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The Bounce Was Indeed Real…

Posted on by George Mahfouz

In my November 1st blog, I asked the question was the bounce real? Fast forward to today and indeed the bounce the markets experienced in the early fall not only held but took off to and are nearing all-time highs. The Dow Jones Industrials (see chart here) closed yesterday at 36,245, the S&P 500 (see chart here) closed at 4,594 the Nasdaq Composite (see chart here) closed at 14,305 and the small-cap Russell 2000 (see chart here) finished the month out at 1,862.

It’s truly incredible to see how resilient the markets are considering the current interest rate environment and how inflation continues to impact the consumer. Rising interest rates tend to impact the stock market negatively and inflation impacts the consumer negatively too. So why are the markets approaching all-time highs? Could it be that the economy grew at a faster rate in the 3rd quarter than previously reported? Or could it be that the Federal Reserve may be ready to slow down or pause its current interest rate policy? I am not sure on either front, but what is apparent is that the markets are brushing off the current backdrop of Fed’s economic policy and the ongoing inflationary pressures. One thing I have learned over the years is the trend is your friend and these markets continue to trend up.

That being said, let’s look at a key technical indicator that many traders and investors rely on to see if we are approaching or at overbought conditions. According to the Relative Strength Index aka the RSI both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) have crossed and are trading above the 70 value level. The 70-value level according to the relative strength index is the beginning of overbought conditions. The Nasdaq Composite (see chart here) and the Russell 2000 (see chart here) are fast approaching the 70-value level. I do want to point out that stocks and indexes can remain overbought for extended periods of time, but I would not be surprised if we see somewhat of a pause or possibly a reversal here in the month of December to this very impressive rally we are currently in.

It’s always a good idea to consult a certified financial advisor before making any adjustments to your portfolio. Good luck to all 🙂

~George

A First Half To Forget…

Posted on by George Mahfouz

Needless to say, the first half of the year needs to be forgotten. Stocks took it on the chin as the major averages have lost meaningful ground so far in 2022. Year to date, the Dow Jones Industrial Average (see chart here) is down over 14%, the S&P 500 (see chart here) is off by almost 20%, the Nasdaq Composite (see chart here) is down almost 30% and the small-cap Russell 2000 (see chart here) year to date is down 23%. As mentioned above, a first half to forget.

As I spoke to in my last blog, I believe we are in a “new norm” pertaining to the stock market. For years stocks have traded at a premium due to the accommodative policies implemented by the Federal Reserve banks from around the globe. Fast forward to today and we are now in a much different environment. Fed banks across the globe are now raising rates to stem off inflationary pressures. I think this policy shift is long overdue and actually very healthy for the stock market. Sure the pain is real from this correction and current bear market, but now that rates are starting to normalize, keyword “starting”, investors can have more confidence in how to gauge and measure value in stocks. Before, it was virtually impossible to properly analyze stocks  due to the the accommodative fed policies which included years of zero percent interest rates and government stimulus programs. This backdrop added higher multiples to most asset classes which simply was not sustainable. Now that we are heading back to an even playing field, we can all have more confidence that stocks will begin to trade at their true value and if they are not trading at their real value, we can now identify more accurately undervalued or overvalued stocks and act accordingly.

Wishing everyone a very safe and Happy 4th of July weekend!

~George

It Just Keeps Rolling!

Posted on by George Mahfouz

The stock market that is! Stocks just keep rolling along as we are now in the new trading year. The beginning of 2020 mirrors the record setting ways of 2019. The S&P 500 (see chart here) broke the 3,300 mark for the first time ever today. The Dow Jones Industrial Average (see chart here) is trading above 29,000, the Nasdaq Composite (see chart below) appears to be on its way to 10,000 and the small-cap Russell 2000 (see chart here) is approaching its all time record high.

As I have eluded to in my blog over the past years, this market tear is something no one has really witnessed. Actually all of this started since the crash of 2008. Who could of ever imagined back then that the Dow Jones Industrial Average would flirt with the 30,000 level? In fact, markets around the world were on the verge of collapse and banks were bracing for a bank run. My goodness how times have changed. This breath taking run started with the Federal Reserve dropping rates to record lows and buying up debt. To this day the Federal Reserve is still playing a critical role in this record setting stock market which is a big reason why the markets just keep rolling.

