The Technicals Are In Play…

As the markets try to find their footing, the technicals are surely in play. After a record-breaking performance over the past few months, the major averages are flirting with breaking down. The Dow Jones Industrial Average (see chart here) recently broke down below its 20 and 100 day moving average, as did the small-cap Russell 2000 (see chart here). Both the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) have broken down through their 20 day moving averages, however, these indices are finding support at their 100-day M/A.

The recent market action to me is no surprise. As I alluded to in my previous blogs, month over month stocks and the major averages have been setting all-time highs. At some point in time a pause and reversal in stocks is to be expected. That time appears to be here and now. Of course, there are other factors weighing in on the markets recent pullback with the spotlight coming back on to the inflationary backdrop our economy has faced. Inflation has dropped dramatically over the past year, however, recently there has been an uptick in key sectors, click here for a recent report on the consumer price index. Now pundits are tying the most recent consumer price index into a narrative that the Federal Reserve may not be cutting interest rates after all. Some economists are even suggesting the Fed may even hike rates should inflation continue to uptick.

I come from the camp that a bump in the road with a slight uptick on inflation is nothing to panic over. Now if over the next couple of months the CPI continues to rise, then this would be a different discussion. In the near term if the major averages are able to hold here at the key support zones, then the recent pullback should find some footing. If the selling pressure continues then the 200-day moving average could be the next stop.

Good luck to all πŸ™‚

~George

Record Highs For Stocks!

Record highs for stocks are hitting the tape with both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) hit all time highs yesterday. The Dow Jones Industrial Average hit a high of 38,588 while the S&P 500 traded at 4931 before closing slightly lower. However, the Nasdaq Composite (see chart here) and the Russell 2000 (see chart here) did not hit their all-time highs but the uptrend in those indexes continue.

So why are two of the major averages at all-time highs? For one I think the markets have been anticipating the Federal Reserve to start cutting interest rates this year. However, Fed Chair Jerome Powell yesterday said rate cuts in the near term is not likely. Suffice to say the markets did sell off yesterday after Chair Powell’s remarks. The other factor driving stocks higher is the undeniable strength our economy and the job market. The latest Gross Domestic Product (GDP) report surprised analysts yet again. Economists were expecting the GDP to come in at an annualized growth rate of 1.5%. Instead, the economy grew on an annualized basis of 3.3%. I’d say that’s a beat! The GDP is a measure used to evaluate the strength of the economy. The GDP is the total market value of the final goods and services produced in a given country.

Going forward without question the strength of the economy and job market, along with inflation, will be guiding the Federal Reserve as to the timing of when they will begin to cut rates. Until then, the strength of companies’ earnings results, geo political factors and our own political backdrop should be the catalysts that determine where the markets trade.

Last but not least, the technical backdrop of the key indexes is in decent shape. Yes, the Dow Jones Industrial and the S&P 500 did breach the 70 RSI level briefly but has retreated some since going into overbought territory. All in all, from a technical standpoint, I do not see any alarming trends.

Good luck to all πŸ™‚

~George

 

 

Cheers To The Markets!

Cheers to the markets and what a year for stocks! 2023 turned out to be a spectacular year for the stock market as not many expected the markets to rip-roar as it did last year. The Dow Jones Industrial Average (see chart here) finished the year up almost 14 percent. The S&P 500 (see chart here) closed the year up 24%. The Nasdaq Composite (see chart here) closed the year up a whopping 44 percent. A big part of the Nasdaq’s eye-popping performance was how the “Magnificent 7” performed. For those of you who do not know who the Magnificent 7 are, it is the big tech group made up of Apple (NasdaqGS: AAPL), Microsoft (NasdaqGS: MSFT), Google owner Alphabet (NasdaqGS: GOOGL), Amazon (NasdaqGS: AMZN), Nvidia (NasdaqGS: NVDA) and Meta Platforms (NasdaqGS: META) and Tesla (NasdaqGS: TSLA). Finally, the small-cap Russell 2000 (see chart here) closed the year up 15%.

