George Mahfouz

Finally A Tradable Market!

Posted on by George Mahfouz

After years of essentially low to no volatility, traders finally get what they have been wishing for and that is a tradable market! In 2017 the markets witnessed the longest stretch of low vol in recent memory. In fact the VIX (see chart below) which is the ticker symbol for the Chicago Board Options Exchange volatility index traded in the 10 zone for most of 2017. The 10 level on the VIX (chart) is beyond abnormally low especially lasting for the better part of a year. Fast forward to today and the VIX is hovering around 20 after spiking to over 50 over the past two weeks. We haven’t seen the VIX (chart) at the 50 level in years. Call it long overdue, call it the market needed to correct, call it higher interest rates, call it what you want but finally we seemingly have more of a normal market environment. Not to say it wasn’t gut wrenching watching 1000 point Dow Jones Industrial Average (chart) intra-day swings over the past couple of weeks compared to the slow melt-up investors have enjoyed for years. Traders on the other hand have underperformed the markets during the melt-up because there simply was not enough or no volatility to be able to trade.

Stocks have indeed bounced sharply from the early February market correction. The Dow Jones Industrial Average (chart) closed the day up 307 points, the tech focused Nasdaq Composite (chart) closed up on the day 113 points, the S&P 500 (chart) closed up 32.5 points and the small-cap Russell 2000 (chart) finished the trading session up 15 points. Going forward I am certainly going to respect the technical make up of the aforementioned indexes and select stocks. Moving averages such as the 20-day, 50-day and 200-day tend to provide reliable support and resistance marks and now that we are out of the no vol environment, these moving averages tend to be more accurate and can be used to determined entries and exits in positions you hold and or trade. As I write this blog the key indexes have now rebounded to their 50-day moving averages so we will see if this technical indicator will act as resistance or if the markets can hold, breakthrough and proceed higher. Of course there is much more to consider when entering or exiting any position or strategy but when volatility comes back into the markets, most professional traders key in on the moving averages. Good luck to all 🙂

~George

VIX - Paula Mahfouz

An Earnings Bonanza!

Posted on by George Mahfouz

Earnings reporting season is now in full swing and so far the numbers are not too shabby. A couple of earnings standouts so far are Netflix (NasdaqGS: NFLX) and Boeing (NYSE: BA). Netflix saw subscriber and revenue growth both exceed analyst’s expectations and their stock has skyrocketed since their earnings release last week. Boeing which reported before the bell yesterday also knocked the cover off the ball as the company nearly doubled its net income from the prior period a year ago. A company doubling its net income may not sound like a lot, but when you go from $1.63B in net income to $3.13B that is clearly moving the needle in a fascinating way. Boeing shareholders were also rewarded yesterday as the stock traded north of $350.00 per share hitting all-time highs. I am just highlighting a couple of standouts so far with hundreds of companies set to report over the coming days and throughout the next few weeks.

After a 2 day mini sell-off to start the week the key indexes did bounce back yesterday and resumed its  uptrend. The Dow Jones Industrial Average (chart) closed the month of January above 26,000, the S&P 500 (chart) closed out the month at 2823.81, the Nasdaq Composite (chart) closed at 7411.48 and the small-cap Russell 2000 (chart) closed at 1575. Even with the first noticeable sell-off earlier in the week the aforementioned indexes did have a stellar performance in January gaining more than 5% on the month.

I will say this, earlier in the week and for the first time in almost 2 years the market did feel vulnerable and the sell-off felt a bit different than recent pullbacks. Pundits are suggesting that interest rates may be playing a role in the volatility for the first time in years. I have been tracking the yield on the U.S. 10 year Treasury Note (Symbol: TNX) and for the first time in a long time the yield exceeded 2.7%. A break above 3% for an extended period of time could cause volatility to continue in stocks and may be the very first catalyst to put the brakes on this almost decade long bull run. Let’s see how the rest of earnings reporting season plays out and how interest rates fare in February before we can draw any type of conclusion. Good luck to all 🙂

~George

1000 Points In 7 Trading Days?

Posted on by George Mahfouz

I am not even sure what to say here, almost 1000 points in 7 trading days? After closing above the 25,000 mark for the first time ever on January 4th, the Dow Jones Industrial Average (see chart below) is now closing in on the 26,000 mark in a matter of days. I simply do not understand how this bellwether index can notch 1000 point gains in such a short period of time. In fact most of the major averages are continuing to set records almost daily. How long can this go on? Without question we are on the brink of the strongest bull market in recorded history. The Dow Jones Industrial Average (chart) closed the week at a record 25,803.19, the S&P 500 (chart) closed at a record 2,786.24, the Nasdaq Composite (chart) closed at a record high of 7,261 and the small-cap Russell 2000 (chart) closed the record setting week at 1,591.90. The market was boosted on Friday in part by the strong quarterly earnings results of JP Morgan Chase.

Speaking of earnings reporting season, this week truly is the start of earnings reporting season in which most analysts expect strong top and bottom line growth from corporate America. Over the past few years the markets did witness strong bottom line growth in which a lot of that growth was due to improved efficiencies and reductions of the workforce. Now the opposite is occurring. The economy is expanding as is the job market. This should bode well for not only company earnings but for the continuation of the bull market. That said, I would think that a pullback of any kind is in the cards and I would also expect that investors and traders would be there in support of a retracement.

