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

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.

~George

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 🙂

~George

Stocks posted impressive gains this week with the Dow Jones Industrial Average (chart) closing up 3.6% hitting a five month high. The S&P 500 (chart) also finished the week up 3.7%, the Nasdaq (chart) +2.5% and the Russell 2000 (chart) +3.6%. Albeit, these gains did occur on relatively light volume.

Once again positive U.S. economic news helped fuel this week’s rally with encouraging news on the housing front where builders broke ground on over 600,000 new homes and building permits increase at a 5.7% rate. Also, on the jobs front, applications for unemployment benefits fell by 4000. Even Europe had some positive news with German business and consumer confidence rising unexpectedly in December and Spain also had a successful debt auction.

Once again the S&P 500 (chart) is at the upper end of its protracted trading range and appears to be on the cusp of breaking out. With four trading days left in the year, let’s see if the bulls get their long awaited technical breakout. Good luck to all.

Have a wonderful Holiday weekend 🙂

~George

As the markets continue to toil with the news flow out of Europe, stocks took it on the chin this week. The Dow Jones Industrial Average (chart) fell 317.87 points or 2.6%, the Nasdaq (chart) -91.52 points or 3.5%, the S&P 500 (chart) -35.53 points or 2.8% and the Russell 2000 (chart) finished the week off down 23.35 points or 3.1%. This despite Thursday’s release on jobless claims and manufacturing data which was very bullish for the markets.

So why the drop? One word, Europe! As long as negative headlines continue to hit the tape regarding Europe, I am afraid that the markets will continue this very volatile pattern it has been in for months now. However, after this week’s sell-off the S&P 500 (chart) did manage to hold key technical support levels above the 1200 mark. Also, with two weeks left in the trading year, it is possible that we could see year end window dressing instituted by fund managers. Window dressing is a strategy used by fund mangers to improve the appearance of their funds performance before each quarter’s end or year end. Let’s see if this comes into play over the next couple of weeks. Good luck to all.

Have a great weekend 🙂

~George

Once again this multi-month S&P 500 (chart) trading range of 1100 to 1265 territory has held true to form and the technical traders are seemingly outperforming the fundamental investors. Three times this week the 1265 level on the S&P was tested and ultimately failed to breakout. However, positive developments out of Europe today sent the markets higher and once again the S&P 500 (chart) is approaching the 1265 level which is also its 200 day moving average. As long as there are no further tape bombs coming out of Europe, I believe there is a strong possibility that in the near future we can potentially break out of this ever tightening trading range. But this is a big “if”. We all know by now the European debt crisis is far from over, but at least there seems to be some accord happening from across the pond.

I am also encouraged about the improving economic environment that is occurring here in the U.S. According to reports released this morning, consumer confidence has reached a 6 month high and our country’s trade gap is also narrowing, which is bullish for the economy. On the week, the Dow Jones Industrial Average (chart) closed up 186.56 points, the Nasdaq (chart) +50.47, the S&P 500 (chart) +20.84 and the Russell 2000 (chart) +22.72 points.

I, along with thousands of other traders will be keeping a close eye on a potential breakout above the 200 day moving average or the 1265 level on the S&P 500. My real preference is a breakout above the 1280 zone in which it last traded there in early November. That to me would be the true breakout point for a potential Santa Claus rally into year end. Good luck to all.

Have a great weekend 🙂

~George

After witnessing a 5% decline in the major averages Thanksgiving week, the bulls this week took charge with an amazing 7%+ gain in the four key indicies. For the week, the Dow Jones Industrial Average (chart) posted a breathtaking 7.01% gain, the Nasdaq (chart) surged 7.59%, the S&P 500 (chart) +7.39% and the small-cap benchmark Russell 2000 (chart) advanced an eye-popping 10.34%. Folks this is no typo. Once again stocks are demonstrating enormous week to week and even day to day volatility, and most likely this unprecedented volatility will continue for a while.

So why such a strong upside move and more importantly what is a trader to do with it? First on Wednesday, central banks from around the world made it easier for banks to borrow American dollars. This postponed at least for now the downward spiraling effect the markets were experiencing due to the euro zone crisis. My concern is that this extraordinary action was even necessary, which confirms that the problem across the pond is obviously a lot worse than it seems. Yes it will be helpful to ease borrowing for banks, but it does not hit the debt issues in Europe head on. What is supposed to hit the EU crisis head on is next week’s European summit in Brussels where the euro zone leaders will meet to continue their discussions on how to get closer to resolving their ever growing debt crisis.

