earnings reporting season

First Quarter In The Books…

Posted on by George Mahfouz

Q1 proved to be a mixed bag for the major averages. The Dow Jones Industrial Average (chart) closed out the first quarter up almost 1.5%, the S&P 500 (chart) finished up 0.77%, however, both the Nasdaq (chart) and the small-cap Russell 2000 (chart) finished out the first quarter of the year lower by 2.75% and 1.78% respectively. Not too shabby considering these key indices were down over 10% earlier in the quarter. This morning stocks are lower despite a stronger than expected  jobs report. In March, the economy added 215,000 jobs with the unemployment rate now at 5%.

With Q1 in the rear view mirror all attention will now be focused on first quarter earnings reporting season. The Commerce Department recently issued a report indicating that corporate profits were down 15% year-over-year. This does not bode well for stocks when the current p/e ratio’s of the major averages are well above their historic averages. With earnings reporting season just ahead, we will not have to wait too much longer to see how well corporate America is doing.

Let’s take a quick look at the technical shape of the markets. Most of the key indices are at or near overbought conditions, which has been the case for pretty much most of March. In my previous blog I eluded to what most market technicians look at when gauging overbought or oversold conditions. Furthermore and technically speaking, the major averages are all trading at or above their 20, 50 and 200-day moving averages with only the small-cap Russell 2000 (chart) chasing its 200-day. If you are bullish on the market, these moving average patterns are typically a good thing. That said, I do expect volatility to pick up a bit which is usually the case ahead of earnings reporting season. I will check back in mid-month or so to see how earnings growth actually appears.

Good luck to all 🙂

~George

Staying True To Form…

Posted on by George Mahfouz

In late September stocks appeared to be heading to new 52 week and multi-year lows. But as this market has demonstrated its resilience during this six year bull run, the four major averages found support near its previous lows in late August and have bounced nearly 10%. This most recent market action have yet again muzzled the bear pundits and revived the bulls hopes for a possible year-end rally. For the week the Dow Jones Industrial Average (chart) closed modestly higher up 131.48 points, the Nasdaq (chart) had a weekly gain of 56.22 points, the S&P 500 (chart) finished up 18.22 points and the small-cap Russell 2000 (chart) bucked the uptrend falling slightly by 3.05 points.

So could there be a year-end rally in the cards? I think the answer to that question will come forward as we are now kicking into high gear with Q3 earnings reporting season. Already this past week we heard from the likes of JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C), Goldman Sachs (NYSE: GS) and international conglomerate General Electric (NYSE: GE) who all provided results investors could cheer about. Each one of these companies notched impressive gains on the week not only helping the key indices, but also instilling confidence with investors. However, and as we all know, earnings reporting season can be volatile and we are at just at the starting gate.

Next week we will get quarterly results from technology giant Broadcom (NasdaqGS:BRCM), oil and gas equipment services behemoth Halliburton (NYSE: HAL), Bank of New York Mellon (NYSE: BK), Chipotle Mexican Grill (NYSE: CMG), Yahoo (NasdaqGS: YHOO), biotech giant Biogen (NasdaqGS: BIIB), Coca-Cola Co. (NYSE: KO), General Motors (NYSE: GM), Las Vegas Sands Corp. (NYSE: LVS), Amazon.com Inc. (NasdaqGS: AMZN), E*Trade Financial Corp. (NasdaqGS: ETFC), basic materials giant Freeport-McMoRan Inc. (NYSE: FCX), Microsoft (NasdaqGS: MSFT) and American Airlines Group Inc. (NasdaqGS: AAL) just to name a few.

These are only a handful of companies scheduled to report next week with hundreds more to follow in the coming weeks. That said, both Paula and I will continue to remain patient and wait until after earnings reporting season before we consider any new market strategies.