From a technical point of view equites are clearly overbought according to the relative strength index also referred to as the RSI. However, this favorite technical indicator has not provided the guidance and reliability as it usually does simply because these markets have remained overbought for one of the longest stretches I can remember. There will be a time where the RSI will become more reliable as it once was, but in my humble opinion you will need a “normal” market environment for this to be the case. Good luck to all 🙂

~George

dow jones - 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

Dow 24,000 – Bitcoin $10,000 – Why Not?

Posted on by George Mahfouz

Is this really happening? Stocks exploded to the upside on the last trading day of November. For the first time in its history, the Dow Jones Industrial Average (see chart below) traded, blew through and closed above the 24,000 mark. The Dow started the year just under 20,000 and no one and I mean no one in the who’s who of finance, analysis, technical analysis, hedge funds, institutional investors and the like, ever predicted this type of performance for stocks and the key indices on the year. I cannot even count the number of record highs that have occurred this year not only in the Dow Jones Industrials, but also the S&P 500 (chart), the Nasdaq composite (chart), and the small-cap Russell 2000 (chart). Let’s throw in Bitcoin and its year to date 10X performance and we are truly in party mode.

I am not even sure what to think? This eerily feels like the irrational exuberance environment that occurred in the mid to late 90’s and before the internet bubble imploded. However the bullish pundits are quick to point out that this time is different. Back then, whoever came out with an announcement that they just launched a website saw their stock go up. Now the pundits are pointing out that it is earnings and growth that are responsible for this torrid record setting pace we have been on all year long. This is true to some degree. But what about the euphoria in Bitcoin? What is the catalyst that has propelled this so call asset to fly up over 10 times this year? This is why the other side of the camp thinks we are approaching a bubble or at the very least nose bleed territory. Without question I feel that something is going on that makes one have to pause and take a breather here. But as we have seen all year long, don’t underestimate the power of momentum, a low interest rate environment and the Trump trade. Is it possible that the Dow Jones Industrials actually could close above 25,000 by year end? As much as I want to say and think “no way”, way! Not saying the Dow will go up another 800 points by year end, but if we do, I would not be at the very least surprised.

Good luck to all 🙂

~George

Dow Jones Industrial Average - George Mahfouz Jr

Tis The Season…

Posted on by George Mahfouz

As the holiday season fast approaches stocks have a lot to be jolly for. Despite the recent pop in volatility, the major averages continue to enjoy their record setting ways. The Dow Jones Industrial Average (chart) closed the week at 23,258, the S&P 500 (chart) finished the week at 2,579, the tech focused Nasdaq composite (chart) closed at 6,783 and the small-cap Russell 2000 (see chart below) ended the week at 1,493 while recapturing its 50-day moving average.

Next week is a shortened trading week due to Thanksgiving. Historically the Thanksgiving holiday week tends to be a bullish week for equities with 75 percent of the time the markets finish higher. Add the seasonality factor into the mix and things look pretty good between now and year end. This doesn’t mean that things won’t be choppy along the way especially as the yield curve has many investors paying closer attention to it. Interest rate chatter is seemingly picking up lately despite the Federal Reserve being candid about their position and intentions. This will become further apparent when Fed chair Yellen speaks next week along with the release of the minutes from the last Federal Reserve meeting. All in all it appears that the status quo should be in place between now and year and if this is the case, new market highs should be set.

Earlier I spoke to how the small-cap Russell 2000 ( see chart below) has recaptured its 50-day moving average. This is important from the standpoint that investors and traders alike look to the Russell as a key indicator to the overall health of the broader markets. Recently the Russell has been showing some cracks in its trading patterns including noticeably breaking its 50-day only to recapture it and hold above it a few days later. If you are long this market, this is a bullish sign. That said, I do expect volatility to be present between now and year with the potential of making new highs along the way.

Paula and I wish everyone a very safe and Happy Thanksgiving 🙂

~George

Russell 2000 Paula Mahfouz

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

Q1 Earnings Reporting Season Saves The Day, So Far…

Posted on by George Mahfouz

Last week the Dow Jones Industrial Average (chart), the Nasdaq (chart), the S&P 500 (chart) and the small-cap Russell 2000 (chart) all went into a tailspin closing lower by 2.4%, 3.1%, 2.6% and 3.6% respectively. Fast forward to this week as earnings reporting season shifted in to high gear and we have a different story. For this holiday shortened week, the Dow Jones Industrial Average (chart) finished up 2.38%, the Nasdaq (chart) closed up 2.395%, the S&P 500 (chart) gained 2.7% and the small-cap Russell 2000 (chart) closed the week up 2.38%.

