The Government came out this morning and reported a 0.3% increase in retail sales for the month of January. This marks the seventh straight month of an increase however, this was far less than what economists expected, hence the markets retreated. Albeit a very modest pullback for the bellwether indexes. I think for most of the bulls out there this is just fine. I have been saying for sometime that pullbacks and even reasonable corrections are very healthy for a continuing bull market. We simply have not gotten a meaningful pullback or correction over the past several months and I think from a technical perspective that would be a welcomed sight.

Having said this, in one of my previous blogs I referred to the need for top-line growth out of corporate America as one of the key factors for the current market rally to continue. With the bulk of the 4th quarter earnings reporting season behind us, it seems like revenues are picking up and businesses are not just relying on cost cutting measures and layoffs to fuel their bottom line. With top-line sales growth beginning to surface, just maybe this translates into job growth which should bode well for this market.

All the best 🙂

~George

Yet another week of gains for the stock market. For the week the Dow Jones Industrial Average closed up 1.5% at 12273, the Nasdaq gained 1.45% to close over 2800, the S&P 500 tacked on 1.39% to close at 1329 and the small cap barometer Russell 2000 Index finished the week with a 2.75% gain wrapping up at 822.

These gains occurred despite a tepid outlook from Cisco Systems (NasdaqGS: CSCO) which reported disappointing earnings and provided weak guidance after the close on Wednesday. Now in the past whenever this bellwether has provided a softer outlook the markets typically would of reacted negatively. But not this amazing bull market, seemingly nothing can spook these markets. That’s spooky in itself. The pundits are also referring to the statistic that the 3rd year of a Presidential cycle is historically a double digit year of gains in equities?

Call it what you will but for me this is simply amazing. Be careful, it’s probably best not to get too caught up in historical data, however there is no denying this bull market right now.

Have a great weekend.

~George

As stocks continue their torrid pace let’s take a look at gold. Gold sold off sharply a couple of weeks ago as investors became more confident about the health of the global economies. In one of my previous blogs I spoke about a technical indicator called the “Relative Strength Index” or the RSI. This is one of the preferred indicators utilized by certain market technicians. Now let’s analyze an example of an oversold asset at least as it pertains to the principles of the RSI and in this case the most popular ETF that tracks the movement of gold, symbol: GLD chart.

At the top of the chart you will see a plot of the RSI and right around the end of January the GLD closed in the $128.00 per share range. In that same time frame the RSI fell to the 30 value level which is an oversold level according to the RSI. Since falling to that level, the GLD has move back up almost 5% to close at $133.14 today. A market technicians dream, a classic example how this powerful tool can be when making trading and investing decisions.

Please remember that this is a text book example that worked to perfection, however equities or indexes can stay oversold  or overbought for extended periods of time. Also the RSI values can breach the 30(oversold) or 70(overbought) value level and can continue to even further decline and stay oversold or increase and stay overbought. Point being, the pundits suggest to use more than just one indicator when including a technical analysis approach. Going back to the chart of the GLD you will notice at the bottom of the chart a plot of the MACD. Certain market technicians will look for confirmation of the RSI with the crossing of the moving averages and in this case the cross occurred a few days ago.

Having said this, I am not recommending to buy gold or the GLD, however I do want to illustrate how technical analysis can assist when considering trading or investing.

Have a great evening.

~George

So what else is new? The Dow finished the week up +2%, the S&P 500 up almost 3%, the Nasdaq up +3% and the Russell 2000 also up +3%! Furthermore, this impressive market action is occurring in an anemic economy as evidenced by this mornings jobs report in where only 36,000 net jobs were added in January. That number was far less than 145,000 jobs that the pundits expected for the month.

The fact that the market did not continue to sell-off from the geopolitical turmoil in Egypt is one thing, but I don’t think anyone expected a green close today with such a soft employment number? Bottom line, you can’t ignore how strong corporate earnings have been, the power of the momentum in this market and the power of the Fed and the floor that they have put in.

Earnings will continue to come in next week and I will be very interested to see what Cisco Systems (NasdaqGS: CSCO) reports on Wednesday. I will be even more keen as to how John Chambers the CEO of the company sees the health of the economy from his vantage point, for the markets have historically payed close attention to his view. Good luck to all.

Have a great weekend 🙂

~George

So it was only a blip… The question this past weekend was Friday’s sell-off a blip or the beginning of a correction? Concerns surrounding Egypt is being overshadowed by how strong corporate profits are and this mornings ISM report which indicated that the U.S. manufacturing sector expanded in January at its fastest pace in seven years. The Dow Jones Industrial Average and the S&P 500 index closed above their key psychological levels of 12000 and 1300 respectively. However, this bull would of preferred to see more of a healthier correction rather than just a one day sell-off. But what can you say when the hard data is increasingly positive both on the corporate front and now seemingly on the economic back drop as well.

The geopolitical climate is still something to be very cautious of especially if contagion were to occur in the Egyptian region. We could still be in for a more meaningful correction, but until then it seems like the old adages of “the trend is your friend” and “don’t fight the tape” are in full play.

All the best.

~George 

Friday the markets sold off sharply with the Dow closing off 1.4% at 11823, the S&P 500 down 1.8% at 1276 and the Nasdaq which got hit the hardest closing down 2.5% at 2686. This was after a week where the Dow traded above 12000 a few times but could not hold and the S&P 500 also flirted with the 1300 level before retreating.