Good luck to all 🙂

~George

Rough Quarter For Stocks…

Posted on by George Mahfouz

Although the markets rallied yesterday, the major averages in Q3 closed lower for the second straight month. In fact, year to date the Dow Jones Industrial Average (chart) is down 8.6%, the Nasdaq (chart) is off by 2.5%, the S&P 500 (chart) is lower by 6.8% and the small-cap Russell 2000 (chart) year to date is down 8.6%. So the bulls are asking what gives? My question is more of what has taken so long? The U.S. markets have not seen any kind of meaningful or long lasting correction in six years. This is not a surprise and if anything should be embraced. Stocks have been driven by the Federal Reserve policies ever since the introduction of the first quantitative easing mandate. How easy has this market been? All any investor or fund manager really had to do over the past 6 years is buy and hold with no need for concern. I think it’s safe to say the landscape is changing and rightfully so. There are many investors out there that missed this stunning bull run we have been on simply because it was hard to agree with the valuations that most of the market has enjoyed during the Federal Reserve buyback program and low interest rate stance. Top-line growth has really not been the catalyst that has driven stocks during this incessant bull market. However, when you are in a low to negative interest rate environment there really isn’t any other option to place funds. The question now is are we heading towards or already in a normalized market environment? Meaning will equities now begin to trade on their own merits? To me it certainly feels like the markets are setting up this way.

We won’t have to wait very long because third quarter earnings reporting season is just ahead. Without question I expect this upcoming earnings reporting season will be scrutinized like no other in recent memory. I believe gone are the days that investors will give any company a pass should their results come in under street estimates or even in-line with the street. For me personally there is too much volatility in the marketplace right now and my preference is to go to the sidelines until after Q3 earnings reporting season is over. I will then evaluate the landscape from a fundamental and technical point of view. Speaking of the technical shape of the market, this too of a concern of mine. All of the key indices are in a significant down trend trading well below their respective 200-day moving averages. Yes theses indexes are finding a bit of support right here, but if earnings reporting season doesn’t add up, new 52 week or even multi-year lows could be in the cards? My point here is that with the way the markets look and feel, it is probably best to be a bit more conservative until after we see the health and growth rate of corporate America. Good luck to all 🙂

~George

Despite A Pop In Volatility, Bull Market Remains Intact!

Posted on by George Mahfouz

In the month of July, the major averages continued to demonstrate what a bull market looks like despite an increase in volatility $VIX (chart )and global macro concerns. For the month, the Dow Jones Industrial Average (chart) closed up a modest 0.40%, the Nasdaq (chart) gained 2.8% in July, the S&P 500 (chart) advanced 2.0% and the small-cap Russell 2000 (chart) actually ticked down on the month giving up 1.28%. One interesting note and if you look at the charts of the above mentioned indices, in the month of July each of these indexes breached their 200-day moving average and three of the four breached this support line twice only to rebound sharply and keep the technical makeup of the markets intact. Without question and throughout this six year long bull run, the technicals of stocks and indexes have done their job and has acted as technicians would expect.

Fast forward to today August 1st and if you have been on Wall Street long enough, yes we are now entering the dog days of summer. As Q2 earnings reporting season works its way through and begins to wind down, I would expect volatility also begin to abate as it has towards the latter part of this past week. Without question these markets could still react to China’s extreme volatility as of late or if there is a big surprise in next week’s job’s report, however, without any big surprise here or overseas, I think this becomes a stock-pickers market as well as a technically traded market paying attention to trend lines and overbought and oversold conditions. This could also be the perfect environment to sell put option premium on your most favorite stocks in order to generate some additional income. One other option which may be a very valid one, and that is turn off your screens and head to the beach until after Labor Day :-).

Whatever you choose to do as we enter the “dogs days of summer” it is always best practice to consult with a certified financial planner(s) before making any investment decisions or changes to your portfolio. Good luck to all 🙂

~George

It’s All About Greece…

Posted on by George Mahfouz

The Greece Crisis is at the forefront of the markets yet again. Greece closed its banks and stock market on Monday in an attempt to avoid on run on their financial institutions. The heightened state of Greece sent our markets into a tailspin on Monday, however the U.S. stock market did find it’s footing yesterday managing to eek out a small gain. For the month of June, the Dow Jones Industrial Average (chart) closed down 391.18 points at 17,691.51, the Nasdaq (chart) finished the month lower by 83.16 points at 4987.00, the S&P 500 (chart) -44.29 points at 2063.11 and the small-cap Russell 2000 (chart) was one of the only major averages that finished the month of June positive closing up 7.42 points on the month at 1253.95.