Many stock market experts did not expect such a stellar year for stocks. Let’s dig in and see what happened. For starters, inflation itself retreated faster than anyone expected which now has the Federal Reserve speaking to cutting rates in 2024. This metric alone is very bullish for stocks. Then factor in how strong the economy has been it’s no wonder we are at or near all-time highs. What’s equally impressive is how the markets have shrugged off the geopolitical backdrop. From two wars that seemingly have no end is sight, to the U.S. political divide, to China’s stagnant economy, nothing seems to be bothering the markets, at least not yet.

As we now look forward to 2024, I think we are in for a doozy of a year, at least from a volatility standpoint. We are also in an election year, and this alone should create higher volatility. I would also expect that after such a strong performance in 2023 that a pause and/or even a correction of some sort could potentially be in the cards for the markets in general.

Wishing everyone the healthiest, happiest, and most prosperous new year πŸ™‚

~George

Soft Month For Stocks…

August was a soft month for stocks across the board. The Dow Jones Industrial Average (see chart here) closed the month of August down 2.4%, the S&P 500 (see chart here) fell a modest 1.8%, the Nasdaq Composite (see chart here) gave up 2.2% and the small-cap Russell 2000 (see chart here) fell by over 5%. All things considered, not too shabby considering August historically is one of the weakest months of the year for stocks.

The market performance in August did snap a 5-month winning streak for the S&P 500 and the overall volatility in the stocks also picked up some steam. However, I do think the bulls will take such a modest pullback considering how strong the markets had been since early June. It appears some profit taking occurred in August while overall trading volumes were relatively lower. Now that summer is almost behind us, I expect trading volumes to increase along with the possibility of bigger market swings as we head into fall.

Now that we are in September the question becomes can the market weakness in August turn around in September? I typically look for catalysts to see if market direction will turn and as we head into September overall bullish sentiment has decreased. As contrary as this may sound, bullish sentiment decreasing is usually a bullish sign for the markets. I don’t like participating in markets where the sentiment is overly bullish and this has been the case all summer long, especially with how AI stocks went on a tear over the summer. The Artificial Intelligence sector lifted most indexes and if it wasn’t for the AI craze we have witnessed, I am not so sure if the markets would have enjoyed a multi-month bull run.

I always like to look at the technical shape of the markets as another potential catalyst for market moves. There is nothing really standing out either bullish or bearish. From the relative strength index aka the RSI, to where the moving averages are currently positioned, there is nothing too glaring one way or the other. Not a surprise considering how low the trading volumes were in August and the modest pullback that did occur.

Good luck to all πŸ™‚

~George

Is A Soft Landing Ahead?

For months now stock market pundits have been calling for a recession. Now it appears that a soft landing is ahead. You name it from Wall Street analysts to the media, not a day goes by without hearing the word recession. Well folks the economic data that has been coming out lately is showing just how strong ourΒ  economy remains. The latest gross domestic product (GDP) report Β that was issued last week showed that in the second quarter of this year our economy grew by 2.4% which surprised the street. What’s more is that this the fourth straight quarter of economic expansion. This sure doesn’t sound like a recession to me. Our economy is growing despite the Federal Reserve continuing to raise interest rates. As of now it sure does look like the Federal Reserve is managing these rate hikes to perfection.

The stock market sure likes what it is seeing from the economy. The Dow Jones Industrial Average (see chart here) continues to remain above its recent breakout. The same can be said for the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here). As I alluded to in my July blog, it appeared that stocks were on the verge of breaking out. Sure enough, the month of July was a very bullish month not only on the economic front but also for the stock market. One thing I now want to look for now is if stocks are becoming overbought?

