U.S. stocks finished lower on the week as the ongoing crisis in Europe forges ahead. What didn’t help matters is that earlier in the week Greek Prime Minister George Papandreou tried to back out of the deal that the EU consummated just days prior. This sent our markets tumbling on Tuesday and helped create yet another volatile week. The Dow Jones Industrial Average (chart) closed down on the week 2.0%, the Nasdaq (chart) -1.9%, the S&P 500 (chart) -2.5% and the Russell 2000 (chart) -1.9%.

So how can anyone cogently understand how to trade or invest in this environment knowing that any point and time news out of Europe could jolt the markets in either direction? To answer that question you must first understand the type of trader/investor you are. If you are a long term investor (5 years or more) it is not too hard to find solid companies within the S&P 500 or any other major exchange to consider investing in. Simply go to a subject company’s balance sheet, look at their cash position, debt load and growth rate and you will be surprised at how many companies there are that have boatloads of cash, no debt, paying a dividend and are growing respectfully.

You must do some homework in finding these gems, but this is not too difficult. To me no matter what the day to day, week to week, or month to month gyrations are of the markets, these are the type of companies that you can hide in during these highly volatile times. Of course it’s always a good idea to conduct a check up on the balance sheets from time to time to make sure nothing dramatic is occuring that could change your view of any given investment.

If you are a short term trader/investor, say less than one year, or even of a shorter mindset, this type of market environment requires very strict guidelines as to implementing protective stop losses and clearly defining what you are willing to risk on each trade. This environment also creates much higher premiums in stock and index options that short term traders can definitely take advantage of. However, you especially need to do your homework here and have a complete understanding of how options can be an effective strategy in an overall portfolio. Options are extremely risky and require a high level of expertise in order to get this strategy working for you and not against you.

Point being this, Europe will continue to grab headlines, so do we run from this or do we embrace it? My feelings are as long as you have a defined plan with protective stops in place, and whether it is a long or short term strategy, opportunity usually occurs out of fear and volatility. Good luck to all.

Have a great weekend 🙂

~George

Despite the eurozone coming to an agreement in principle last week to resolve their lingering debt crisis, Greek Prime Minister George Papandreou called for a vote late Monday of the Greek people, which was not part of the deal. This move has shocked the European Union and the markets to boot. In October the U.S. markets enjoyed one its best performing months in years with all of the major averages posting double digit percentage gains on the month; Dow Jones Industrial Average (chart), S&P 500 (chart), Nasdaq (chart), Russell 2000 (chart).

With the run that the markets enjoyed in October, it was inevitable that a healthy pullback would occur. However, I don’t think anyone expected that the pullback would happen in the first two days of this week.

Between the ongoing saga across the pond and the computerized trading models that have seemingly taken over trading desks, my friends volatility is most likely here to stay. That said, if you participate in these markets do not forget two of the top rules of trading or investing, and they are, define your risk in every trade and always use protective stops. Good luck to all.

Have a good day.

~George

This week we witnessed the power of a technical breakout. For months the four major averages were stuck in a prolonged trading range. In last weekend’s blog, I eluded the need of the S&P 500 to not only break through the 1225-1230 zone, but remain above it for multiple days in order for me to get more bullish. Boy did it deliver! Not only has the S&P 500 remained above the breakout zone, it has now closed above its 200-day moving average. This is a very promising premonition for the bulls. For the week, the S&P 500 (chart) closed up 3.8%, the Dow Jones Industrial Average (chart) +3.6%, the Nasdaq (chart) +3.8%, and once again the Russell 2000 (chart) led the way as far as percentage gains by closing up an eye-popping 6.8% on the week.

So why did we breakout? Very simple, strong corporate earnings continue to come in, a surprisingly strong GDP report was released on Thursday, and the single most important catalyst was the Euro Zone coming to terms with at least an outline on how to resolve their debt crisis. However, coming up with an outline and actually executing the plan are two totally different agendas, so we must stay tuned as to how things progress. That said, the markets were happy to see at the very least that some type of plan was agreed upon in principle to resolve the debt crisis across the pond.

So what’s the set up now and going forward into year end? Well, with the type of run stocks have had in the month of October, it is natural to expect some type of pull back to occur. For me this could create attractive entry points via indexes or equities, but as a reminder, whenever you choose to go long an index or equity, define your risk and always have protective stops in place.