Personally I have been anticipating a pullback from a technical perspective, but seemingly it took the Egyptian crisis to be the catalyst for a long overdue correction. Investors and traders can get a little complacent when markets continue to lift week after week such as the current bull market we are in. In fact some participants including the media just assume and want equities to continue to march north uninterrupted. In my humble opinion it is healthy for a bull market to correct and in some instances a 5-10% correction is necessary for a sustainable bull market. If you have a long term investment strategy it is best not to be afraid of corrections but anticipate them, for you should then be able to buy your favorite equities or asset classes at a discount.

Have a healthy and prosperous week.

~George

Dow 12000 and S&P 500 1,300? These 2 major indexes are on the verge of breaking through these key psychological levels and who knows how much further they could go? In my previous blog I eluded to a key technical metric which certain professional traders and investors look to, and that is the RSI indicator. The Relative Strength Index or RSI is a metric that can provide insight as to whether markets or equities are overbought or oversold. The Dow Jones RSI value is now hovering around 80, which is definitely in an overbought mode at least according to the RSI value. However, as we all should know by now equities or indexes can remain overbought or oversold for extended periods of time. Let’s break down the analysis a little further pertaining to the RSI. Some market technicians look for the trend-line to not only breakthrough and cross the 70 level on the RSI chart, they look for a break of the 50 value level before they choose to sell or short. It’s the opposite in an oversold condition in whereas the trader or investor looks for a cross above the 30 level and then a subsequent cross above the 50 value level before they cover their shorts or go long.

For now it seems that these markets are going to continue to extend and expecially as I review the results of the Qualcomm (NasdaqGS: QCOM) earnings after the close in which the company reported record first quarter results while raising fiscal 2011 guidance. This should bode well for the tech sector tomorrow.

Have a good evening.

~George

Earnings reporting season is not quite over and corporate earnings can certainly continue to act as a catalyst to the markets behavior and direction, however I want to begin to pay attention to the technical health of the indexes. Let’s take a look at the Dow Jones Industrial Average. It appears that this particular index is becoming overbought. Technicians rely on various technical indicators to get a read on the markets or individual stocks. One of the more popular indicators is the Relative Strength Index or more commonly known as the RSI.

Let’s now analyze the chart of the primary ETF that tracks the Dow, symbol (NYSEArca: DIA). By just looking at the candlestick chart it is easy to see how far the Dow has moved up since early September. Now let’s look at the RSI indicator at the top of the chart. The Dow is trading at a value greater than 70 which historically is an overbought level and technically bearish. Please note that stocks and markets can remain overbought or oversold for extended period of times, but historically speaking when the RSI value is above 70 or below 30, it is technically overbought or oversold. This particular indicator is also very popular with individual equities but please keep in mind this is only one technical indicator and should not be used exclusively as a buy or sell signal. I simply refer to this indicator as my initial read on whether or not a particular index or equity is appearing overbought or oversold. Having said this, the Dow appears to be a bit extended.

Have a healthy and prosperus week.

~George Mahfouz

The week started off with a bang with IBM (NYSE: IBM) blowing out their 4th quarter earnings numbers posting an EPS of $4.18 per share compared to an average forecast of $4.08 per share. The week also saw solid earnings out of Apple Inc. (NasdaqGS: AAPL) and Google Inc. (NasdaqGS: GOOG) however, this must of been the case where the earnings were already priced into the stock prices for these particular equities sold off this week and took the Nasdaq down with them.

A mixed bag with the banks as well, on one hand you had JP Morgan Chase & Co (NYSE: JPM) report a very impressive quarter but on the other hand you had Bank of America Corp (NYSE: BAC) reporting a significant loss. So what does all this mean for the markets and where do we go from here? Well to me its seems like we are going to be in very choppy waters over the coming months awaiting the next catalyst(s) to guide the direction of the markets. The Nasdaq appears to be in the first leg of a modest correction and the Dow and S&P 500 continue to be supported by the broader results of this earnings reporting season.

Let’s see what next week has in store and until then have a great weekend.

~George

With the Dow finishing up another 1% last week to close near 11800, can the industrials break through 12000 this week? Well, there are three major Dow components reporting their earnings this week: IBM Corp (NYSE: IBM), General Electric Corp (NYSE: GE) and Citigroup (NYSE: C), so indeed this could be the catalyst that places the Dow above 12000. There are other major banks reporting their earnings this week as well such as: Bank of America Corp (NYSE: BAC) and The Bank of New York Mellon Corp (NYSE: BK). If any sector has lagged in this bull run it has been the banking sector. If banks can begin to demonstrate strength and stability, we may be looking at Dow 13000+ and the S&P 500 1300+ by year end. (?)

Interesting development today out of Apple (NasdaqGS: AAPL) ahead of their earnings report tomorrow. There is a report out that Steve Jobs is  taking his second medical leave in as many years to focus on his health. The last time this type of news was circulating and reported, Apple’s stock took a significant hit before recovering. This in fact may be the excuse that investors and traders may use to sell off the markets a bit, and if so, this could create an opportunity that some other investors have been waiting on.

Have a safe and prosperus week.

~George