2021 Is Here…

Posted on by George Mahfouz

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 🙂

~George

2021 Is Here - Paula Mahfouz

Stocks Have Gone Wild!

Posted on by George Mahfouz

Stocks have gone wild since the election with the Dow Jones Industrial Average (see chart here) breaking the 30000 level for the first time ever last week! This morning the S&P 500 (see chart here) hit its all time high trading above 3660. The Nasdaq Composite (see chart here) is also trading at its all time high and the small-cap Russell 2000 (see chart here) has also recently hit an all time high.

So why all of this love for stocks while we are in such a tumultuous time? I think it is safe to say that the Federal Reserve continues to play a major role in this never ending rally. Essentially zero percent interest rates, massive stimulus packages along with asset purchases remains the top catalysts for these record setting ways. The ironic part of disasters and catastrophes is the willingness and capabilities of central banks to step in to offset the negative economic impact of such catastrophes. COVID-19 has shocked the world and has lead to widespread unemployment, while devastating businesses and industries alike. Never before have we seen such widespread effects on life as we know it. The good news now is there is light at the end of the tunnel. The recent news on the advancements with vaccines and their effectiveness is very encouraging. Some pundits are now saying we could be at herd immunity by the summer of 2021. Let’s hope this is the case.

Now this is where things can get tricky for the markets. As the light at the end of the tunnel gets brighter, what happens when the Federal Reserve begins to change its stance on accommodative policies? The Fed backstop will not last forever. The risk here is that when the Federal Reserve signals a change in direction, it is then that the markets will become more tethered to actual corporate earnings power. So if you stay long this market or if you are adding on new positions, it would be a good idea to make sure you are invested in companies and sectors that have earnings power and continuing growth prospects.

Good luck to all 🙂

~George

Two Days To Go…

Posted on by George Mahfouz

It’s two days to go before our country’s Presidential election takes place. I think most everyone now is exhausted by the process. How many more commercials can be displayed? How many more rallies can we take? What’s more is I think we have all had enough of the bashing and trashing that is going on and quite honestly this type of behavior is unbecoming of our great nation. Thank goodness this is almost over.

What has impressed me the most is how the markets have held up especially with all that is going on in our country. Yes, over the past couple of weeks the major averages have had a noticeable pullback. However, with the election at the forefront of everyone’s minds and the pandemic reaching all time highs, I have to ask myself why haven’t we seen a 20% or more correction? Instead we find ourselves in the midst of a 7-8% pullback. One of the answers very well may be how the averages are responding to their key technical support levels. Let’s first look at the Dow Jones Industrial Average (see chart here). On Friday, the Dow Jones on a intraday basis temporarily breached its 200-day moving average which is at the 26263 level. Then this bellwether average bounced sharply off of its support to close at 26501. Time and time again we have seen how important key support levels are to the markets and this was text book action pertaining to support levels at work. Friday was the perfect intraday response in how the Dow Jones Industrial Average responded to its 200-day moving average.

Now let’s take a look at the Nasdaq Composite (see chart below). On Friday, the Nasdaq essentially closed right at its 100-day moving average. So we will see this week whether or not this particular support line holds true to form. There are instances to where I have seen support levels breached for a few days or so and then respond. Whatever the case is, I am impressed with how the overall markets have weathered the backdrop of the current environment we find ourselves in.

Good luck to all 🙂

~George

Two Days To Go - Paula Mahfouz

 

 

Stimulus Package Chatter Buoys Markets…

Posted on by George Mahfouz

Yesterday, the lastest round of stimulus package chatter came out of Washington which helped buoy our markets. The Dow Jones Industrial Average (see chart here) closed the month of September out at 27781, the S&P 500 (see chart here) finished the month at 3363, the Nasdaq Composite (see chart below) closed at 11167 and the small-cap Russell 2000 (see chart here) finished at 1507. Although stocks had a strong close to end September, the month of September was a net negative for the markets. No question the uptick in COVID both here and abroad has put some pause to this bull market rally. Quite honestly, I think stocks have held up pretty well despite the ongoing pandemic and the constant tape bombs coming out of Washington.

