Jobless claims came in higher than expected this week, rising to 244K from 242K.  Make no mistake, though, with claims coming in below 250K for the fourth straight week and below 300K for the 121st straight week, claims are extraordinarily low by historical standards.  Also, as shown in the inset chart below, claims continue to trend lower.

The four-week moving average for claims fell by 2.75K this week to 242.25K, which is 6.75K above the post-recession low of 235.5K seen six weeks ago back in mid-May.

On a non-seasonally adjusted (NSA) basis, jobless claims rose by just over 10K to 239.2K.  While that’s up, at this time of year it is common for claims to increase, so for the current week of the year, the NSA reading was still more than 100K below its average since 2000 for the current week of the year, and the lowest weekly print for this specific week since 1973.

Remember all those stories earlier this year that the market was being powered by the performance of the large-cap technology sector and more specifically, the FAANG (originally FANG, but Apple was added after it started to rally) stocks?  The “theory” was that if these stocks ever ran into trouble, look out below.  Throughout this period, we took the opposite end of the argument and repeatedly highlighted that although the FAANG stocks were doing extremely well, overall breadth in the market was strong, indicating broad-based participation.

Well, this month we got the first test of the FAANG theory and how much or little it was holding up the market.  Since the close on June 8th, the S&P 500 Technology sector has dropped 2.6% and the five FAANG stocks have declined over 4%.

So how much did the overall market decline in reaction to the fall in the tech sector.  Heading into Thursday’s trading, the S&P 500 is down less than half a percent.

The key to the market’s resilience in the face of Tech’s weakness has been strength in sectors like Health Care (+4.2%), Financials (+3.2%), and Real Estate (+2.0%).  In fact, while the S&P 500 is down half a percent from its bull market high, it is actually up 0.3% since the Technology sector peaked.

The weekly sentiment survey results from AAII were just released, and while bullish sentiment is still nowhere near 50% and well below historical averages, there were some notable moves nonetheless.  In terms of bullish sentiment, optimism declined this week falling from 32.65% down to 29.71% (what else is new).  That now makes it a record 130 straight weeks where half of the investors surveyed were not bullish.

Even as bullish sentiment declined, bearish sentiment also shrank, falling from 28.91% down to 26.86%.  That represents the lowest reading in bearish sentiment since the first week of the year.  Looking at the chart, negative sentiment has really started to decline ever since that mini-uptrend was broken several weeks back.

With both the numbers of bulls and bears continuing to thin, there has been a bull market in neutral sentiment.  In this week’s survey, the percentage of investors who couldn’t make up their minds ballooned to 43.43% or the highest reading since last August.  Let’s just call them cautiously optimistic, or better yet, optimistically cautious.

Short interest data for the middle of June was released by the major exchanges on Monday, and below we have highlighted the 21 stocks in the index with more than a third of their float sold short.  For each of the stocks listed, we have also included its performance so far in June.  While 21 stocks have more than a third of their free floating stocks sold short, five actually have more than half of their float sold short.  That’s some pretty negative sentiment!

The title of most heavily shorted stock in the S&P 1500 goes to- wait for it now- surprise, a retailer!  Shares of Dillard’s (DDS) not only have half of their float sold short, but nearly two-thirds of its float is currently sold short.  You don’t see that very often.  Behind DDS, the remaining four stocks in the S&P 1500 with more than half of their float sold short are Applied Optoelectornics (AAOI), Bristow (BRS), CARBO Ceramics (CRR), and Shake Shack (SHAK).

In terms of performance so far this month, the most heavily shorted stocks in the S&P 1500 have done well so far this month averaging a gain of 3.95% (median: 3.48%) compared to a gain of 1.32% for the S&P 1500.  The biggest winners have been Myriad Genetics (MYGN) and LGI Homes (LGIH) which are both up over 20%.  Not all of the most shorted stocks have been winners, though.  Both Applied Optoelectronics (AAOI) and Fred’s (FRED) are both down over 10%.

For anyone who has been tracking our posts on short interest over time will already know, the most heavily shorted stocks have been underperforming the broader market for several months now.  The fact that we are now seeing some improvement in terms of relative strength, suggests that investors may be opening up to the idea of moving into riskier stocks.