So why the reversal? Simply put and for the most part, corporate earnings are coming in better than expected. At the beginning of the week Citigroup (NYSE: C) posted better than expected results on net income of $3.94 billion up from $3.81 billion in Q1 2013. This was after Wells Fargo (NYSE: WFC) posted a sharp rise in its net income in comparison to last year’s quarterly results. Also this week, Johnson and Johnson (NYSE: JNJ) reported a net income of $4.4 billion an almost 8% increase over the same period last year. The Coca-Cola Co. (NYSE: KO) reported their Q1 earnings booking 44 cents share which is what the street expected as global sales volume rose 2%. Furthermore, Intel (NasdaqGS: INTC) reported 38 cents a share in earnings which came in 1 cent above what analysts expected, this was enough to send Intel to fresh 52-week highs.  Yet another impressive earnings report came out of flash based data storage firm SanDisk (NasdaqGS: SNDK) which surprised the street and reported record Q1 results of $1.44 per share leapfrogging street estimates of $1.25 per share. This was enough to send the shares of the company up over 7% in today’s trading session.

As previously mentioned, earnings reporting season kicked into high gear this week and next week we go into overdrive. At the beginning of this upcoming week, we will here from Halliburton (NYSE: HAL), Wynn Resorts (NasdaqGS: WYNN), AK Steel (NYSE: AKS), Amgen (NasdaqGS: AMGN), Bank of New York Mellon (NYSE: BK), Cree Inc. (NasdaqGS: CREE), Discover Financial Services (NYSE: DFS), Gilead Sciences (NYSE: GILD), Juniper Networks (Nasdaq: JNPR), Intuitive Surgical (NasdaqGS: ISRG) and United Technologies Corp (NYSE: UTX). Mid-week earnings will come out of tech behemoth Apple (NasdaqGS: AAPL), Biogen Idec (NasdaqGS: BIIB), Delta Airlines (NYSE: DAL), Dow Chemical (NYSE: DOW), F5 Networks (NasdaqGS: FFIV), Facebook (NasdaqGS: FB) and Qualcomm (NasdaqGS: QCOM). Closing out the week we will hear from 3M Company (NYSE: MMM), Amazon (NasdaqGS: AMZN), American Airlines (NYSE: AAL), Chinese search engine Baudi (NasdaqGS: BIDU), Cabot Oil & Gas (NYSE: COG), Celgene Corp (NasdaqGS: CELG), Eli Lilly and Company (NYSE: LLY), General Motors (NYSE: GM), KLA-Tencor (NasdaqGS: KLAC), Microsoft (NasdaqGS: MSFT), United Parcel Service (NYSE: UPS) and Ford Motor Company (NYSE: F). Of course there are hundreds of others reporting their earnings next week so we will see if the market continues to rebound from its mini sell-off earlier in the month. Good luck to all.

The markets will be closed tomorrow in recognition of Good Friday and both Paula and I wish everyone a very safe and healthy holiday weekend 🙂

~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

Global Concerns Give Markets A Pause…

Posted on by George Mahfouz

Stocks had a very volatile week as tensions elevated in Ukraine and now China has seemingly hit a soft patch in its economy. For the week, the Dow Jones Industrial Average (chart) fell 2..35%, the Nasdaq (chart) gave back 2.09%, the S&P 500 (chart) -1.96% and the small-cap Russell 2000 (chart) ended the week lower by 1.82%. I do not think the most recent retreat in stocks is anything beyond the current global headline risks as our own economy appears to be intact and growing, albeit modestly. Some economists believe China will maintain a 7.5% growth rate this year while other pundits believe a cooling off of China’s economy would affect our markets here. Should the latter be the case, I would assume the Chinese government would take measures to help prop up their economy by injecting enough stimulus to ensure the targeted 7.5% growth rate for 2014 would not be breached. Recently, the economic numbers across the board coming out of China has been weaker than expected, especially in the manufacturing and export sectors.

This past week also saw an escalation in the crisis in Ukraine with both sides increasing the chatter about a potential military conflict as protests have become extremely violent. Governments from around the world are now are attempting to assist in the negotiations with Russia and Ukraine to formalize some type of accord. So it’s no surprise that a “risk off” mentality has come into the markets for the time being. I do believe that once things settle down in the Ukraine and the China headlines become less frequent, we could consolidate here for a bit as the first quarter of the year winds down. Then of course as we enter into April, all eyes will be watching how corporate America fared during the first quarter as Q1 earnings reporting season will begin. Between now and the end of March, I will be paying closer attention to our own economic data which will most likely translate into companies Q1 earnings reports.

Technically speaking, the Dow Jones Industrial Average (chart), the Nasdaq (chart), the S&P 500 (chart) and the Russell 2000 (chart) all appear to be heading towards their respective 50-day moving averages, in fact the Dow (chart)  actually breached its 50-day on Friday. The 50-day moving average is a technical indicator I favor as do other certain market technicians. Historically, when stocks or indexes reach their 50-day or 200-day moving average for that matter, support is typically found and a reversal of the stock or index ensues. The moving averages are also followed by certain institutional investors and select computerized algorithmic trading models, which could also be a reason why the moving averages can act as a support mechanism. Now I am not suggesting that the moving averages are infallible, I personally utilize this indicator mainly from a technical standpoint to help me navigate current market opportunities. Good luck to all.

Have a great weekend 🙂

~George