Now it is up to corporate America to show their chops. Earnings reporting season is kicking off and if the report cards are anything like what Morgan Stanley reported today, the bulls will continue to eat caviar. Morgan Stanley (NYSE: MS) had revenues of over $10B exceeding all expectations. In fact, earnings reporting season is off to a strong start with the majority of companies who have reported so far have exceeded street estimates. Now in fairness earnings expectations have been ratcheted down by analysts but still it is undeniable that corporate earnings are still showing strength. This is just the beginning of reporting season so let’s see how the coming weeks look as we continue to set record highs. Good luck to all 🙂

~George

It Just Keeps Rolling George Mahfouz

Finally A Market Selloff!

Posted on by George Mahfouz

In my last blog, I eluded to a market selloff that just did not happen and I was referring to how stocks typically behave in the August and September. Instead of markets selling off at the end of summer, stocks were setting records. Well the bears got what they had been anticipating over the summer and that is an eye-popping market drop last week. Over the course of two days the Dow Jones Industrial Average (chart) fell over 1300 points. Of course the S&P 500 (chart), the Nasdaq Composite (chart) and the small-cap Russell 2000 (chart) all fell in harmony as well. What’s more these bellwether indexes all breached their 200-day moving averages for the first time in months with the Dow Jones Industrial Average (chart) recapturing and closing above its 200-day on Friday, the Nasdaq Composite (chart) just closed shy of its 200-day, the S&P 500 (chart) literally closed right at its 200-day however, the small-cap Russell 2000 (chart) closed out last week meaningfully below its 200-day moving average looking to find some sort of support. The 200-day moving average is widely regarding by market technicians and institutional investors as a key metric of support and or resistance.

What does all this mean? First, a market that constantly goes up with no retracement to speak of can never be healthy long term. There must be backing and filling along the way so that the risk of a sudden and potentially drastic drop doesn’t occur as what we witnessed last week. I mean c’mon going up in the way that we have over the past decade is not only unheard of but the risk that can come forward from this can spark a nasty correction. I am not suggesting that this will be the case but for the first time since earlier in the year, investors and traders felt the selloff last week.

Earnings reporting season kicks in this week with hundreds of companies set to report. Let’s see if corporate earnings can buoy the market here during this long anticipated selloff. Good luck to all 🙂

George

Did Apple Just Save Tech?

Posted on by George Mahfouz

Tech stocks have been battered lately but as in the past Apple just might of saved tech stocks, at least for the time being. After the close, Apple reported an astonishing $53 billion in revenues growing at a 17% clip. What’s more is Apple’s profits rose more than 30% coming in at a whopping $11.5 billion in profits. I thought there is a thing called the law of large numbers? Apparently not at Apple! People don’t realize how hard it is to grow a company of this size in the way Apple continues to grow. Year after year, quarter after quarter, simply amazing. The question now becomes is yesterday’s earnings beat by Apple enough to put a floor in tech stocks. Technology stocks have been taken out to the woodshed as of late with seemingly no end in sight, until yesterday. What I will be looking for today and for the rest of the week is whether or not companies continue get sold off after their earnings release which has been the trend this particular earnings reporting season.

In my last blog I eluded to the possibility of a breakout of the S&P 500 (chart) or a triple top fade in the index.  Quite honestly neither really happened, at least not yet. The S&P 500 (see chart below) essentially has been trading in a range between 2800 and 2850. Earnings reporting season has yet to be the catalyst for such a breakout or breakdown for that matter. Triple tops are very powerful to the technical set-up on any given index or stock for that matter. Apple’s earnings could very well be the catalyst for the markets to once again challenge the current triple top formation. Now that we are in August I do think we will get that answer soon enough. I do expect volatility to pick up a bit here in August which is not uncommon for this time of year. The SPY’s (chart) which tracks the S&P 500 (chart) has demonstrated support at its 20-day moving average which is essentially $279.50 and the overhead resistance is essentially the $285.00 zone. Let’s see if the S&P can break away from either line. Good luck to all 🙂

~George

S&P 500 - George Mahfouz Jr.

Within Striking Distance!

Posted on by George Mahfouz

In my previous blog, I said I wouldn’t be at the very least surprised if the Dow Jones Industrial Average (see chart below) closed above 25000 by year end. Well don’t look now, we are in striking distance of that milestone. In fact, if the Dow does close above 25000 by year end, it would have taken it a month to do so. That’s right only a month! In late November the Dow closed above the 24000 mark for the very first time and now its a mere 350 points away from yet another 1000 point gain. What’s impressive about this 1000 point clip is how fast it is getting there, I mean a month? This is unprecedented for sure. Market observers are expecting this insatiable bull market to keep on truckin into the end of the year, especially if the tax bill goes live! The S&P 500 (chart) and the Nasdaq Composite (chart) also closed at records highs on Friday with the S&P 500 closing in on the 2700 mark and the Nasdaq approaching the 7000 mark. The small-cap Russell 2000 (chart) is lagging behind but on Friday the Russell did find support at its 200-day moving average to close higher on the week.

