markets

Trade War Back On!

Posted on by George Mahfouz

Here we go again, the trade war is back on! Donald Trump yesterday once again fired up the trade war this time including the EU, Mexico and Canada. How is an investor supposed to confidently invest when the message and policies of our government change almost daily. Stocks all week have been whipsawed around which is great for the trader, but no so much for the investor. Now we have countries from around the world retaliating with their own tariffs on our goods. The Dow Jones Industrial Average (chart) finished the week at 24635, the S&P 500 (chart) closed the week out at 2734, the Nasdaq Composite (chart) closed at 7554 and the small-cap Russell 2000 (see chart below) showing its incredible resilience finishing the week out near an all-time high.

The chop action that we are seeing in the markets along with the unpredictably of our government gives me more reason now to focus in on the technical trading patterns of stocks and indices. Whether it is support or resistance levels vis Ă  vis moving averages (click here) i.e. the 20-day, 50-day, 100-day, 200-day or outright overbought or oversold conditions using the Relative Strength Index (click here) or the Bollinger Bands (click here) which can also provide a technical look into extreme conditions. With Q1 earnings reporting season essentially wrapped up, there is no real apparent catalyst to move the markets in a meaningful way. Which is why I will be paying much closer attention to the technical make up of the markets to identify opportunities.

One of my favorites are the moving averages (click here) especially the 200-day moving average. For example, just take a look at the Dow Jones Industrial Average (chart) and the S&P 500 (chart). You’ll see over the past few months each time these indexes gravitated to their respective 200-day MA, they found support and proceeded higher. There is no guarantee that moving averages will always hold and provide support, but in many instances it indeed acts as a short term floor to selling pressure. There are many resources on how technical analysis can work and I would recommend studying the dynamics of TA before including it in your investment or trading strategies. Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz

 

 

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

Big Time For Big Tech!

Posted on by George Mahfouz

Large cap tech stocks have taken center stage this earnings reporting season big time! Absolute blowout earnings reports came in from Amazon (NasdaqGS: AMZN), the parent company of Google, Alphabet (NasdaqGS: GOOGL) and the elders of the group Intel Corp (NasdaqGS: INTC) and Microsoft (NasdaqGS: MSFT). These tech titans are the latest reason for the Nasdaq (chart) and S&P 500 (chart) to reach and close at record highs yet again. The Dow Jones Industrial Average (chart) and the small-cap Russell 2000 (chart) are also within striking distance of their all times highs. Market observers have attributed the strength in stocks this year to a continuing low interest rate environment and the upcoming new tax policy from the Trump administration. This I get, however, no one can deny the growth that is happening in the tech world as well as other sectors of the economy.

The one note of caution I have here is the exuberant environment we find ourselves in with record highs happening weekly and in some instances daily. Yes earnings reporting season so far has been stellar but let’s not forget that we have not seen price to earnings ratios this elevated in quite some time. The question that now comes to mind are the markets and the aforementioned stocks finally at fair value? Especially as the p/e’s increase and as we approach a much higher interest rate environment over the next two years. We have been in such an accommodative monetary state for almost a decade which without a doubt has been the catalyst for equities and indexes and now the federal reserve here in the U.S. is reversing course. One of the groups that get the most affected in a higher interest rate environment are growths stocks like the aforementioned tech titans.

I am not suggesting that these stocks will not continue their upward trajectory, but I am making note and will be paying closer attention to the overall price to earnings ratios of the indexes and of high growth stocks in general as p/e’s continue to elevate. Good luck to all 🙂

~George

No Fear Here…

Posted on by George Mahfouz

Despite North Korea launching its seventh missile test of the year on Sunday and the White House seemingly in an upheaval, stocks continue to demonstrate no fear and continue their record setting ways. Today the S&P 500 (chart) and the Nasdaq (chart) hit all time highs. Without question this bull market is now even catching wall street veterans off guard. Q1 earnings reporting season is close to wrapping up and other than retail, most companies have reported in-line or outright beats in their earnings results, especially the tech sector. Tech has been on fire lately and this is due in large part of mega-cap tech smashing analysts expectations. Earnings results from companies such as Apple (NasdaqGS: AAPL), Amazon (NasdaqGS: AMZN), Alphabet (NasdaqGS: GOOGL) and Facebook (NasdaqGS: FB) has propelled the Nasdaq (chart) and these particular issues to all-time highs. The Dow Jones Industrial Average (chart) and the Russell 2000 (chart) remain in striking distance of setting new records as well. It is truly remarkable how the markets have been able to weather the current political environment here in the U.S. and the geopolitical risks abroad.