So what’s in store for the month of July you may ask? One word, Volatility! Since the realization that Greece is going to miss its $1.7 billion dollar debt payment it owes to the International Monetary Fund and that Greece may no longer be a part of the European Union, volatility slammed the global markets. The $VIX (chart) which trades on the Chicago Board Options Exchange is the Volatility Index. The $VIX indicates the market’s expectation of future volatility, 30 days to be exact, spiked as high as 41% since Monday. We have not seen this type of vol for months and I don’t expect it to let up anytime soon.

Although Greece continues to grab the headlines, there are other concerns that contagion can spread to other debt ridden EU countries such as Spain and Portugal. Even Puerto Rico has it’s own debt issues that are of increasing concern. I do expect that there will be a resolution of some sort to this latest crisis, but I also do believe volatility will stick around for a bit.

Another catalyst that could create additional volatility is the upcoming Q2 earnings reporting season. U.S. companies will begin to report their results after the 4th of July holiday and in earnest the week thereafter. So you can see why I believe volatility could be increasing over the next several weeks. As a trader, this is what you have been waiting on and if you are a long term investor, you have been through this before.

Both Paula and I wish everyone a very safe and Happy 4th of July Holiday 🙂

~George

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

 

Bank Stocks Finally Catch A Bid!

Posted on by George Mahfouz

As earnings reporting season kicks into high gear one of the sectors that are surprising investors to the upside are the banks. Citigroup (NYSE: C) started things off yesterday reporting an adjusted earnings per share of $1.24 compared to the $1.05 most analyst’s were anticipating. This earnings beat has lifted Citigroup’s stock over 3% the past two days. This morning Goldman Sachs Group (NYSE: GS) also announced an unexpected profit of $2.04 billion dollars or $4.10 per share while analysts were expecting earnings of $3.05 a share. This beat sent Goldman’s shares up 2% this morning although there could be a short term technical hurdle in the $171.oo range (chart) that GS may face. Back in mid-June, Goldman had a high of $171.08 before losing 5.5%. Goldman’s shares have since rebounded back to the $170 zone. Should GS be able to break through the $170 zone, it could very well test its 52 week high of $181.13. If it cannot break through this short term resistance zone in a meaningful way, then a possible re-test of the mid-June lows could occur (chart). Also reporting this morning before the market opened was JP Morgan Chase (NYSE: JPM). JP Morgan reported an earnings beat of $1.46 compared to $1.29 per share most analysts were expecting. This unexpected earnings beat sent shares of JP Morgan Chase (chart) up more than 2% in early morning trading. Whether or not this is a short term bounce or the beginning of a new trend for the banking sector has yet to be seen. I would suspect that the banking pundits will want to see a widening of yield spreads before they get too bullish.

After the bell, the focus will turn to the tech sector. Both Intel (NasdaqGS: INTC) and Yahoo (NasdaqGS: YHOO) will report their quarterly results. Intel has been on a tear gaining over 20% since mid-May (chart). In my humble opinion, Intel is really going to have to crush their numbers and up forward guidance in order for their stock to keep rising here in the short term. Yahoo on the other hand seems to be trading on what Alibaba’s valuation will come out as when they go public in the near future. Two other bellwether tech stocks Ebay (NasdaqGS: EBAY) and Google (NasdaqGS: GOOGL) will report their quarterly results tomorrow and Thursday respectively. So as you can see there are trading opportunities abound, however, my preference is to wait to see how companies report before making any trading or investment decisions. I do think this earnings reporting season will dictate how the overall markets will fare in the second half of this year. So far so good in this reporting season, but there are hundreds of companies yet to report so let’s not draw any significant conclusions. Also, please remember it is good practice to consult with a certified and trusted financial advisor(s) before making any adjustments to your current portfolio or making any investment decisions for that matter.