As I look at some of the key technical indicators such as the RSI and the Moving Averages technical indicators nothing too alarming there from a technical standpoint. The exception here is both the Dow Jones Industrials (see chart here) and the S&P 500 (see chart here) are flirting with becoming overbought based on the relative strength index aka the RSI. That said, this is no surprise due to how strong the markets performed in month of July. Let’s see if there is a pullback of some sorts here in August or the continuation of this bullish action.

Wishing everyone the best of luck πŸ™‚

~George

Are The Major Averages Breaking Out?

After breaching their respective 200-day support lines in March, the major averages appear to be breaking out of their months long trading range. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) are all hitting monthly highs. Also, each of these indices appear to have strong momentum heading into July.

So why are the rally caps on? I think one of the drivers to this latest rally is how economy is faring. From the most recent GDP (gross domestic product report ) coming out stronger than expected to how inflation appears to be abating. Most every pundit expects our country to head into a recession, however, economic reports such as cited above are currently demonstrating a different backdrop. Market expectations have kept stocks in a trading range for the past several months until now.

The question now becomes is this a true “breakout” or is it a fake out? One catalyst that could answer this question is the upcoming Q2 earnings reporting season. Now that the second quarter of the year are in the books, corporate America will begin to report their Q2 earnings results here in July. This to me could prove whether or not this rally has more room to run.

When I look at the technical shape of the key indexes we are not yet in overbought territory according to the relative strength index aka the RSI. The only index that is near the 70-value level of the RSI is the S&P 500. According to the principles of the RSI, any index, stock, commodity etc. that trades above the 70 value of the RSI is considered overbought and we are not there yet. However, if this current rally continues then we could see the aforementioned indexes go into overbought territory. If this is the case, remember stocks and indexes can remain overbought for an extended period before reversion to the mean occurs.

Wishing everyone a safe and great 4th of July holiday weekend.

~George

 

A Mixed Month For Stocks…

The month of May was a mixed month for stocks and the major averages. The Dow Jones Industrial Average closed out the month down 3.5% (see chart here) while the S&P 500 (see chart here) and the Nasdaq Composite closed the month out in the green. The small-cap Russell 2000 (see chart here) like the Dow closed the month out lower. Not bad considering how the debt ceiling issue and debate has been in the news seemingly hourly as everyone waits with bated breath as to what Congress will do. To me I wonder why this drama about raising the debt ceiling so the government can pay its debt and obligations is always a thing? Why even have a debt ceiling when there is no way United States of America could ever default on its debts and obligations. If this was to occur a global meltdown like never before seen could occur. How about this concept? No debt ceiling at all and instead vote in a fiscally responsible administration and politicians to manage our country’s finances properly. Sounds simple enough, but who am I kidding. Ok, enough of this and back to the markets.

Despite being an historically softer month for the stock market, May did not perform too bad as evidenced above. Yes, a mixed bag, but I think investors are happy to see that we didn’t fall off a cliff. That being said, as a look at the technical shape of the aforementioned indexes what is standing out to me is how key support lines are in play. The Dow Jones Industrial Average (chart) is hovering right around its 200-day moving average, while the S&P 500 (chart) is currently being supported by its 20-day moving average. The Nasdaq Composite (chart) is trading nicely above it’s 20, 50 and 200-day moving averages while the small-cap Russell 2000 (chart) is bouncing around its 20-day MA.

Lastly, I think the markets are in a position to continue its recent trading patterns and as soon as the final vote comes in on the debt ceiling matter, everyone will breathe a sigh of relief.

Good luck to all πŸ™‚

George

Rally Caps Are On!

After breaching all moving average support lines including the 200-day, the major averages have their rally caps on! The Dow Jones Industrial Average (see chart here) finished the month of April on a high note. The same can be said for the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here and below).