With only 2 weeks left in the trading year what can investors or traders expect? More of the same or a sell the news type event? The news being the proposed tax bill getting through and going live. I truly don’t know? However, when you add seasonality into the mix with December being one of the strongest months for stocks on the year, I would not be surprised if the Dow Jones Industrial Average does indeed eclipse the 25000 mark. We could also see the S&P 500 overtake 2700 and the Nasdaq surpass 7000. Now if there is a snag in getting the tax bill through or if it ends up being a “sell the news” type of event meaning the proposed tax bill does go through by year end, then I will have a much different take heading into the new year. Both Paula and I wish everyone the healthiest and happiest holiday season 🙂

~George

Dow Jones Industrial Average - Paula Mahfouz

What August Swoon?

Posted on by George Mahfouz

Actually quite the contrary! In fact new all time highs occurred this past week with the S&P 500 (see chart below), the Dow Jones Industrial Average (see chart below) and the Nasdaq (chart, click here). What’s more is these record closing highs of the aforementioned indexes occurred on the same day last week, a feat that has not happened since the bubble of 2000. Now I am not suggesting we are in a bubble like we were in dot-com days. Back then valuations of dot-com stocks and most of technology were rather insane. That said, the current price to earnings ratio of the S&P 500 is in the 20’s which is historically high. That alone could be a catalyst for a pause and consolidation and/or a pullback from the record high territory we have been trading in.

I am almost frightened to think or suggest that a retracement of any type is forthcoming simply due to the way the markets have been trading in a typically weak market season. As mentioned in my previous blog, August tends to be one of the weakest months of the year for the stock market. There is still a couple of weeks left in August and it is not too late to see historic trends surface. However, the way stocks have traded lately and with no real economic or geopolitical catalysts in the foreseeable future, this market melt-up may indeed continue.

Technically speaking, the trend lines of the 20-day, 50-day and 200-day moving averages all remain in tact and are yielding upward and the relative strength index of the key averages are not officially in overbought territory. So this is enough for me to not really expect much out of the market in either direction as we head into Labor Day weekend and as the summer winds down. Good luck to all 🙂

~George

S&P chart george mahfouz jr

dow jones chart george mahfouz jr

Record Setting Week!

Posted on by George Mahfouz

A three-week stock market winning streak has propelled the Dow Jones Industrial Average (chart) and the S&P 500 (chart) to close at record highs. In one of the most dramatic turn of events from the shocking Brexit vote to today, these key indices were breaking records all week long. The Nasdaq (see chart below) and the small-cap Russell 2000 (see chart below) also posted a strong week of gains.

I stand corrected! In my previous blog I referred to the fact that the S&P 500 (chart) had been stuck in a trading range and that upcoming earnings reporting season should act as the catalyst to break stocks out of this range. Furthermore, my view was that corporate earnings most likely would underperform hence a breakdown out of this trading would be more probable. Well here we are today at record highs and we haven’t even gotten into the bulk of earnings reporting season. The largest U.S. bank J.P. Morgan (NYSE: JPM) did however report their results this past week posting a profit of $6.2B. J.P. Morgan’s results came in stronger than expected which also helped fuel this week’s rally, especially in the banking sector.

As much as we were oversold leading up to and just after the Brexit vote, the markets now find themselves approaching overbought territory. Now the question becomes what to do next? As mentioned above, we are full steam ahead into the bulk of earnings reporting season which can come with plenty of surprises. From a technical standpoint I find it hard to commit any new capital into a market at record highs and do so with most of corporate America yet to report their results. I will be paying attention to the top-line growth of companies to get more of an accurate read how their business is fairing compared to their bottom line which can be adjusted in many ways that may not tell the whole story. My concern now is how can record highs continue if top-line growth is not there in a meaningful way? Let’s look to next week to see if the record setting trend continues, or a pause and reversal comes forward.

Good luck to all 🙂

~George

George Mahfouz Jr. Russell 2000 chart

george mahfouz jr Nasdaq chart

Stocks Go On A Wild Ride!