Now to the second question of what is a trader do after this unprecedented week of gains? Even though over the past two weeks we saw a 5% decline and then a subsequent 7% gain in the key indices, again what has changed? In my opinion, absolutely nothing! We are still trading in this prolonged trading range of 1100-1275 S&P (chart) and the global risks are still out there, even China’s economic engine is cooling off. We are however seeing some encouraging economic signs here in the U.S. But as long as Europe continues without a clear path of reform, chances are global markets will continue to remain range bound. So what we will continue to look for is long opportunities at the lower end of the range and sell and even consider short opportunities at the upper end of this multi-month trading range.

That said, the day that this trading range breaks and remains in either direction, the long/short thesis will have to be revisited and a new strategy implemented. Please make sure to consult your professional investment advisor before you consider any strategy for we are certainly in unparalleled times. Good luck to all.

Have a great weekend 🙂

~George

Not since 1932 had the markets suffered such a sharp decline the week of Thanksgiving. Although volume was relatively light, the Dow Jones Industrial Average (chart) on the week fell 564.22 points or 4.85%, the Nasdaq (chart) -130.92 or 5.1%, the S&P 500 (chart) -56.98 or 4.7% and the Russell 2000 (chart) -50.64 which was a whopping 7% decline.

In today’s world, we do live in a global economy, but are we that tied to Europe? For weeks now every single headline that comes out of Europe seemingly jolts our market. What is being overlooked here by investors is the improving U.S. economic data points from the consumer, all the way through to the manufacturing sector. This is causing some analysts to revise up their future growth forecasts. However, market participants are fixated on when and what the European Central Bank will do to begin to solve the credit crisis in the Euro Zone. Until then, I would expect extreme volatility in our markets to continue.

This week also marked the break of the 50-day moving average on the S&P 500 (chart). Now, certain market technicians are looking for the 1150 level of the S&P to hold. Also, when you take a step back and analyze what has occurred over the past four months or so, what’s new? This market has been extremely volatile and has traded in a 16% or so trading range since early August. So as long as the S&P 500 or other indexes remain range bound, there can indeed be long and short opportunities at both ends of the range.

Have a great weekend 🙂

~George

Stocks took it on the chin this week as the markets continue to digest the constant flow of news out of Europe. The Dow Jones Industrial Average (chart) fell 2.94%, the Nasdaq (chart) -3.97%, the S&P 500 (chart) -3.81% and the Russell 2000 (chart) -3.39%. This despite some positive U.S. economic news released earlier in the week regarding the consumer, and Friday’s report by the Conference Board on its index of economic indicators, which is bullish.

Separate from all of the headlines that we are bombarded with on a daily basis, I always keep an eye on how the markets look from a technical standpoint. Right now it appears that we are continuing to trade in an extended trading range. Historically speaking, the longer indexes or equities trade in an extended range, the more explosive the breakout will be. Let’s take a look at the S&P 500 (chart). As you can see, since early August this bellwether index has essentially traded between 1100 and the 1275 level. Both ends of this range has been tested multiple times only to stop and reverse its course.

The S&P 500 now is testing it’s 50-day moving average and should that hold true to form, we could easily see ourselves testing the upper end of the trading range once again. Should the 50-day fail and the S&P breaks down below it, there is a strong likelihood that we would revisit the bottom end of the range or 1100 level. I am looking forward to the day that this market experiences a true breakout. That would make the trading picture a lot more clearer, which would give investors and traders alike, a more definitive view at least from a technical perspective.

Have a great weekend 🙂

~George

After yet another scare out of Europe on Wednesday when Italian bond yields hit a record, U.S. stocks managed to close out the week on Friday with impressive gains. The Dow Jones Industrial Average (chart) closed up 259.89 points, the S&P 500 (chart) +24.16, the Nasdaq (chart) +53.60 and the Russell 2000 (chart) +19.13.

What seems to be working over the past several weeks is whenever there are tape bombs coming out of Europe, and the markets here react negatively, buying opportunities are abound. I cannot remember a time when we have had 300-400 point down days in the Dow Jones Industrial Average (chart), only to rebound within the next day or so and regain all of the daily losses that just occured. Historically, when any major index loses three or four percent in a given day, it usually takes weeks if not months to recover from. Not the case in today’s markets, which makes investing and in particular trading a very arduous task.

We have a about six weeks left in the year and I see no alteration in the trading patterns that have come into the markets since the summer. It is possible that year end window dressing could break us out above the 1300 level on the S&P 500 (chart), however, if any additional shockwaves come out of Europe, we could easily find ourselves back at the 1200 level on the S&P. That said, should we experience any significant pullback, I will be keeping an eye on the energy and tech sectors for potential opportunities.

Have a great weekend 🙂

~George