Small Caps Lead a Strong Week on Wall Street

The Nasdaq is on track to snap its longest losing streak in more than a year

Aug 25, 2017 at 1:38 PM
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Coming off its biggest two-week loss since Brexit -- a bullish signal for blue-chip stocks -- the Dow bounced back sharply this week, even with President Donald Trump's threats of a government shutdown. The S&P 500 Index (SPX) and Nasdaq Composite (COMP) also had positive weeks, with the COMP set to snap its longest losing streak since May 2016. What's more, small-cap stocks staged a rare outperformance over their larger-cap peers, bringing this crucial trendline test into focus next week.

This Stock Rally Still Has Legs

However, there's plenty of signs suggesting that U.S. stocks have not yet hit the euphoria stage associated with market tops -- although this rare data point on the CBOE Volatility Index (VIX) could point to another looming volatility spike. For starters, the number of SPX stocks hitting new 52-week lows reached an 18-month peak last week -- data that has historically created a "best time to buy stocks" scenario two months down the road. Plus, several sentiment and options indicators we follow show signs of increasing skepticism, an ideal setup for contrarian traders.

The recent broad-market headwinds also seemed to create a potential buying opportunity for Advanced Micro Devices,which recently bounced off a historically bullish trendline. And amid an impressive uptrend in the broader semiconductor sector, one analyst expects Micron shares to double.

Tech, Retail Earnings Hit

Earnings also had several tech stocks in focus this week, with LED specialist CREE earning a round of negative analyst attention after its results. Coming off last week's big earnings beat for Alibaba stock -- which prompted a record-high price target from one analyst -- Chinese interest stocks and Momo headed in entirely different directions. Meanwhile, ahead of the upcoming iPhone 8 launch, one analyst said to buy Apple.

Retailers continued to hold Wall Street's attention, too. While athletic apparel stocks were in analysts' bearish crosshairs early in the week, American Eagle stock hit a new low just before its post-earnings bull gap. And while Sears Holdings shares saw an unexpected pop after the embattled retailer's quarterly results, cosmetics names e.l.f. Beauty and Ulta weren't so resilient. GameStop shares are spiraling after earnings, too, though options traders were prepared.

Buyout Buzz Surrounds Biotechs

Drug stocks were among other big movers this week, with M&A chatter sending Paratek Pharmaceuticals soaring. Takeover rumors also swirled around fellow biotech Teva Pharmaceutical, though the stock carved out new multi-year lows following a round of price-target cuts. Elsewhere in the sector, Adamas Pharmaceuticals hit a new annual high, thanks to a regulatory win for its Parkinson's disease drug.

Jobs Data Hits Ahead of Labor Day Weekend

Looking ahead to next week, the economic calendar heats up ahead of the long holiday weekend. Jobs data and the initial reading on second-quarter gross domestic product (GDP) will dominate the conversation ahead of the September Fed meeting. And while Fed Chair Janet Yellen didn't offer any clues to an upcoming rate hike at today's Jackson Hole appearance, the utilities sector is one to watch ahead of the highly anticipated policy-setting meeting.

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