highs

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

Strong Week For Stocks!

Posted on by George Mahfouz

The major averages continue to show strength upon the launch of first quarter earnings reporting season. The Dow Jones Industrial Average (chart) closed the week up 1.8%, the Nasdaq (chart) also closed up 1.8%, the S&P 500 (chart) added 1.6% and the small-cap Russell (chart) 2000 led the charge by closing the week up a whopping 3.1%. The money center banks such as JPMorgan Chase NYSE: JPM (chart), Bank of America NYSE: BAC (chart) and Citigroup NYSE: C (chart) which reported their earnings late in the week did help continue the momentum we have recently seen in the markets.

The question now is can earnings reporting season which begin in earnest next week breakout this market to new highs? Companies that are scheduled to report next week are International Business Machines Corp. NYSE: IBM (chart), Morgan Stanley NYSE: MS (chart), Netflix NasdaqGS: NFLX (chart), Goldman Sachs NYSE: GS (chart), Discover Financial Services NYSE: DFS (chart), Intel Corp. NasdaqGS: INTC (chart), Intuitive Surgical NasdaqGS: ISRG (chart), Johnson & Johnson NYSE: JNJ (chart), TD Ameritrade Holding Corp. NasdaqGS: AMTD (chart), Yahoo! Inc. NasdaqGS: YHOO (chart), American Express NYSE: AXP (chart), Coca-Cola NYSE: KO (chart), Qualcomm NasdaqGS: QCOM (chart), Biogen NasdaqGS: BIIB (chart), E*Trade Financial Corp. NasdaqGS: ETFC (chart), General Motors NYSE: GM (chart), Microsoft Corp. NasdaqGS: MSFT (chart), Southwest Airlines NYSE: LUV (chart), Starbucks NasdaqGS: SBUX (chart), Visa Inc. NYSE: V (chart), American Airlines Group NasdaqGS: AAL (chart), Caterpillar NYSE: CAT (chart) and General Electric NYSE: GE (chart) just to name a few.

Without question the aforementioned earnings reports will play a significant role in whether the key indices will breakout to new highs or struggle at their current resistance levels. One other historic factor that can play into the mix is April tends to be one of the top performing months of the year. Whatever the case is, I think it’s safe to assume a breakout or possibly a breakdown is on the horizon. Good luck to all 🙂

~George

Back To Setting Records!

Posted on by George Mahfouz

After a tumultuous and volatile month, stocks are back to their old habits. The Dow Jones Industrial Average (chart) and the S&P (chart) 500 both closed at record highs. The month of October also saw the Nasdaq (chart) finish up over 3% and the small-cap Russell 2000 (chart) closed the month out up an eye-popping 6.5%. So as far as the long awaited correction goes, lets take a look. The Dow (chart) from it’s previous all-time high corrected 8.61%, while the S&P 500 (chart) retraced 9.83% by mid-October. Not quite the text book healthy 10% correction most investors were looking for, but close enough. The question I have is, will this snap-back rally to new all-time highs hold? Earnings for the most part have been coming in pretty good, however I have not seen the robust top-line growth you would expect in order to keep setting new records. Nonetheless, easy global monetary policies continue to keep not only a floor under these markets, but provide enough juice to lift the markets to new highs. Just yesterday the Bank of Japan unexpectedly raised its bond buying program from JPY 70 trillion to 80 trillion and it also tripled its ETF buying to JPY 3 trillion. So as long as the federal reserves from around the world continue to increase their balance sheets, the bulls should have the upper hand.

The concern I have with the most recent market correction is that it didn’t last very long. It’s true that over the past five years most modest pullbacks immediately snapped back, just like this latest quasi-correction did. Personally, I would of liked the correction to last a little longer and go a little deeper for it feel like a meaningful correction. Because of the markets most recent snap back rally, all of the major averages are now fast approaching overbought conditions according the the Relative Strength Index (RSI). I truly think early next week will be the tell. If we continue to lift, then we will certainly breach the 70 value level of the RSI and enter into overbought territory and possibly remain overbought for the rest of the year. However, if the rally stalls, we could easily reverse and then who knows? Add the wildcard of mid-term elections this upcoming week into the mix, and most likely volatility comes back into the forefront. For me I am going to the sidelines until after the mid-term elections are over, and also to see if we stall here at record levels. Good luck to all and have a great weekend 🙂

~George