Good luck to all 🙂

~George

A Ho Hum Q1…

Posted on by George Mahfouz

It doesn’t seem like it, but for the first quarter of the year the four major averages were essentially flat. For the quarter, the Dow Jones Industrial Average (chart) closed basically unchanged, the tech heavy Nasdaq (chart) finished up just over 1% percent, the S&P 500 (chart) +2.2% and the small-cap Russell 2000 (chart) closed out Q1 slightly up. Quite an uneventful quarter at least from a P&L standpoint especially considering China’s economic slow down and the Ukraine crisis that unfolded in the quarter. There was a period in late January in which we saw a sharp 5% decline only to be met with unconditional support, followed by a rally which led the markets back to almost unchanged on the year.

As I always do at the end of each quarter, I look at the technical conditions of the aforementioned indexes and how they are shaping up going into a new quarter. There are plenty of market technicians out there that use a variety of techniques and indicators to identify trends and where the markets may be headed. My preference is to keep things as simple as possible when conducting technical analysis. As you may know by now, two of my favorite technical indicators are the  Relative Strength Index also know as the RSI and the moving averages. Part of the reason why I prefer these two reliable indicators over most is it is now seemingly more than ever computerized trading models are emphasizing the RSI and the 20-day, 50-day, 100 and 200-day moving averages in their models. These indicators also have been a long time favorite of institutional investors. So it’s no wonder that when the Relative Strength Index (RSI) is indicating an overbought or oversold condition in an index or equity, more times than not, the asset finds support and changes direction. The same can be said for the moving averages, whenever a stock or index bumps up against or comes down to its moving average, typically the stock or index finds support or resistance.

Let’s break this down in more detail starting with the (RSI), The RSI is designed to demonstrate whether or not an index or equity is 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 and below is an oversold condition. Looking at the aforementioned indices now, there is no indication of an overbought or over sold condition. However, both the Nasdaq (chart) and the small-cap Russell 2000 (chart) are trading and have closed below their 50-day moving averages. These two indices have been leading the markets higher and now comparatively speaking, they have begun to lag, a potential short term ominous sign. Now it has only been a couple of days that both of these indexes have been trading below this support line so we will have to wait and see if this turns into a longer term trend.

That said, we will not have to wait much longer. This Friday’s jobs report will shed light as to the health of the labor market and don’t look now but Q1 earnings reporting season is on deck. Without a doubt, Q1 earnings reporting season will be placed under a microscope to see if corporate America and the markets deserve their current valuations. Personally, I think a rather healthy pullback may be in the cards for equities and if so, most likely, the trend of unconditional support will come back into the markets as well.

Good luck to all. 🙂

~George

A Mixed Bag…

Posted on by George Mahfouz

At the height of Q4 earnings reporting season, results from corporate America have been conflicted, so far. Let’s start with everyone’s favorite, Apple (NasdaqGM: AAPL). Despite sales of its iPhone hitting records during the holiday season, those sales were shy of what the street was expecting by three million units. Furthermore, during the conference call after its earnings release on Monday, management projected a softer outlook for the upcoming quarter amid growing competition in the smartphone and tablet marketplace. This was enough to send Apple’s shares lower by over 10% this past week. In fact, the majority of the retailers have reported very disappointing results this earnings reporting season with the widely followed and traded retail SPDR S&P Retail ETF (NYSE Arca: XRT) (chart) down almost 10% for the month of January.

Now let’s take a look at the results of the four key indices so far this year. For the month of January, the Dow Jones Industrial Average (chart) is down 5.3%, the tech-heavy Nasdaq (chart) is off by 1.7%, the S&P 500 (chart) is lower by 3.6% and the small-cap Russell 2000 (chart) finished the month down by 2.8%. In my January 1st blog, I eluded to expecting a 5%, 10% or even a 15% correction in 2014, and we could very well be in this corrective phase as we speak. The question now to investors and traders alike is how steep could this current pullback become? Let’s not forget we are coming off of a year in which these key indexes individually gained well over 25%, with the Nasdaq leading the way gaining a whopping 38% in 2013. What I try to do is tune out all of the noise that comes out of the financial cable channels and media and focus on seasonal patterns and the technicals of the market. Technically speaking, the markets are not yet in an extreme oversold condition according to the RSI principles. Remember the Relative Strength Index a.k.a. the RSI is one of my favorite technical indicators where overbought and oversold conditions are exhibited depending on certain value levels. In this case and according to the RSI principle, the 30 value level and below is considered oversold and anything below 20 is considered extremely oversold. We are just not there yet. However, one thing I do want to highlight is for the first time in months the aforementioned key indices have all fallen and closed below their 50-day moving averages. Something that has not occurred since early October of last year and something we want to keep an eye on. If the markets cannot rise back and remain above their 50-day in the near future, the 200-day support line could be the next real support for these markets. I am not suggesting that we will test the 200-day moving average, but if this is the case, the selling pressure would most likely continue and may actually increase. Let’s see how next week’s earnings reports come in before we draw any further conclusions.

