State of the Stock Market Analysis for the Week Ending on November 3rd, 2019 (A Positive Week on Wall Street | State of the Stock Market 11-03-19)

Stocks had a clearly positive week on Wall Street with the Nasdaq and the S&P 500 both hitting new all-time highs, and the lagging Dow also getting close to its respective record high. The overwhelmingly bullish quarterly earnings and the Fed’s third rate cut in a row were the main factors behind the broad rally in equities that carried most of the key sectors higher, despite the usual day-to-day volatility of earnings season. The fact that the European Union (EU) granted another extension to the Brexit deadline also boosted global risk assets, and now the December elections will be the next major event in the seemingly never-ending saga.

We had a very busy week of economic releases, and despite the broad rally in equities, most of the key forward-looking reports actually missed consensus estimates. The CB consumer confidence number failed to rebound following last month’s plunge, while the Core PCE Price Index and personal spending also hinted at the cooling of the consumer economy. As for manufacturing, the Chicago PMI and the ISM manufacturing PMI both missed expectations, with especially the former reading confirming the contraction in the globally weak sector. On a more positive note, the first reading of the third-quarter GDP number was much better-than-expected, and the government jobs report was also solid, with the non-farm payrolls number making bulls smile widely.

The technical picture remains positive across the board, as even the relatively weaker Dow is now in a clearly rising short-term trend, very close to its all-time high on Friday. The S&P 500, the Nasdaq, and the Dow are still well above their rising 200-day moving averages, and the benchmarks also closed the week far above their rising 50-day moving averages on Friday as well. Despite a weaker patch around Wednesday’s Fed meeting, small-caps had another bullish week, and thanks to Friday’s surge, the Russell 2000 got very close to its more than one-year high. The Volatility Index (VIX) had an active week, but despite the spike higher on Thursday, the “Fear Index” closed the week near 12.3, its lowest level since late-July.

Market internals continued to improve, reflecting the “under-the-hood” strength that has been apparent for several weeks now, as the most reliable measures continue to support the rally. The Advance/Decline line hit new bull market highs once again, as advancing issues outnumbered decliners by a 4-to-1 ratio on the NYSE, and by a 3-to-1 ratio on the Nasdaq. The average number of new 52-week highs increased again on both exchanges, rising to 109 on the NYSE and 88 on the Nasdaq. The number of new lows also edged higher in the meantime, rising to 32 on the NYSE and 54 on the Nasdaq. The percentage of stocks above their 200-day moving average continued to increase thanks to the broad rally, and the measure finally rose above the 60% level to close the week near 61%.

Short interest declined notably yet again, as investors further reduced their bearish bets due to the Fed’s reassuring message and the better-than-expected earnings reports. MiMedx Group (MDXG) hit its highest level in two months on Friday, and since the stock has a short interest of 62%, a technical breakout could be ahead. After having a terrible October, current GorillaPick, Hormel Foods (HRL) rallied strongly on Friday too, and given its very high days-to-cover (DTC) ratio of 16, it might be ready to bounce back. Microchip Technology (MCHP) also sports a DTC ratio of 14, and while the stock is still stuck in a consolidation pattern, the broad rally could trigger a short squeeze in the coming weeks.

We will have a relatively quiet week in terms of economic releases, following this week’s craziness. Factory orders will come out on Monday, the ISM non-manufacturing PMI will be out on Tuesday, while Friday’s session will be highlighted by the first reading of the Michigan consumer sentiment number. While most of the key earnings reports are already out, we will still have a few interesting companies reporting, and bulls hope that the profit figures will continue to impress. Disney (DIS). Qualcomm (QCOM), CVS Health (CVS), and Duke Energy (DUK) could have the biggest impact, but it seems that most U.S. companies avoided the dreaded earnings recession yet again. With technicals solidly pointing higher, should the date of the signing of the “Phase One” trade deal with China be announced next week, we could be in for an epic rally in equities. Stay tuned!

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