Russell 2000

Weak earnings spook stocks…

Posted on by George Mahfouz

Although Halloween is not quite here yet, the markets got spooked on Friday with weaker than expected corporate profits being reported. High profile companies such International Business Machines (NYSE: IBM), Google (NasdaqGS: GOOG), Microsoft (NasdaqGS: MSFT) and McDonald’s (NYSE: MCD) all disappointed investors, just to name a few.  On Friday the Dow Jones Industrial Average (chart) closed down 205.43 points, the Nasdaq (chart) -67.25, the S&P 500 (chart) -24.15 and the Russell 2000 (chart) lost 16.12 points.

The street should not be too surprised with the softer earnings numbers that are coming in, for most analysts have been lowering their estimates for some time now. This upcoming week over 700 companies will report their Q3 results with all eyes on Apple Computer (NasdaqGS: AAPL). Apple is schedule to issue their earnings results on Thursday. Let’s see how this week plays out before we draw any definitive conclusions as to where these markets may be headed. Have a great week and good luck to all.

~George

Chalk one up for the bears…

Posted on by George Mahfouz

Stocks notched their worst performing week since the beginning of the summer. For the week, the Dow Jones Industrial Average (chart) closed down 2.07%, the Nasdaq (chart) -2.94%, the S&P 500 (chart) -2.21% and the small-cap Russell 2000 (chart) closed out the week down 2.35%.

This upcoming week promises to be a doozy with Q3 earnings reporting season kicking into high gear. The following is a list of some of the high profile companies that are scheduled to report; Citigroup (NYSE: C), Goldman Sachs (NYSE: GS) Coca-Cola ( NYSE: KO), International Business Machines (NYSE: IBM) , Intel (NasdaqGS: INTC), CSX Corp. (NYSE: CSX), Bank of America (NYSE: BAC), US Bancorp (NYSE: USB), American Express (NYSE: AXP) and tech titans Ebay (NasdaqGS: EBAY) and Google (NasdaqGS: GOOG).

With last week’s market performance and lack thereof, the question I am now pondering is whether or not this earnings reporting season will be the catalyst to take the markets down further? Even with last week’s 2% pullback, the bellwether indexes are still up double digits on the year. There indeed could still be more room to the downside, however, I would expect that key technical levels would support any meaningful pullback. Let’s take a look at the S&P 500 (chart). The first level of support appears to be in the 1400 zone and then the 1370 area which happens to be the 200-day moving day average for the S&P. By no means am I suggesting that these levels will be reached, all I am saying is if Q3 earnings reporting season comes in weaker than expected, we could see a continuation of last week’s pullback.

Good luck to all.

Have a great week 🙂

~George  

 

A positive week for stocks, next up Q3 earnings…

Posted on by George Mahfouz

The market posted its first weekly gain in almost a month, this right before earnings reporting season begins. For the week the Dow Jones Industrial Average (chart) finished up 1.29%, the Nasdaq (chart) +0.64%, the S&P 500 (chart) +1.41%, and the small-cap Russell 2000 (chart) closed the week up 0.65%.

Third quarter earnings reporting season will be the highlight next week with earnings reports coming out of Alcoa (NYSE: AA) Yum Brands (NYSE: YUM) and JPMorgan Chase & Co (NYSE: JPM), just to name a few. Most analysts have ratcheted down their earnings forecasts due to the tepid pace of global growth and the number of companies that have pre-announced to the downside. The big question now is, are these adjustments already priced into equities and indexes? My feelings are that if there are any big surprises to the downside and stocks sell-off, that fund managers and institutional buyers are sitting on the sidelines ready to act. We cannot forget the position of the Fed which essentially gives this class of investors the green light to deploy capital into the markets. Of course there are no guarantees that this will be the mandate, however, odds are that any significant sell-off due to earnings reporting season would be met with support. Good luck to all.

Have a great weekend 🙂

~George  

Just like August, September produces unlikely gains…

Posted on by George Mahfouz

Although stocks were mostly lower on the week, the month of September produced rare gains for the benchmark indexes. For the month of September, the Dow Jones Industrial Average (chart) gained 2.65%, the Nasdaq (chart) +1.61%, the S&P 500 (chart) +2.42% and the small-cap Russell 2000 (chart) closed the month up 2.12%. This capped a very impressive third quarter for equities with all of these key indices advancing sharply higher.