Fast forward to today and we are now a month away from our Presidential election. I have got to believe that we are heading into more volatility than what we experienced in September. I think whoever watched the first Presidential debate would agree. In addition to the upcoming election, we are also heading right into Q3 earnings reporting season. Corporate America will be releasing their third quarter financial results over the next 45 days or so and that alone can create higher volatility. I am not sure what to expect when companies report their numbers and even more so how companies provide their forward looking guidance on their conference calls. Whatever the case is, I think it’s fair to say we will not be trading sideways here in the month of October.

Let’s take a gander at the technical shape of the aforementioned indexes. What has impressed me lately is how the Dow Jones Industrial Average (see chart here) found support near its 200-day moving average and more recently its 50-day moving average. The same can be said for the other major averages in how they too have found support at their respective moving averages. What’s more is these key indices are no where near overbought territory according to the relative strength index aka the RSI. So from a technical analysis standpoint, the markets look to be on solid footing.

Good luck to all 🙂

~George

Stimulus Package Chatter Buoy Markets - Paula Mahfouz

Are The Indexes Out Of Balance?

Posted on by George Mahfouz

With how hot tech stocks have been lately, one has to ask are the key indexes out of balance? Let’s take a look. It is no secret tech stocks have been on fire, the Nasdaq Composite (see chart here) has been setting records weekly. Stocks like Tesla, Apple and Amazon continue to set all time highs. Price to earnings ratios aka the P/E ratio are also expanding to levels not seen since the tech bubble of the early 2000’s. I am not suggesting that tech as a whole is in a bubble, but there can be an argument that certain tech stocks are. I am not singling out Tesla at all, but what I am highlighting is the company’s eye-popping 1000 + P/E ratio. The price to earnings ratio is a metric for valuing a company that measures its current share price to its earnings per share. For example the S&P 500 typically trades in the 15-20 P/E range. Yes, a 15 to 20 P/E multiple is the historic price to earnings multiple that the S&P 500 trades at. So when you look at Tesla and see that this company’s P/E ratio is currently over 1000, it does bring pause and perspective into the mix.

Back to the indexes that appear to be out of balance. As the S&P 500 (see chart here) and the Nasdaq Composite (see chart below) continue to set records, the majority of stocks have not returned to their pre COVID highs and still remain down on the year. This to me is something to pay attention to. Sure, some tech stocks deserve their current valuations due to how they are growing and benefiting from the widespread lockdowns. Tech stocks and the technologies they provide are serving businesses and consumers alike in a way no one would of thought of before the pandemic took hold of our country. However, even stocks like Apple have high seen quite the expansion of its P/E multiple which is currently trading at 39. Bottom line for me, as we are setting records each week, I would prefer to see a broader base rally to ensure that we are not out of balance with each and every record that is being set.

Good luck to all 🙂

~George

Are The Indexes Out Of Balance? - Paula Mahfouz

 

 

Big Tech Blowout!

Posted on by George Mahfouz

Big tech steals the show with blowout earnings results. Apple (NasdaqGS: AAPL), Amazon (NasdaqGS: AMZN) and Facebook (NasdaqGS: FB) all took the street by surprise with their upside earnings reports. For Apple, in addition to their blowout earnings, the company announced a 4-1stock split. This was more than enough for Apple to close up over 10% yesterday at an all time high of $425.04. Apple’s earnings came in over $2.00 per share on revenues just shy of $60 billion. Stunning numbers considering the backdrop that our country is currently in. When I look at what Amazon did, I am equally if not more impressed especially with how they grew their revenues. It’s hard to believe a company of this size grew their revenues 40% to almost $90 billion on the quarter. Without question Amazon has benefited more than any other company due to the pandemic. Consumers have flocked to online shopping more now than ever. Last but not least, let’s look at what Facebook did. Despite experiencing ad boycotts by some of the biggest brands in the world, Facebook managed to grow ad revenues by over 10% and grew earnings by almost 100%. I don’t think anyone expected these type of quarterly results from this group with all things considered.