From a technical perspective, the aforementioned key indices are in pretty good shape. The Nasdaq (chart) is the only one of the four that remains in overbought territory according to the relative strength index. All of these averages also remain above their respective 50-day and 200-day moving averages, yet another bullish sign. Volatility also remains at historic lows. So one may ask what about the “sell in May and go away” adage? From a technical standpoint, I do not see any reason why these markets won’t continue to melt up from here. Of course there is always the risk of a geopolitical event or the actual seasonal risk of assets taking a pause or retracing a bit. That said and whatever the case may be, it is undeniable that the markets have been the most resilient in years, if ever.

Good luck to all 🙂

~George

Geopolitical Risks Abound…

Posted on by George Mahfouz

Stocks closed the shortened holiday week down on Thursday as the U.S. dropped the largest non-nuclear bomb on a target in Afghanistan. This just after the U.S. launched tomahawk missiles targeting a Syrian airbase in response to a chemical attack on innocent civilians in Syria. Now North Korea is increasing its verbal threats of an all out war on the United States. What’s going on here? It’s hard to talk about stocks when all of this hatred is occurring around the world. Nonetheless, the markets will move forward but will be certainly affected by the troubling geopolitical environment and the uncertainties that exist in multiple regions around the globe.

For the week, the Dow Jones Industrial Average (chart) closed down 1%, the S&P 500 (chart) closed off 1.19%, the Nasdaq (chart) -1.2% and the small-cap Russell 2000 (chart) finished the week lower by 1.39%. Gold (see chart below) was up on the week and for the first time since November of last year, closed above its 200-day moving average. This is no surprise due to what is currently going on in the world. The question now is how to trade this market environment or what to do with your current positions? If history repeats itself, market volatility should increase which is good for traders but can be unnerving to longer term investors. In fact volatility (chart) spiked this week to its highest level in 5 months.

Now that earnings reporting season is underway some market pundits are saying that this will dictate whether or not markets will continue higher or if earnings reporting season will be the catalyst to send stocks into correction mode. I disagree with this point of view. How can the markets concentrate on earnings reporting season when you have this widespread turmoil around the globe? Of course, earnings are what typically drive stocks and valuations but until the geopolitical back drop abates and a sense of resolve comes forward I will be ultra conservative in going long any equities unless it is gold or gold related assets. Of course it is always best to consult a certified financial planner(s) before making any investment decisions. Good luck to all and both Paula and I wish all a safe and Happy Easter weekend.

~George

gold chart george mahfouz jr

Solid Gains In Q1!

Posted on by George Mahfouz

The major averages closed out the first quarter of the year posting solid results. The Dow Jones Industrial Average (chart) closed up 4.6%, the S&P 500 (chart) closed up 5.5%, the small-cap Russell 2000 (chart) gained 2.1% and the technology focused Nasdaq (chart) finished out the first quarter of the year up an eye-popping 10%. It’s no surprise how well tech did in Q1 considering how much this sector sold off after Trump won the election.

Although stocks continue to outperform, there has been some uncertainty coming into backdrop. The GOP’s inability to pass Trumpcare was the first sign of the potential breakdown of the new administration’s policies. Investors are beginning to wonder whether or not there will be more divide amongst republicans and how that could affect the upcoming tax reform bill. If there are any snags there or if that reform does not pass, some market pundits believe a 10-20% correction could occur.

