Finally!

This week the markets gave what market technicians have been looking for, and that is, a pullback! After three days of a sell-off which was long overdue, equtites for the most part held true to form and closed the week on a high note. Let’s take a look at the chart of the S&P 500 Index chart. By looking at the candlesticks on the daily chart you can see from Tuesday through Thursday the retracement that occurred. I was paying closer attention to the RSI technical indicator at the top of the chart as it broke down through the 70 value(overbought) level. Notice how it approached the 50 or so value level and traded around there. Most technicians view this level as confirmation as to the continuing direction or a turning point, in fact they will use the 50 value level as the actual “trigger” to put on their position. So had the RSI continued through 50, certain traders and technicians might of put on some sort of short position(same principle applies to an oversold condition). The fact that it held and turned up certain traders and technicians might of put on some sort of long position. Please note this is technical analysis only and does not consider macro factors.

Time will tell whether today’s action was a head fake or not. I think that question will be answered over the coming weeks with all eyes on the geopolitical turmoil in the middle east and the future price of oil.

Have a great weekend 🙂

~George

Try not to be lulled to sleep…

When there is a market environment such as the one we find ourselves in, it is easy to get complacent and comfortable in the assumption that your portfolio will continue to climb uninterrupted. Who can blame you for thinking this way for that’s exactly what has been going on. Another metric which confirms how fearless the markets are is the Volatility Index, otherwise known as the VIX. This index measures the amount of fear or lack thereof as it pertains to investor sentiment looking out 30 days. For months now the VIX index chart has stayed below 20 which historically is a sign of a courageous and overwhelmingly confident marketplace.

Indeed this rally can continue and most probably will, point being it best to remember that historically equities, commodities and indexes whether they are in a bear or bull market, usually pause and or reconcile at some point and time. By no means is this a bearish call, just a friendly reminder of not getting too comfortable or complacent. 🙂

Have a safe and prosperous week.

~George

It’s Parabolic!

When stocks or indexes go parabolic it is like a freight train with no brakes. Yet another week of multi-year highs for the bellwether indexes with the S&P 500 now more than doubling from the crash of 2008. Take a look at the parabolic moves on the charts of the big three: Dow Jones Industrial Average chart – S&P 500 chart – Nasdaq chart. Now if you have been long this market there couldn’t be a prettier sight.

However, even the pros are finding it difficult to invest in this type of market. When equities or indexes have these types of parabolic moves, it’s hard to put new money to work because of the seemingly overbought conditions and expectations of a pullback. Also it’s hard to stay in cash for no one wants to miss out on this extraordinary bull run. And finally how in the heck could you ever short sell this kind of market?

So what in the world does one do? One thing I have learned through the years is that sometimes it’s better to be patient than to speculate on what’s next. This could be one of those periods in time where it’s best to simply do nothing and wait for some type of catalyst before you act.

Have a great weekend 🙂

~George

Okay a little Breather

The Government came out this morning and reported a 0.3% increase in retail sales for the month of January. This marks the seventh straight month of an increase however, this was far less than what economists expected, hence the markets retreated. Albeit a very modest pullback for the bellwether indexes. I think for most of the bulls out there this is just fine. I have been saying for sometime that pullbacks and even reasonable corrections are very healthy for a continuing bull market. We simply have not gotten a meaningful pullback or correction over the past several months and I think from a technical perspective that would be a welcomed sight.

Having said this, in one of my previous blogs I referred to the need for top-line growth out of corporate America as one of the key factors for the current market rally to continue. With the bulk of the 4th quarter earnings reporting season behind us, it seems like revenues are picking up and businesses are not just relying on cost cutting measures and layoffs to fuel their bottom line. With top-line sales growth beginning to surface, just maybe this translates into job growth which should bode well for this market.

All the best 🙂

~George

A Sea of Green…

Yet another week of gains for the stock market. For the week the Dow Jones Industrial Average closed up 1.5% at 12273, the Nasdaq gained 1.45% to close over 2800, the S&P 500 tacked on 1.39% to close at 1329 and the small cap barometer Russell 2000 Index finished the week with a 2.75% gain wrapping up at 822.