Let’s take a gander at the major averages and how they are looking from a technical standpoint. The Dow Jones Industrial Average (see chart here) closed the week at 26428.32. When I look at the chart of the Dow, this index is not overbought according to the (RSI) and the Dow closed right around its 20-day and 200-day moving averages. The S&P 500 (see chart here) closed at 3271.12 and this index bounced off of its 20-day moving average with perfection. The Nasdaq Composite (see chart here) has been the big winner so far this year and technically speaking this index could potentially keep running. Heck, i’d be ok if it paused and consolidated a bit because of the run its been on. The other index that I keep an eye on is the small-cap Russell 2000 (see chart below). Speaking of consolidation, that is what appears to be happening with the Russell 2000. This index has been trading sideways for the past week or so and is trading consistently above its 20 and 200-day moving averages during this consolidation period. So all in all the aforementioned indexes appear to be on solid ground from a technical analysis standpoint.

In closing, despite the current shape of the market, the month of August historically tends to be a volatile month. Couple this with the upcoming Presidential election and we could be in for a wild ride between now and election day.

Good luck to all 🙂

~George

Big Tech Blowout - Paula Mahfouz

The Best Quarter For The Major Averages In Decades!

Posted on by George Mahfouz

We just witnessed the best quarter in the major averages in decades. Yes folks it is hard to believe that stocks are performing the in way that they are with all things considered. The Dow Jones Industrial Average (see chart here) is trading near the 26,000 level, the S&P 500 (see chart here) is trading this morning at the 3,120 level, the Nasdaq Composite (see chart here) is back over the 10,000 mark and the small-cap Russell 2000 (see chart here) is trading in the 1,450 zone.

The strength of stocks in general is one for the ages. I don’t think anyone would of thought that the markets would continue to show this type of resilience especially with the backdrop of our current unemployment picture and with Covid continuing to run rampant. The only logical reason as to why the Dow Jones Industrial average is not sub 20,000, has to be the continuing liquidity that is coming into the markets provided by Federal Reserve and the government stimulus packages that have launched since the crisis began. Of course there are select tech and pharmaceutical companies that are directly benefiting from the new world we find ourselves but I didn’t expect to see such a wide swath of stocks doing well in this current environment.

Now that the 3rd quarter of the year has begun I think all eyes will begin to focus on second quarter earnings results which kicks off next week. What’s even more important in my eyes is the energy, spirit and guidance that comes out of companies during their earnings conference calls. I am expecting companies to either pull their future guidance or lower earnings expectations, we shall see. Another catalyst that I expect to play a role in how the markets will fare here in Q3 is how the Presidential polls continue to unfold. Currently Joe Biden has a double digit lead over Donald Trump. Some pundits are saying that the markets are beginning to price in a Biden win. Candidate Biden has already stated that he will raise the capital gains and corporate taxes should he become President. If this is the case, higher taxes would negatively affect net earnings but this scenario could be offset by other positive geo-political factors should Biden win.

Good luck to all 🙂

~George

A Breakout Or A Fake-out?

Posted on by George Mahfouz

The major averages seemingly are on the verge of a breakout, or could it be a fake-out? The Dow Jones Industrial Average (see chart here) has recaptured the 25000 level. The S&P 500 (see chart here) has recaptured the 3000 level. The Nasdaq Composite (see chart here) believe it or not is in striking distance of its all-time high and the small-cap Russell 2000 (see chart below) is also setting up for a breakout on its own. It is beyond impressive how the markets have come roaring back since late February. There are certain pundits out there that believe that this is a classic bear market rally however to me it feels like more than that. I have to believe that one of the main reasons why stocks have come roaring back in such a short period of time is the $ trillions of dollars in liquidity that the Federal Reserve and our government has injected into the markets and the economy. In fact, the Federal Reserve has quietly indicated that it is possible that they themselves would buy stocks if needed. Talk about establishing a floor in the stock market!