Looking ahead to next week, we will here earnings results from petroleum producer Anadarko (NYSE: APC), real estate investment trust Annaly Capital Management (NYSE: NLY), Yum Brands (NYSE: YUM), Boston Scientific Corp  (NYSE: BSX), retailer Michael Kors (NYSE: KORS), Cognizant Technology Solutions Corp (NasdaqGS: CTSH), Green Mountain Coffee Roasters (NasdaqGS: GMCR), Pandora Media (NYSE: P), AOL Inc. (NYSE: AOL), Expedia (NasdaqGS: EXPE), General Motors (NYSE: GM), Verisign Inc. (NasdaqGS: VRSN), Apollo Global Management (NYSE: APO), Flir Systems (NasdaqGS: FLIR) and Moody’s Corp (NYSE: MCO) just to name a few. So as earnings reporting season continues, so do the markets. Good luck to all.

Have a great weekend 🙂

~George

Q4 Earnings Reporting Season Is Here…

Posted on by George Mahfouz

And so far, it’s a mixed bag. As this earnings reporting season kicks into high gear, most of the banks that have reported so far have come in above consensus estimates with Citigroup (NYSE: C) being one notable exception. Citigroup did report a $2.69 billion dollar profit, however, this was below consensus estimates and the bank did cite weakness in their mortgage and fixed income divisions. The stock closed lower by over 4% on the day. Another sector that is being challenged so far this year is the retail sector, at least certain companies within the sector such as Best Buy (NYSE: BBY). Although Best Buy did not report their earnings, they did come out with their holiday same store sales today which were significantly below analysts’ expectations and the company lowered their guidance due to disappointing holiday sales. On that news, the street hammered Best Buy’s stock today sending its shares lower by $10.74 per share or almost 30% on over 85 million shares in volume. This type of massive volume compared to a typical volume day of around 6 million, could be considered a washout or capitulation type trading day, hence a potentially sharp bounce back and potential recovery in its share price? Let’s see how the next couple of trading sessions play out on Best Buy before we draw any conclusions on a potential snap back rally.

Now let’s take a look on how the key indices are faring so far this year starting with the Dow Jones Industrial Average (chart) which is down 1%, the Nasdaq (chart) is up 1%, the S&P 500 (chart) is essentially flat, and the small-cap Russell 2000 (chart) has gained about 1% since the beginning of the year. So as you can see, a mixed bag here as well with the benchmark indexes.

Looking ahead to tomorrow’s key earnings reports, we will hear from the likes of General Electric (NYSE: GE), Morgan Stanley (NYSE: MS), Bank of New York Mellon Corp (NYSE: BK), and Schlumberger (NYSE: SLB) just to name of few. Next week we will hear from powerhouses International Business Machine (NYSE: IBM), Johnson & Johnson (NYSE: JNJ), Halliburton (NYSE: HAL), Abbot Labs (NYSE: ABT), Freeport-McMoRan Copper & Gold (NYSE: FCX), U.S. Bancorp (NYSE: USB), and Honeywell (NYSE: HON). Of course there are hundreds of other companies reporting next week as well, but I will be paying closer attention to the aforementioned companies due to their reach in the economy here and abroad.

I think this earnings reporting season will be scrutinized more than any other in recent years. Everyone wants to see top-line growth out of corporate America to confirm what the most recent economic data has revealed. With that said, and with what we have seen come out of certain slices of the retail sector, I am expecting a bumpy ride between now and the end of Q4 earnings reporting season. Good luck to all and make sure to consider having protective stops in your portfolios. The markets will be closed on Monday due to the MLK holiday.

Have a great holiday weekend 🙂

~George