investors

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

Pullback #1

Posted on by George Mahfouz

I have been blogging for while now that a pullback at some point is inevitable and would even be healthy considering the parabolic move most of the key indexes and many stocks have had so far this year. However, there seemingly has not been a meaningful catalyst to trigger a noticeable pullback or better yet a healthy 10% correction, until maybe now? Taper talk is back on the table at the highest level since late May thanks to the continuing flow of recent positive economic data. In fact, some pundits predict that the Federal Reserve will begin reducing its asset purchases as early as this upcoming week. This chatter has been enough for the markets to take notice with the Dow Jones Industrial Average (chart) falling 264 points this week or 1.7%, the Nasdaq (chart) retreated by 1.5%, the S&P 500 (chart) gave back 1.6% and the small-cap Russell 2000 (chart) closed the week lower by 2.2%. Now let’s keep this into perspective, these benchmark indices on the year are still up a whopping 20%, 35.5%, 24.5% and 30% respectively.

What everyone has been accustom to for the past couple of years is that the protractive accommodative policies of the central banks from around the world would keep a floor under the markets, which most certainly has been the case. However, in late May of this year there had been widespread speculation that the Fed would indeed begin to reduce its bond buying and mortgage backed security purchases which sent the markets lower by over 5% by late June. The tapering fear at that point became unfounded as the economic data back then was still coming in too skittish in the Fed’s eyes.

Fast forward to today and there may now be enough positive economic data such as Q3 GDP coming in at 3.6%, the labor market showing signs of strength, personal spending rising and overall business confidence improving. These signs could be enough for the Fed to slowly reduce its asset purchases. So now the question on all minds is “how will stocks react once the Fed begins to taper?” This subject is currently being highly debated in most circles of the financial world and quite frankly no one knows. I suspect that the Fed will start to taper sooner than later but that they would be very conscious and conservative with their approach and how they signal their future actions. That said, once the central bank removes itself from the limelight and allow the markets to trade in a normal environment and on their own merits, I would expect volatility to get back to normal levels, hence, healthy pullbacks and even corrections should be back on the table. With this type of market environment, both long and short traders would be able to compose strategies based off of fundamentals and have the confidence to act accordingly.

Both Paula and I wish everyone a very safe, healthy and happy holiday season 🙂

~George

 

Happy New Year!

Posted on by George Mahfouz

Despite all of the domestic and global political and economic uncertainties that persisted throughout 2012, the Dow Jones Industrial Average (chart) managed to gain 7.3% for the year, the Nasdaq (chart) soared 15.9%, the S&P 500 (chart) leaped by 13.4% and the small-cap Russell 2000 (chart) closed the year up notching a 14% gain. I think most investors and traders were caught off guard with the double digits gains that occurred in 2012, especially with the pending fiscal cliff dilemma that our country is facing. However, in the wee hours of this morning the Senate did overwhelmingly approve a bipartisan deal that is now headed over to the House for a vote. Here is what part of the revised deal looks like:

The new deal postpones for two months the start of $1.2 trillion in automatic spending cuts over 10 years, known as the “sequester.” For those two months, $24 billion in savings would be substituted. Half of those savings would be split between defense and non-defense programs. The other half includes new revenues.

Raises $600 billion in revenue over 10 years through a series of tax increases on wealthier Americans.

Permanently extends tax cuts made in 2001 by Republican President George W. Bush for income below $400,000 per individual, or $450,000 per family. Income above that level would be taxed at 39.6 percent, up from the current top rate of 35 percent.

Above that income threshold, capital gains and dividend tax rates would return to 20 percent from 15 percent.

Includes a permanent fix for the alternative minimum tax.

Extends child tax credit, earned income tax credit, and tuition tax credit for five years.

Extends unemployment insurance benefits for one year for 2 million people.

Avoids a cut in payments to doctors treating patients on Medicare – the so-called “doc fix.”

Temporarily extends farm programs.

So now we have to wait and see if the House of Representatives will pass this modified deal and hopefully we can get that answered today.

Have a very safe, healthy, prosperous and Happy New Year 🙂

All the best,

~George