So now the encore! What promises to be an event driven final stretch of the year, investors can look forward to Q3 earnings reporting season in October and of course the Presidential and congressional elections in November. Not to mention the ongoing saga in Europe, the seemingly everlasting middle east crisis, and whether or not our country will face the “fiscal cliff” outcome which could spin our economy into a recession?

So as you can see stocks and bonds are certainly exposed to an enormous amount of uncertainty in the final quarter of the year. Typically when markets are in such a quandary, much higher volatility usually ensues. In any market environment and  especially the one we are heading into, it is always best to use protective stops and or protection in the form of puts if you have a long portfolio. Furthermore, it is always a good idea to consult with a professional investment advisor before implementing any type of strategy. Good luck to all.

Have a great weekend 🙂

~George

A bull breather…

Posted on by George Mahfouz

After such a torrid bull run this summer and with most major averages posting double digit gains, stocks finished lower this week, albeit modestly. For the week the Dow Jones Industrial Average (chart) closed down 0.10%, the Nasdaq (chart) -0.13%, the S&P 500 (chart) -0.13% and the Russell 2000 (chart) finished the week off 1.06%. This minor pullback is nothing compared to the rare and impressive September monthly gains with all of the above key indices advancing well over 3% so far this month.

As equities continue to remain strong after the Fed announced their latest stimulus package last week, I continue to monitor the underlying technicals of the markets and from what I see, the coast continues to remain clear. The one exception to how the big four is looking technically is that these key averages are at or near the 70 value level on the Relative Strength Index (RSI).  The RSI is a technical analysis indicator which measures gain and losses over a given period of time to identify whether or not stocks or indexes are currently oversold or in this case overbought.

That said, with central banks from around the world ready to flood the markets and economies with liquitidy if needed, I am now of the belief that stocks and certain commodities should remain overbought for the foreseeable future with the occasional pullbacks along the way. Good luck to all.

Have a great weekend 🙂

~George  

Stocks soar, the Fed pulls out all the stops!

Posted on by George Mahfouz

I know we keep talking about the Federal Reserve, but on Thursday Ben Bernanke announced the mother of all stimulus programs. The new stimulus package includes $4o billion a month to be injected into the economy  and a promise that it won’t stop until the unemployment picture dramatically turns around. Never before has a central bank made such a large extended commitment and then tie it to the jobs market.

On the heels of this announcement, stocks soared with the Dow Jones Industrial Average (chart) finishing the week up 2.15% and is now up year to date 11.26%. The Nasdaq (chart) closed the week up 1.52% and year to date is up a staggering 22.22%. The S&P 500 (chart) on the week marched 1.94% higher and so far this year is up 16.55%,  and last but not least, the Russell 2000 (chart) small-cap index closed up 2.66% and is tracking a year to date gain of 16.71%

Yes I triple confirmed the above statistics and there are no typos. Now the multi-million dollar question is  “is this bull market out of breath?” It’s only natural to think that this tape is overdone and is well overdue due for a healthy 5% or even 10% pullback? This may especially ring true with the most recent middle east tensions, the upcoming third quarter earnings reporting season and of course the U.S. presidential elections all on the horizon. That said, with the Federal Reserves unprecedented commitment to truly do whatever it takes to get this economy and now the unemployment picture completely turned around, I would think that any pullbacks would provide excellent entry points. Whatever you choose to do, make sure to always consult with a professional investment advisor.

Have a great weekend 🙂

~George

Rare August gains for key indices…

Posted on by George Mahfouz

The four most followed indexes produced unlikely gains for the month of August. Typically the dog days of summer is seasonally weak for equities, but not this year. For the month of August, the Dow Jones Industrial Average (chart) closed up 0.63%, the Nasdaq (chart) +4.34%, the S&P 500 (chart) +1.98% and the small-cap Russell 2000 (chart) finished the month up 3.2%.

Stocks once again benefited by the Fed promising to take further steps to help boost the economy if needed. Speaking in Jackson Hole, Wyoming, Ben Bernanke reiterated his concern over the state of the economy and that the central bank is prepared to act if warranted. So how will this mantra play out for the month of September?

September is typically one of the weakest months of the year for equities, however, could this month buck the trend just like August did? We should find out in short order with the release of the unemployment report next Friday. Talk about market and political implications! If the job market continues to deteriorate, you better believe this will become even more of a focal point as the election approaches. A further decay in the unemployment picture should also give the fed confirmation to further stimulate the economy. If this scenario plays out, one could surmise that the markets would continue to lift and that Mitt and Ann Romney may be soon moving to Pennsylvania Avenue.