Happy Halloween 🙂

~George

With the height of earnings reporting season at hand, corporate America for the most part has not disappointed. Companies such as McDonald’s (NYSE: MCD), Intel (NasdaqGS: INTC), Harman International Industries (NYSE: HAR) and Google (NasdaqGS: GOOG) all exceeded earnings expectations, just to name a few. The key indexes are indeed benefiting from Q3 reporting season. The Dow Jones Industrial Average (chart) and the S&P 500 (chart) finished the week up over 1 % while the Nasdaq (chart) and Russell 2000 (chart) lagged a bit.

Now all eyes are on Europe and what comes out of this weekend’s summit meeting of the European Union leaders. With how emotional the markets have been recently, especially as it pertains the EU debt crisis, I would expect next week will be yet another week of extreme volatility in the markets. However, one item to note, for the first time since early August the S&P 500 (chart) has broken and closed above the 1230 level. This level has acted as strong resistance over the past couple of months.

This event for certain market technicians is a key breakout, but for me I want to see multiple days of remaining above the 1230 mark and of course I would like to see significant progress made from across the pond before I get more bullish.

Have a great weekend 🙂

~George

Since the S&P 500 (chart) made an intra-day low of 1075 on October 4th, this bellwether index has gained a staggering 13.95% to close at 1224.58 in just 10 days. That’s no typo. The three other key indices also had significant runs especially the small-cap index Russell 2000 (chart) gaining a breathtaking 18.4% since October 4th. In the past 10 days the Dow Jones Industrial Average (chart) has also tacked on almost 12% and the Nasdaq (chart) concurred with a 16%+ gain as well.

Interestingly enough this range bound market over the past 2 1/2 months (blog) now finds itself on the cusp of breaking out of the upper bands of its range. Market technicians are looking at the 1225 zone of the S&P 500 as the breakout level and that’s where it closed yesterday. We are full steam ahead into earnings reporting season with the likes of Apple (NasdaqGS: AAPL), International Business Machines (NYSE: IBM), The Coca-Cola Company (NYSE: KO) and General Electric (NYSE: GE) all reporting their earnings next week,  just to name a few.

Q3 earnings results just may be the catalyst to push these markets through their upper level resistance zones. However, if overall the earnings reporting season doesn’t impress, we could easily find ourselves back in the middle or the lower end of this persistent trading range. Good luck to everyone.

Have a great weekend 🙂

~George

After the key 1100 support level of the S&P 500 was seriously tested on Tuesday, stocks managed to finish the week up. For the week, the Dow Jones Industrial Average (chart) closed up 1.7%, the Nasdaq (chart) +2.6%, the S&P 500 (chart) +2.1% and the Russell 2000 (chart) gained 1.9%. The markets held on to their weekly gains despite yet another anemic jobs report that was issued on Friday indicating that the unemployment rate here in the U.S. is still at 9.1%.

Next week kicks off Q3 earnings reporting season with earnings coming out of aluminum producer Alcoa (NYSE: AA), tech titan Google (NasdaqGS: GOOG) and JP Morgan Chase (NYSE: JPM),  just to name a few. I think this upcoming earnings reporting season will be more significant to the markets than usual. We all know by now the key indices have been trading in a range for quite a while. Over the past couple of months the markets have been highly emotional. This is especially true when economic or European headlines hit the tape. Whether it’s positive news or more often than not negative news, the markets swing wildly before catching its breath. This apparently has kept us stuck in this incessant pattern.

Whatever corporate America reports with their Q3 results, this could be the catalyst that either breaks us out or breaks us down through the key support or resistance levels of this range. For the S&P 500 (chart) that would be the 1225 zone at the top end, and the 1100 zone of the bottom end of the range. Good luck to all.

Have a great weekend 🙂

~George

For the past several weeks we have spoke about the markets and in particular the S&P 500 (chart) trading in a range (blog). Well on yesterday the S&P 500 (chart) broke down through the 1100 mark and traded as low as 1075 before closing up above 1120. Fast forward to today and the S&P tacked on yet another 20 points. Although the S&P intraday broke sharply below the 1100 level on Tuesday, it did not close below it. Had it closed below 1100, we would be having a different conversation. That said, I would say that the first real test of the 1100 support zone of the S&P 500 passed with flying colors.

