight Wednesday’s session. The trade balance and the Challenger job cuts estimate will come out on Thursday, while the government jobs report and the Michigan consumer sentiment number are scheduled for Friday, as usual. Despite Friday’s dip, the major indices are just off their all-time highs, and stocks could be ready to resume their charge to new highs as soon as next week. Stay tuned!
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