What A Month For Stocks!

What a month for stocks as the major averages rebounded sharply in July. After witnessing an incessant selloff over the past few months, July turned out to be the best month for stocks in years. After falling into bear market territory, the S&P 500 (see chart here) gained almost 10% last month cutting its year to date losses in dramatic fashion. As I look at the Dow Jones Industrial Average (see chart here) a thousand-point gain in the last week or so is not too shabby either. Last but not least, both the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) also has enjoyed a strong recovery from their recent lows.

So why was there such a strong performance in the month of July? Q2 earnings reporting season is in full swing and at best this Q2 earnings so far have been a mixed bag. The Fed last week also raised interest rates another 0.75%. Inflation remains at or near 40-year highs. So, if you solely look at these metrics one would think the recent selloff would be accelerating. Clearly this is not the case, yet! The bears would argue that this is an “oversold” bounce and part of me agrees with that. However, I think it is too early to say that we are back to a full-fledged bull market. I do think if the markets remain stable over the next couple of months this could be a sign of a bottoming process. Let’s see how the rest of the summer plays out.

Now let’s move over to the technical shape of the aforementioned indexes. What has caught my eye is how the major averages are either at or have recaptured their 100-day moving average. This important support and/or resistance line is key as to whether stocks will pause into the resistance that moving averages experience, or if the momentum continues, then this could mean that this latest bull run will continue.

Good luck to all 🙂

~George

Is It A Looming Rate Hike, Or Something Else?

After posting blistering gains in the month of October, stocks took it on the chin last week and it’s technically looking like more short-term downside could be in the cards. For the week, the Dow Jones Industrial Average (chart) lost 665 points, the Nasdaq (chart) retraced 219 points or 4.3%, the S&P 500 (chart) -76 points and the small-cap Russell 2000 (chart) closed lower on the week by 53 points or 4.4%.

Seemingly, the start of the selling pressure accelerated when the October labor report came out surprisingly strong. This report was released on November 6th. One could say that this is the main reason stocks have been under pressure. Pundits are now calling with almost certainty that the Federal Reserve has the green light to raise interest rates at their next meeting in December. Couple this will commodity prices continuing to fall, in particular oil, which is down recently almost 10% and you can understand why the markets would be under pressure. Or could it be the simple fact that October saw almost 10% gains across the board and the key indices were overdue for a pullback. I’d like to add to the mix that the latest round of economic numbers could also be weighing in on investor sentiment. This is evidenced by a weaker than expected retail sales number and weak retail earnings reports issued last week along with a very weak Producer Price Index. Sum all of this up and it’s no wonder the aforementioned indexes closed lower by almost five percent last week. From a technical perspective the key indexes have now breached their respective 200-day moving averages and if you are bullish, you would want to see the markets recapture this key technical support line and return to the uptrend that was intact throughout the month of October.

As the Thanksgiving Day holiday fast approaches, both Paula and I wish everyone a very safe, healthy and Happy Thanksgiving 🙂

~George