I hope everyone has a safe and enjoyable Labor Day weekend 🙂

~George

Let’s talk technicals…

Posted on by George Mahfouz

As certain stocks and markets continue to unexpectedly plow to new 52 week highs, I think it’s time to look at the technical aspect of the indexes. For the week, the Dow Jones Industrial Average (chart) finished up 0.51%, the Nasdaq (chart) +1.84%, the S&P 500 (chart) +0.87% and the Russell 2000 (chart) +2.29%. I do not remember a time when equities have behaved this well in the month of August, albeit on very low volume.

Now to the technicals. I typically refer to two of the more popular technical indicators that certain market technicians, program trading models and even institutional investors utilize, and they are, the Relative Strength Index (RSI) and the Moving Averages technical indicators. The RSI is designed to demonstrate whether or not an index or equity is overbought or oversold, depending on certain value levels. According to the RSI principle, the 70 value level or greater, is an overbought condition and the 30 value and below is an oversold condition. Pertaining to the moving averages, the 50-day and the more closely monitored 200-day moving average, are the key markers that market technicians and program trading models look for and potentially act on.

In looking at the four major averages, they are all currently trading considerably above their respective 50-day and 200-day moving averages. However, both the Nasdaq (chart) and the S&P 500 (chart) is on the cusp of breaking through the 70 value level on the RSI. Furthermore, the Dow Jones Industrial Average (chart) and the Russell 2000 (chart) are not too far behind trading around the 65 value level. This is an indication that the markets are potentially becoming overbought and are due for some type of pullback. Please keep in mind that stocks can remain overbought or oversold for extended periods of time. That said, when the RSI on a given equity or index begins to trade at or above this key level, a reversal of some sort typically occurs. Now there are many other factors and technical indicators to refer to when analyzing market conditions, but my preference is to keep it simple when looking at the technicals, and the RSI and moving averages indicators do it for me. Good luck to all.

Have a great weekend 🙂

~George

 

What a difference a year makes…

Posted on by George Mahfouz

Last year at this time stocks were in a free-fall. At one point in August of 2011, the top four indicies were all down well over 10% on the month. Fast forward to this year and so far in August the Dow Jones Industrial Average (chart) is up 1.53%, the Nasdaq (chart) +2.77%, the S&P 500 (chart) +1.92% and the Russell 2000 (chart) +1.85%. It is very unusual for the markets to be posting gains in the dog days of summer. This is especially true when earnings reporting season has been less than stellar. Add into the mix a continuing flow of disappointing economic reports from around the world, and one would think we would be down 10% on the month!

So what gives? Call it an election year, call it the global flow of liquidity, call it what you want, but I am going to refer to the old adage on Wall street and that is “you can’t fight the tape!” This means when markets are trending lower or higher in this case, it’s best to go with the flow rather than try to pick the top to sell or sell short. However, it doesn’t make a lot of sense that we are at multi-month highs considering the global-macro picture. One thing is for sure, and that is stocks or indexes can remain overbought for extended periods of time regardless of the circumstances. Next week we will take a look at how the technicals are playing out in the markets to see if there is anything from a technical perspective that we should be paying attention to. Good luck to all.

Have a great weekend 🙂

~George

Nothing too spectacular, so far…

Posted on by George Mahfouz

Earnings reporting season went into overdrive last week and quite honestly the markets were a lot quieter than I expected. For the week, the Dow Jones Industrial Average (chart) gained a modest 0.36%, the Nasdaq (chart) +0.58%, the S&P 500 (chart) +0.43% and the Russell 2000 (chart) actually pulled back 1.18%. So far earnings have come in rather tepid with a few exceptions. Also, volumes on the key indices have been relatively low which is playing a role in the lack of volatility. Technically speaking, nothing is standing out either. The major averages remain above their 50-day moving averages and also remain locked in their multi-week trading ranges.

Next week the financial world will be looking at Apple (NasdaqGS: AAPL) to see how their quarter fared. Apple has the ability to move the entire tech sector and the overall market for that matter, so I will certainly be keying into what the company reports financially, and what the tone is in their earnings conference call. Another highly anticipated earnings report next week will come from Facebook (NasdaqGS: FB). After a disastrous IPO, the street will be looking to see if the company has found its footing or if there is more downside to come. Let’s not forget about the other 750 companies that are reporting next week as we enter into the height of the Q2 earnings reporting season. Good luck to all.

Have a great weekend 🙂

~George