Another key development in the markets is how strong the technicals look right now. Without a doubt the leadership group of this recent rally is the Nasdaq Composite (see chart here). Tech stocks have benefited the most due to the lockdown. There are more people online than ever before, hence more sales accordingly. Since mid-April, not only has the Nasdaq cleared its 200-day moving average, it also has cleared its 50, 100 and 20-day moving averages. So now the Nasdaq is trading above all of its key moving averages which is bullish. Furthermore, the Dow Jones Industrial Average (see chart here) the S&P 500 (see chart here) and the small-cap Russell 2000 have also broken above some key technical resistance levels. Another technical indicator I look at the relative strength index also known as the RSI. At this point in time the aforementioned indexes are not in overbought territory. The RSI is a momentum indicator and when the value level of the RSI goes above 70 stocks or indexes begin to become overbought. This is currently not the case.

Good luck to all 🙂

~George

A Breakout Or A Fake-out - Paula Mahfouz

 

A Stunning Comeback!

Posted on by George Mahfouz

Stocks pulled off one of the most stunning comebacks in recent memory. Despite Covid-19’s rapid acceleration which is afflicting millions, the stock market made one of the sharpest and quickest recoveries off of the bottom we hit in late March. The Dow Jones Industrial Average (see chart here) gained over 11% in April, the S&P 500 (see chart below) posted a 12.7% gain, the Nasdaq Composite (see chart here) closed up over 15% and the small-cap Russell 2000 (see chart here) posted a whopping 22% gain in the month of April. Let’s not forget we are still off of the all time highs set earlier in the year but I don’t think anyone expected the magnitude of the rally that we just witnessed. There is no question that hopes of re-opening the economy and the latest advancements on therapeutic treatments and vaccines also played a role in the April rally.

Let’s look at it deeper than the just scientific advancements. The Federal Reserve actions and the recent stimulus packages issued by our government has also played a significant role in the eye-popping rally. With all of constant news flow and developments that comes out on Covid, I do think it is hard to realize how impactful the government stimulus packages and the new Federal Reserve stance is and what it does mean to the economy and markets now and going forward. I think it is fair to assume that once there is a definitive and stabilizing solution for the Covid crisis, that our economy and markets should have no problem taking off again. Until then, let’s all pray for a rapid solution to this ugly virus that has wreaked havoc on society. I do believe and have always believed in humanity and for science to lead the way.

Let’s take a quick look at the current technical shape of the the key indexes. We can all expect the markets to pull back after such a sharp bounce back rally. This is the case as I write my blog today. The markets are pulling back to their 20-day moving averages. Typically the 20-day, 50-day and especially the 200-day moving average acts as near term support levels. Let’s see if the current 20-day moving average holds as a near term support level as we head into the weekend.

Good luck to all 🙂

~George

A Stunning Comeback - Paula Mahfouz

 

 

THE Black Swan Event!

Posted on by George Mahfouz

Albeit extremely rare, the Black Swan Event of our lifetime has occurred. Our world has experienced shocks in the past but nothing like what we are seeing today, at least from a humanitarian standpoint.

Whether it was the crash of 1987, the savings and loan crisis in the early 90’s, the dot-com bubble, none of these storms pale in comparison to the scope and breadth of COVID-19. Of course 9-11 was an extremely tragic moment and event in time which we can compare and which also affected 1000’s of people from around the globe. We will never forget the men and women who lost their lives and the first responders who served in the 9-11 tragedy. The same rings true today, we will never forget the people who have lost their lives and the ones that have been stricken with this unprecedented disease. We also cannot be thankful enough to the men and women who are serving the front lines today in attempt to save peoples lives and who are treating the sick.

My thoughts and prayers go out to all and I also pray that everyone joins in to not only help where they can, but to also follow the guidelines of self isolation and social distancing. Please follow these critical rules and guidelines.

There will be no market analysis or market opinions today.

~George