Posted on by George Mahfouz

Stocks have been on a torrid sell-off over the past week or so capitulating today with the Dow Jones Industrial Average (chart) dropping over 460 points intraday, then rebounding to close down 173.45 points. At least I think this could of been a capitulation day, maybe not? That said, this is the steepest intraday drop for the industrials in over three years. Same rings true for the Nasdaq (chart), this technology based index was down over 100 points intraday only to rebound closing down a modest 12 points. Also, the S&P 500 (chart) finished the day lower by 15 points and the small-cap Russell 2000 (chart) after being down sharply most of the day actually closed in the green by 10.85 points.

In my previous blog, I eluded to the fact that volatility is back and that Q3 earnings reporting was about to begin, so not only is volatility back, I believe it is here to stay for an extended period of time. And as far as earnings is concerned, now I am not so sure if this earnings reporting season will have a positive effect on the markets. Just take a look at bank stocks which began to report their results this week and even after their impressive quarterly results, their stocks got pulled down with the rest of the market. What’s more, for companies that miss their numbers in this type of environment, look out below. Perfect example here is Netflix (NasdaqGS: NFLX). After the bell, the company reported their quarterly results which missed analysts expectations and Netflix also guided lower for the upcoming quarter. The net result for their stock is a blood bath in after-hours trading. Netflix is down over $110 points, trading now in the $330 range. This is not a typo. It goes back to stocks that miss on their numbers or guide lower, these assets will be taken out to the woodshed first, and asked questions later. I believe this is the environment we now find ourselves in.

It has been years since we have seen this type of market environment and I certainly will not forget the steep market sell-offs of the past. Furthermore, most every financial pundit out there has been calling for a market correction and now you have got it. So I would expect once the dust settles here we should find a base of support at some point and begin to see stabilization in the marketplace. However, and as I mentioned above, I do expect volatility to be back to normalized levels and be around for a while, so if you choose to take any new positions on, most likely they will go lower before they go higher, so a scale in and small incremental approach might be best. Finally and especially now, it’s usually a good idea to consult with a trusted certified financial planner(s) before composing any investment strategy. Good luck to all, and Paula and I wish everyone a safe and Happy Halloween 🙂

~George

 

Volatility Is Back, Q3 Earnings Reporting Season On Deck…

Posted on by George Mahfouz

After being in hibernation for most of the year, volatility is back at the forefront of the markets. The Volatility Index Symbol: VIX (chart) has spiked about 50% over the past couple of weeks which is a clear indication that investors are starting to get a bit nervous and fearful of the markets. The VIX demonstrates the next 30-day expectation of market volatility by calculating the implied volatilities of both puts and calls options of S&P 500 companies. Even the Dow Jones Industrial Average (chart) have experienced intraday triple digit swings over the past several trading days, something we have not seen in a long time. I think it is safe to say that the increase in vol is due in part to the markets continuing to post record highs, the fact that the federal reserve will be ending its asset purchase program this month and seemingly everyday now headlines of geopolitical uncertainty are abound . Furthermore, with the third quarter of the year now in the books, earnings reporting season is upon us. I don’t think it’s a coincidence that volatility has increased with all of the aforementioned factors in play. In fact, this particular earnings reporting season will  most likely be put under the microscope like no other recent quarter. Stocks have enjoyed the the accommodative policies of the Fed for the past several years and now one of the key components of the stimulus program will end here in October. As I mentioned in my previous blog, it will be up to corporate America to stand on its own two feet and begin to demonstrate top-line growth as they grow their earnings. Over the past couple of years many corporations have grown their bottom line by way of becoming more efficient, reducing their workforce and implementing stock buyback programs. I believe going forward financial engineering and in-house efficiencies won’t be enough to satisfy investors appetites.

As the third quarter ends and technically speaking, the Dow Jones Industrial Average (chart), the Nasdaq (chart), and the S&P 500 (chart) appear to be finding some support at their respective 50-day moving averages, however, the small-cap Russell 2000 (chart) continues to lag the big-caps and trade well below its 50-day and 200-day moving average. That said, what is impressive to me is even though volatility has picked up steam, most every pullback is met with support from willing buyers and sell-offs appear to be short lived. The concern I have is whether or not this pattern of support continues. As mentioned, Q3 earnings reporting season is on deck and I do not believe companies will be given free passes anymore to modest top-line growth. If you are a trader, this is type of environment that you have been waiting for. However, if you are an investor with a longer term view, then it is time to look at the intrinsic value of your holdings to reduce the impact of a higher vol environment. Also, options premiums tend to increase along with higher volatility which could bode well for option sellers. Whatever the case is, as we enter the last quarter of the year, I expect volatiily to continue and at points increase, which could create some panic selling and create great opportunities with the right companies. I am looking forward to this upcoming earnings reporting season and will look for oversold conditions to act.

Have a great October 🙂

~George