These gains occurred despite a tepid outlook from Cisco Systems (NasdaqGS: CSCO) which reported disappointing earnings and provided weak guidance after the close on Wednesday. Now in the past whenever this bellwether has provided a softer outlook the markets typically would of reacted negatively. But not this amazing bull market, seemingly nothing can spook these markets. That’s spooky in itself. The pundits are also referring to the statistic that the 3rd year of a Presidential cycle is historically a double digit year of gains in equities?

Call it what you will but for me this is simply amazing. Be careful, it’s probably best not to get too caught up in historical data, however there is no denying this bull market right now.

Have a great weekend.

~George

What about Gold?

As stocks continue their torrid pace let’s take a look at gold. Gold sold off sharply a couple of weeks ago as investors became more confident about the health of the global economies. In one of my previous blogs I spoke about a technical indicator called the “Relative Strength Index” or the RSI. This is one of the preferred indicators utilized by certain market technicians. Now let’s analyze an example of an oversold asset at least as it pertains to the principles of the RSI and in this case the most popular ETF that tracks the movement of gold, symbol: GLD chart.

At the top of the chart you will see a plot of the RSI and right around the end of January the GLD closed in the $128.00 per share range. In that same time frame the RSI fell to the 30 value level which is an oversold level according to the RSI. Since falling to that level, the GLD has move back up almost 5% to close at $133.14 today. A market technicians dream, a classic example how this powerful tool can be when making trading and investing decisions.

Please remember that this is a text book example that worked to perfection, however equities or indexes can stay oversold  or overbought for extended periods of time. Also the RSI values can breach the 30(oversold) or 70(overbought) value level and can continue to even further decline and stay oversold or increase and stay overbought. Point being, the pundits suggest to use more than just one indicator when including a technical analysis approach. Going back to the chart of the GLD you will notice at the bottom of the chart a plot of the MACD. Certain market technicians will look for confirmation of the RSI with the crossing of the moving averages and in this case the cross occurred a few days ago.

Having said this, I am not recommending to buy gold or the GLD, however I do want to illustrate how technical analysis can assist when considering trading or investing.

Have a great evening.

~George

Big week for Stocks!

So what else is new? The Dow finished the week up +2%, the S&P 500 up almost 3%, the Nasdaq up +3% and the Russell 2000 also up +3%! Furthermore, this impressive market action is occurring in an anemic economy as evidenced by this mornings jobs report in where only 36,000 net jobs were added in January. That number was far less than 145,000 jobs that the pundits expected for the month.

The fact that the market did not continue to sell-off from the geopolitical turmoil in Egypt is one thing, but I don’t think anyone expected a green close today with such a soft employment number? Bottom line, you can’t ignore how strong corporate earnings have been, the power of the momentum in this market and the power of the Fed and the floor that they have put in.

Earnings will continue to come in next week and I will be very interested to see what Cisco Systems (NasdaqGS: CSCO) reports on Wednesday. I will be even more keen as to how John Chambers the CEO of the company sees the health of the economy from his vantage point, for the markets have historically payed close attention to his view. Good luck to all.

Have a great weekend 🙂

~George

Markets blast off on economic data and corporate earnings!

So it was only a blip… The question this past weekend was Friday’s sell-off a blip or the beginning of a correction? Concerns surrounding Egypt is being overshadowed by how strong corporate profits are and this mornings ISM report which indicated that the U.S. manufacturing sector expanded in January at its fastest pace in seven years. The Dow Jones Industrial Average and the S&P 500 index closed above their key psychological levels of 12000 and 1300 respectively. However, this bull would of preferred to see more of a healthier correction rather than just a one day sell-off. But what can you say when the hard data is increasingly positive both on the corporate front and now seemingly on the economic back drop as well.

The geopolitical climate is still something to be very cautious of especially if contagion were to occur in the Egyptian region. We could still be in for a more meaningful correction, but until then it seems like the old adages of “the trend is your friend” and “don’t fight the tape” are in full play.

All the best.

~George