After a slow start to the year including a brief dance with a bear market, stocks have rallied recently to turn green. Even the small-cap Russell 2000 is now green for 2023. So, what is causing the renewed bullish action? In part I think a stronger than expected first quarter earnings results have played a role in this latest bull run along with the Federal Reserve potentially slowing down their interest rate hike program. Positive earnings surprises have come from the health care sector, consumer discretionary and Industrials sector. It’s not just better than expected earnings results, it’s the top line revenue numbers that are also coming in stronger than expected. These data sets are great to see but we still do have some headwinds with inflation remaining high which means the Federal Reserve may not be quite done yet with higher rates.

When I take a look at the technical shape of the markets, there are some encouraging signs that may play a role in the continuation of this latest bull run. It appears that the Dow Jones Industrial Average (see chart here) is breakout out of a month’s long trading channel, as is the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) also appears to be breaking out. I also see that the aforementioned indexes have not yet breached the 70 value level of the Relative Strength Index aka the RSI. The 70-value level of the RSI is considered the beginning of overbought conditions and we are not there yet.

Let’s see how the month of May goes and we will check back on the technical shape of the markets in June. Good luck to all πŸ™‚

~George

Rally Caps Are On! - Paula Mahfouz

The 200-Day Breached…

In my March blog I highlighted the 200-day moving average and questioned whether or not this key support zone would hold on the major averages. Low and behold the 200-day moving averages were breached for the better part of the month only to come roaring last week. The Dow Jones Industrial Average (see chart here) closed the month up slightly at 33274, the S&P 500 (see chart here) also closed in the green at 4109, the Nasdaq Composite (see chart here) closed the month up at 12221 points, however the small-cap Russell 2000 (see chart here) did not recapture its 200-day and closed the month of March lower at 1802.

As mentioned above, although the markets experienced heavy selling pressure last month which was fueled by the collapse of Silicon Valley Bank, in the final the week of March the markets experienced a meaningful rally which propelled most of the major averages right back through their respective 200-day. The response to this 200-day breach and how the major averages blew right past this technical line is seemingly bullish.

With the first quarter in the books market participants will now begin to focus on Q1 earnings reporting season to see how well corporate America is doing. Last month there was the shock of Silicon Valley Bank failing and that certainly drew the attention of the Federal Reserve. This event may guide the Fed going forward to change their current interest hike program. If the Fed starts easing interest rate hikes this could help the overall selling pressure that the markets have experienced so far this year. Furthermore, if Q1’s earning reporting season goes better than expected or at least if companies guide up a bit, this may be enough to quell the selling.

Let’s see what is in store for April and hopefully we continue to see the selling pressure ease up. Good luck to all πŸ™‚

~George

Will It Hold?

As the markets closed out the month of February, the major averages are approaching a key technical point and the question now becomes, will it hold? As stocks continue to exhibit volatility the major averages are now approaching their 200-day moving average. Institutional investors, hedge funds andΒ  individual investors view the 200-day moving average as a key support technical indicator. Historically when indexes or individual stocks gravitate to their 200-day support level at minimum some sort of bounce occurs from this key support line. If you go back over time whether it’s months or years and look at what happens when stocks or indexes retrace to their 200-day, this will demonstrate how powerful this support line can be. Now there is no guarantee that the 200-day will hold every time and reverse its course but see for yourself how this dynamic historically performs.

The Dow Jones Industrial Average (see chart here) is in striking distance of its 200-day moving average which is currently at the 32355 level. The S&P 500 (see chart here) is only about 90 points away from its 200-day. The Nasdaq Composite (see chart here) almost touched its 200-day yesterday and the small-cap Russell 2000 (see chart here and below) is currently further away from its 200-day compared to the Dow Jones, Nasdaq Composite, and the Russell 2000. So technically speaking the small caps are currently in a better technical set up vs the other major averages.

As far as what to expect here in March, I think things will continue to be a bit choppy and should the indexes continue to retrace and end up at or near their 200-day moving average, let’s see how this technical indicator responds should it get there. As always, please consult with certified financial planners before you make any moves or adjustments in your portfolio.

Good luck to all πŸ™‚

~George