Personally, I still do not think we are out of the woods yet. There are still too many global headwinds especially out of Europe, and as long as this uncertainty exists, I  expect abnormal volatility to continue. Also, the much anticipated jobs report which comes out before the open on Friday will certainly test the mettle of these markets. In today’s market environment there is never a dull moment. Good luck to all.

Have a good evening.

~George

I think almost everyone is happy to close the book on the third quarter, what a quarter is was! Historically, August and in particular, September tends to be one of the weakest periods of the year for stocks. Indeed, history repeated itself. For the quarter, the Dow Jones Industrial Average (chart) lost a staggering 12.09%, the Nasdaq (chart)– 12.91%, the S&P 500 (chart) -14.33% and the Russell 2000 (chart) which is the benchmark for smallcap stocks, lost a breathtaking 22.15%.

This market action is understandable considering all of the uncertainty that exists here and abroad. So now we must ask ourselves, have the markets discounted the lack of direction and ambiguous economic policies that are being tossed around in Congress? Also, have the markets discounted the European financial crisis that seemingly changes every other day? Is China now slowing down in their growth and expansion mode that they have been in for years? What about this upcoming earnings season, are earnings expectations too high considering where the economy is and going? These are just a few examples of the risks out there and the headlines that we see daily.

One thing that I think is important to remember about our current cycle is the Federal Reserve’s current monetary policy. I still believe as long as interest rates remain near zero, the market should continue to benefit from this accommodative policy. Over the past couple of years, whenever we have had market corrections such as the one we are currently in, the market has found bottoms and has turned to resume its uptrend. However, with all of the aforementioned challenges we face, don’t expect that this will be an easy market to navigate and feel confident in. I also expect that volatility will remain high and that the sensational market swings that we have experienced over the past two months will continue for the foreseeable future. Good luck to all.

Have a great weekend 🙂

~George

Since early August the key indexes have essentially been in a 10% or so trading range; the Dow Jones Industrial Average (chart), Nasdaq (chart), S&P 500 (chart) and the Russell 2000 (chart). This has created a variety of entry and exit points for traders depending on the trading style of the individual. This type of market can also create lots of head fakes and headaches should you attempt to time a range bound market. Which leads me to highlight two of the more popular technical indicators that certain market technicians, program trading and even institutional investors utilize, and they are, the Relative Strength Index (RSI) and the Moving Averages. Put simply, 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 is an overbought condition and the 30 value or lower is an oversold condition. Pertaining to the moving averages, the 50-day and the more closely gauged 200-day moving average are the key levels that certain market technicians and program traders act on.

In analyzing the four key indices, currently all of them are trading well below their respective 200-day and also below their 50-day moving averages. That said, these levels may act as resistance until the markets can break out of their current range. Furthermore, in looking at the Relative Strength Index, the key indices all appear to be around the 50 level, which is no where near an overbought or oversold condition.

To sum this up, for me personally in order to act I look for extreme indicators of market conditions, which are not currently present. This could change and most probably will once a market moving catalyst presents itself. What that catalyst will be, time will tell. I suspect that it will come out of Europe or the upcoming 3rd quarter earnings reporting season.

Have a good afternoon.

~George

As impressive as the week of September 12th-16th was with the key indices gaining over 5%, this past week was equally as impressive, but to the downside. The bears came out in full force this past week and sold just about every asset class off. For the week, the Dow Jones Industrial Average (chart) lost 6.41% of its value, the S&P 500 (chart) fell 6.54%, the Nasdaq (chart) gave up 5.3% and the Russell 2000 (chart) finished down a staggering 8.66%. Even Gold (GLD) (chart) which has been a Wall Street darling over the past couple of years, was clobbered this week.

While the Federal Reserve came out on Wednesday with a very somber outlook on our economy, this should have been no surprise. One may ask, why such a dramatic market reaction? Well, my take is that this also is nothing new. For the past two months or so we have witnessed breathtaking market swings such as what we have seen over the past two weeks. Without a question, volatility is here to stay. I would not expect an end to such sensational market moves until there are definitive resolutions to the EU debt crisis as well as our own government forming effective policies to begin a recovery for our economy.

Recently, we have been speaking about the markets trading in a range (blog), in particlular the S&P 500 (chart). Now the S&P is near the lower end of this trading range and should it break below the 1100 mark, most technicians believe the next stop would be the 1020 zone. Let’s see how the markets trade early next week and we will visit a more detailed technical analysis by Wednesday.

Have a great weekend 🙂

~George