Here are my thoughts about that. I do agree that if the proposed Trump tax reform does not go through, there indeed could be an immediate market reaction to the downside. How much, who knows? The markets are seemingly priced to perfection and then some. So if corporate tax rates are not reduced as Trump and his administration has outlined, why wouldn’t stocks be affected? Of course we will not know until late summer how the administration’s new tax policy will look like in its final state or whether or not it will even pass.

That said, there is plenty of runway between now and then for stocks and this starts with first quarter earnings reporting season. April is the month in which companies begin to report their earnings results to their shareholders. Corporate profits appear to be growing along with the economy. This my friends is where investors should be valuing stocks. So much emphasis has been put on the new administration’s economic and tax reform policies that we need not to forget about what really matters and that is corporate profits. That is not to say that government polices including the Federal Reserve don’t matter, but at the end of the day and when all the votes are in, growth and profits to me is what truly matters when valuing and investing in stocks.

Good luck to all 🙂

~George

 

As Expected, The Fed Raises Rates…

Posted on by George Mahfouz

To no surprise, the Federal Reserve raised interest rates 1/4 point today citing stronger economic growth and a pick-up in inflation. A stronger job market also played a role in the decision of the Fed. What wasn’t quite expected was the language of an additional anticipated rate hike from the projected two hikes in 2017 to now three. This might of caused the slight sell-off yesterday in the markets with the Dow Jones Industrial Average (chart) falling 118.68 points, the S&P 500 (chart) was lower 18.44 points, the Nasdaq (chart) fell 27.15 points and the small-cap Russell 2000 (chart) retraced by 17.51 points.

With all things considered, this pullback was long overdue. In fact, I am surprised that the markets held up like they did yesterday. Especially considering the rip roaring rally most equities have enjoyed since the presidential election. Markets have been on fire with the Dow Jones Industrials (chart) gaining almost 1,600 points, the S&P 500 (chart) ripping 125 points, the Nasdaq (chart) catapulting about 300 points and the small-cap Russell 2000 (chart) up a staggering 170 points. What a breathtaking rally in such a short period of time.

So what can we expect between now and year end? Let’s think about this for a minute. If you are an institutional investor, fund manager, hedge fund or the like would you be taking profits into year end? Or would you wait until we get into the new year knowing that capital gains taxes and corporate taxes are coming down? I think it is fair to say the latter would make the most sense. Add into the mix the rotation that continues out of the bond market and into equities in which certain pundits believe we are in the fourth or fifth inning of that rotation, one has to ascertain that this bull market has more room to run.

Whatever the case I think pullbacks will be bought as momentum continues into year-end. Paula and I wish everyone the happiest and healthiest holiday season 🙂

~George

Uncertain Times And Near Record Highs!

Posted on by George Mahfouz

Despite the uncertain times we find ourselves in vis-à-vis the upcoming presidential election, the Deutsche Bank balance sheet and liquidity concerns and the upcoming third quarter reporting season, stocks continue to defy the odds and remain within striking distance of all-time highs. The Dow Jones Industrial Average (chart) closed the third quarter at 18308, the tech-focused Nasdaq (see chart below) closed at 5312, the broad based S&P 500 (chart) finished the quarter at 2168 and the small-cap Russell 2000 (chart) closed at 1251.

I am truly amazed how strong the markets have been all things considered. We did see volatility spike in September which was no surprise. However, what was surprising is how short lived it was especially with how much concern and risk there is out of Europe and in particular Deutsche Bank. A couple of weeks ago the U.S. Department of Justice announced they were seeking a $14 billion dollar fine to settle Deutsche Bank’s mortgage lending activities during the 2008 housing crisis. Shares of Deutsche Bank stock plummeted on the news and raised concerns about the solvency of the bank. Stocks did react to the news but have seemingly shrugged off this potential risk to the markets. Furthermore, stocks so far have also shrugged off the uncertainty due to the upcoming presidential election. Monday’s presidential debate sparked controversy as to who won it, but it is clear that the markets saw that Hillary Clinton won the first round.

