2021 Is Here…

2021 is here and it could not of come fast enough. Happy New Year and I think we can all use a fresh start! The year 2020 was one of the most challenging years our country and the world has faced. One of the only exceptions that did not face many challenges is the stock market. Despite the global pandemic we remain in and the non-stop chaos out of Washington DC, the major averages set record highs throughout the year. Who would of thought that stocks and market speculation would be at such a fever pitch considering the backdrop of 2020. During this latest bull market surge one thing that stands out to me is how margin debt has hit all time highs. Investors have borrowed over $700 billion dollars against their portfolios which is also a new record. This is somewhat alarming because when the market experiences a correction, margin debt can accelerate any meaningful selloff. Some investors could be forced to sell if their margin debt becomes disproportionate to their overall account value. That said, when record highs continue to be set the risk of margin debt tends to be overlooked.

Speaking of record highs, both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) set new records on the last trading day of the year. The Nasdaq Composite (see chart here) and the Russell 2000 (see chart below) also set records earlier in the week. Although stocks and indexes feel overbought, we are not seeing extreme overbought conditions according the the relative strength index also know as the RSI. There is also support in place at the 20-day, 50-day, 100 and 200-day moving averages. So technically speaking the key indices appear to be in good shape. This set-up bodes well for the continuation of the market rally that we are in.

Of course there are risks out there that could temper the record setting enthusiasm. One risk in particular is the upcoming runoff election in Georgia next week. If the democrats take control of the Senate, this could be viewed as a negative for stocks. The markets historically have liked when there is a split majority between the House and Senate. Pundits argue that a Democratic President and a Democrat controlled Congress could affect income and capital gains taxes that would negatively impact stocks. I am not sure if this will play out but nonetheless as we continue down this bull market path we should not be lullabied to sleep with the risks out there. Good luck to all ūüôā

~George

2021 Is Here - Paula Mahfouz

As Expected, New Market Highs Continue…

In my previous blog, I eluded to the notion that the bulls would remain in charge for the foreseeable future and sure enough, in charge they are. Last week, the Dow Jones Industrial Average (chart), the S&P 500 (chart), and the small-cap Russell 2000 (chart) all hit record highs while the Nasdaq (chart) continues to gravitate toward the 5000 level. This market has no quit. With the majority of the S&P 500 companies reporting their Q1 earnings, overall earnings growth was relatively good, topping expectations. Meanwhile, Fed Chair Janet Yellen stated at her biannual meeting with the Senate Banking Committee that the Fed will be patient before any change in interest rate policies and that guidance would be given prior to any such action. This, along with the no real surprises coming out of earnings reporting season and the U.S. labor market showing a continuation of job growth, without question has played a role in the continuing strength of the U.S. stock market.  

Okay, all clear right? Well, we all know there is always the other side to the story and markets do not go up in a straight line forever. Without many upcoming catalysts in March, or in any given time period where catalysts are few, I always refer to the technical shape up of the markets to see if overbought or oversold conditions exist. As you all know by now, one of my favorite technical indicators to gauge whether or not the markets are in extreme conditions, is the Relative Strength Index. If you go back historically and look at the¬†RSI indicator of any given stock or index, you too can see the reliability of this particular indicator when it reaches overbought or oversold conditions. Click on this link to get the definition of the RSI.¬†Now I am not saying to completely base trading or investment decisions off of this technical indicator or any other technical indicator for that matter. However, for me personally this has proven to be a trusted guide and I do include this analysis when viewing the current market environment. That said, we are beginning to look a little overbought and I am going to look for pullbacks before I entertain any new positions in equities. Good luck to all and I wish all a very prosperous month ūüôā

~George

Happy New Year!

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 ūüôā

All the best,

~George