Stocks finished the week mixed…

The markets closed out the week with mixed results following the Commerce Department’s release of the fourth quarter G.D.P. report. The Dow Jones Industrial Average (chart) finished the day down 74.17 points, the S&P 500 (chart) -2.11 with the Nasdaq (chart) and the Russell 2000 (chart) both eking out modest gains.

According to this mornings G.D.P. report, the U.S. economy grew at a 2.8% annualized rate in the fourth quarter coming in short of certain economists expectations. This seemed to affect the Industrials throughout the day and caused some apprehension as to the growth estimates going forward. Also, the Federal Reserve came out this week and said they expect short-term interest rates to stay near record lows at least through 2014. To me this is an indication that the Federal Reserve still sees an anemic economy well into the future, which might not bode so well for equities going forward. Couple that with earnings reporting season beginning to wind down and there doesn’t seem to be any near term catalyst in the markets to continue to propel stocks.

That said, momentum is a very powerful dynamic to the upside or downside and certainly equities have been on a tear as of late with the bulls in full control. However, it’s probably not a good idea to get too complacent and think that stocks can go up forever as we all have learned.  At the very bare minimum this market is seemingly poised for a pullback which actually could be very healthy for a sustainable uptrend. My concern is that one big sneeze out of Europe or if the most recent positive economic data here in the U.S. was just an anomaly, we could be in for more than just a “healthy pullback”?  Good luck to all.

Have a great weekend 🙂


Earnings and Europe, so far so good…

Stocks posted yet another week of gains as corporate earnings for the most part are coming in as expected and the Euro Zone had some success with their most recent bond issuances. For the week, the Dow Jones Industrial Average (chart) closed up 2.4%, the Nasdaq (chart) +2.8%, the S&P 500 (chart) +2.04% and the Russell 2000 (chart) closed the week +2.67%.

This week earnings will continue to take the spotlight with a slew of companies reporting their results. To kick off the week earnings will be out from Halliburton (NYSE: HAL) and Texas Instruments (NasdaqGS: TXN). On Tuesday, McDonald’s (NYSE: MCD) and Apple (NasdaqGS: AAPL) will give us their quarterly results and later in the week we will hear from AT&T (NYSE: T) and Caterpillar (NYSE: CAT) on how their quarter went.

Other key events this week will be a meeting in Brussels with the EU finance ministers, here at home the FOMC meeting takes place and President Obama holds his State of the Union address. Needless to say quite an eventful week ahead for the markets to contemplate.

One other unfolding technical event I will pay closer attention to is the beginning of “overbought conditions” in the key indexes and certain equities. For example, let’s take a look at the Relative Strength Index (RSI) of the S&P 500. We should all know by now, but for those of you who don’t, the RSI typically indicates whether or not a given index or equity is either overbought or oversold, depending on certain value levels. According to the RSI principle, the 70 value level or greater can be interpreted as an overbought condition and the 30 value or lower can be interpreted as an oversold condition. As you can see in the upper box of the S&P 500 (chart) the 70 value level is fast approaching. Now that doesn’t mean I am going to rush out there and short the markets, however, the RSI is a technical indicator that has historically been a reliable indicator as to overbought or oversold conditions. Please note that markets or equites can remain overbought or oversold for extended periods of time. I just want to point out that we are seemingly overdue for a bit of a pullback and certain market technicians employ the RSI model as a guide to assist them with their strategies.

Good luck to all and have a great week 🙂


January effect in full effect, for now…

After the first two weeks of the trading year, the perennial January effect is holding true to form. The year to date gains so far the key indices are; Dow Jones Industrial Average (chart) + 1.67%, the Nasdaq (chart) +4.05%, the S&P 500 (chart) +2.5% and the Russell 2000 (chart) +3.14%.

Fast forward to this upcoming week and we are heading full throttle into fourth quarter earnings reporting season. The markets will be closed tomorrow in recognition of the MLK holiday, however, on tap for Tuesday from the banking sector is earnings out of Citigroup (NYSE: C) and Wells Fargo (NYSE: WFC). Later in the week we will hear from tech titan Google (NasdaqGS: GOOG), global powerhouse IBM (NYSE :IBM) and Microsoft (NasdaqGS: MSFT) just to name a few.

Between companies reporting their earnings results and the ongoing drama unfolding out of Europe, I am expecting volatility to kick in significantly. Also, the VIX ($VIX) which is a widely used measure of market risk, has been relatively complacent over the past few weeks trading at the lower end of a multi-month range. Certain market technicians interpret that this type of complacency and lower end value could mean an imminent move up in volatility. Whatever the case may be, the markets are seemingly poised to start trading in much wider ranges. Good luck to all.

Have a great week 🙂

~George Mahfouz

Earnings reporting season kicks off with Alcoa after the bell…

Stocks opened modestly higher this morning ahead of the much anticipated fourth quarter earnings reporting season. The Dow Jones Industrial Average (chart) opened up 20 points, the Nasdaq (chart) +6 points, the S&P 500 (chart) +3 points and the Russell 2000 (chart) +3.5 points.

Aluminum producer Alcoa (NYSE: AA) unofficially kicks off the fourth quarter earnings reporting season by issuing their quarterly earnings report after the bell. Analysts expect the company to earn a penny a share amid falling aluminum prices and industry oversupply. In the banking sector all eyes will be on global bank J.P. Morgan (NYSE: JPM) which is scheduled to report on Friday.

The first day of the trading year the S&P 500 (chart) broke above the 1280 level which certain market technicians looked at that mark as a breakout point. However, in my previous blog I eluded the need for the S&P to trade above that level for an extended period of time in order for a true breakout to be confirmed. So far we have not got that and I am afraid the bulls are going to have to be more patient to see this through.

The concern I have regarding the markets lifting much higher is if corporate earnings are not strong enough to please the markets or if companies give weak guidance. If either of the two dynamics occur, we could see a triple top on the S&P 500 (chart) and find ourselves back in this protracted 100 point or so trading range of the S&P that we have been for multiple months now. Time will tell where we end up and earnings reporting season should provide the answer. Good luck to all and have a great week.


Stocks ring in the new year with a bang!

Happy New Year! Stocks opened sharply higher this morning with the Dow Jones Industrial Average (chart) surging over 200 points, the S&P 500 (chart) +23 points, the Nasdaq (chart) +60 points and the Russell 2000 (chart) +18 points.

The S&P 500 (chart) for the first time in over two months is trading over the 1280 mark which is the breakout point that certain market technicians have been looking for. Before anyone gets too excited though, it is not uncommon for stocks to lift in the first couple of days of the trading year. Personally, I would like to see at least a week of the 1280 level of the S&P to hold before I am convinced that this is a true breakout. Furthermore, we are heading right into fourth quarter earnings reporting season which should also confirm whether or not this is truly a market breakout.

As far as volatility is concerned, chances are that we are in for a similar pattern as we experienced in 2011, which was breathtaking. There are still far too many uncertainties that lie ahead which includes the ongoing saga out of Europe, our own economy, corporate profits, and of course the 2012 Presidential elections here at home. Nevertheless, this should be a very exciting year for the bulls and the bears, however, whichever camp you are in, make sure to always use protective stops on all of your positions. Good luck to all and Happy New Year 🙂