As we now enter the month of October, without question the headlines and chatter will only increase as we get closer to election day which is November 8th. I am expecting volatility to not only increase but to last longer than usual due to the amount of news flow that is forthcoming which includes the launch third quarter earnings reporting season. What I do in this type of market environment is tune out the noise and stay focused on the fundamentals and technicals of select stocks and indexes. I seek out and identify market dislocations including overbought and oversold conditions. My assumption is that as we get in the thick of third quarter earnings reporting season, overbought and for that matter oversold opportunities will present themselves. Good luck to all 🙂

~George

 

nasdaq chart george mahfouz jr

All Eyes On Jobs Report…

Posted on by George Mahfouz

The chatter has increased lately as to when the Federal Reserve will raise interest rates from their historic lows. We may not need to wait much longer to get that answer. Although it is a holiday weekend, the August jobs report will be released tomorrow and the pundits are suggesting that if the economy added more than 200,000 jobs in August, the Federal Reserve will raise rates this month. From my view a quarter point rate hike here in September is no big deal. I think the markets will have a muted reaction. However, if this is the beginning of a consistent pattern then this becomes an entirely different discussion. I do not expect that the Fed will be too aggressive with future rate hikes and of course the economic data will play a role in those decisions.

So what about the markets? We are coming into a seasonality that is typically a weaker time for stocks. What’s more, the markets will also begin to focus on the presidential election and the polls associated with it. That said, I expect an increase in volatility as we head into the fall. There are other catalysts that could weigh in on stocks such as potential changes in global monetary policies and Q3 earnings reporting season in October. The key indices continue to demonstrate strength with the S&P 500 (see chart below) being supported by its 50-day moving average click here, the Dow Jones Industrial Average (see chart below) is within a couple percentage points of its all-time highs, and both the Nasdaq (chart, click here) and the small-cap Russell 2000 (chart, click here) are trading right around their 20-day moving averages. So as of yet, stocks do not appear to be too concerned with the upcoming market seasonality and other potential catalysts that could play a role in interrupting the uptrend we have been in.

Both Paula and I wish everyone a very safe and happy Labor Day weekend 🙂

~George

S&P chart george mahfouz jr

dow jones chart george mahfouz jr

What A Rollercoaster Ride!

Posted on by George Mahfouz

This week started off with the vote no one expected. Global markets were shocked with the outcome of the United Kingdom’s vote to the leave the European Union. Here at home, the Dow Jones Industrial Average (see chart below) lost close to 1,000 points between Monday and Tuesday, the Nasdaq (see chart below) over that same two-day period lost close to seven percent as did the S&P 500 (chart) and the small-cap Russell 2000 (chart). A breathtaking 2-day drop which was so swift and profound that it violated the 200-day moving averages of all of the aforementioned indexes. Fast forward to today and what seemingly was the start of an angry correction, has turned into yet another “buy the dip” opportunity. No matter what the challenges are or have been on the macro-economic or political front, markets over the past several years have shrugged them off. I honestly did not think stocks would snap back this time as quickly and as powerfully as they have.

Yet again, oversold conditions created a trader’s dream with this snap-back rally. Ever since this bull market began, every shocking or unexpected headline which have rattled the markets have always been met with strong support that then turns into the resumption of this protracted bull market. However, it is also very clear that we have been trading in a range for quite some time now and every time we have tried to breakout of this trading range, resistance is met and we retrace back to a variety of moving averages.

So you may be asking how do we break out of this S&P 500 (chart) 2000 to 2120 trading range? One catalyst that can do this is the upcoming second quarter earnings reporting season which kicks off here in July. I do not think that the economy is such that record earnings results will come forward. In fact, companies may take it upon themselves to use the Brexit circumstance to soften their future guidance? We will see. In my humble opinion I think the possibility of a downward break is more probable in the near term than stocks breaking out to all-time highs, especially after this snap back rally. Good luck to all!

Paula and I wish everyone a safe and Happy 4th of July holiday 🙂

~George Mahfouz, Jr.
Dow Jones George Mahfouz JrNasdaq George Mahfouz Jr.