Don’t look now but the end of the first quarter is upon us which also means first quarter earnings reporting season is right around the corner. This could be the next significant market catalyst in determining whether or not equities can make new 52 week highs? As impressive as this 2-year bull run has been, at some point and time market valuations will have to align with what corporate America can earn rather than relying on the extraordinary support of the federal reserve.

In this type of environment it is essential to identify companies with top-line growth as well as avoiding companies that are experiencing operating margin contractions. This will not only be quite the balancing act for the federal reserve as to when to let the markets fend for themselves, but also for investors and how diligent they are when making investment decisions.

Good luck to all.

~George

Dow chart up 3.05%, Nasdaq chart up 3.8%, S&P 500 chart up 2.7%. For market technicians another highlight is that all three indexes are trading above their 50 day moving averages. The short sellers must be asking how is this possible considering all of the headwinds here and abroad? I don’t even think the bulls expected this type of market rally considering the economy and the recent geopolitical conditions. This indeed must be one of the most teflon markets in memory as investors keep riding this seemingly unstoppable bull.

Next week there will be no shortage of economic news with personal income and spending released on Monday, followed by consumer confidence on Tuesday and all eyes will be on the non-farm payroll report on Friday. In addition, the first quarter is ending this upcoming week and the markets could be affected by the end of quarter window dressing. Window dressing is a strategy used by some mutual funds and portfolio managers to improve the appearance of their funds performance. This occurs when fund managers sell stocks with large losses and purchase momentum stocks near the end of the quarter.

Needless to say we should be in for a very interesting and potentially volatile week ahead.

Have a great weekend 🙂

~George

Over the weekend we covered the Volatility Index (Chicago Options: $VIX chart) and how this index has almost doubled in price over the past month due to the ongoing tumult in the world. This metric is best known for investor sentiment as it pertains to fear and market expectations. Seemingly the markets are becoming more confident as the nuclear risks in Japan appear to be abating, hence the VIX chart is now below 20 once again. Over the past four trading days the three leading indexes have all rebounded respectfully with the Dow actually moving above its 50 day moving average. Dow chart, S&P 500 chart, Nasdaq chart.

Equities continue to demonstrate remarkable resiliency despite the geopolitical climate we are in and the unfortunate tragedy in Japan. Having said this, I expect to continue to see markets very volatile as almost everyone is paying close attention to the headlines and outcomes. As investors and especially in times like these, patience and discipline is always one of the best policies.

~George

Also known as the fear gauge. In February (blog) we spoke about not getting too complacent and assume that this 2 year bull run would just continue to go without interruption. We also spoke about the VIX and how this widely followed index was trading well below 20 and as low as 15, which is an indication of how confident investors were back then. Fast forward to today, and now let’s take a look at the chart of the VIX chart. Clearly you can see that just in the past 3 weeks or so how much volatility has increased with the VIX index nearly doubling in price. So what does this mean? In hindsight it was obvious that the market was overdue for a correction and all it needed was a catalyst to correct.

Certainly the Middle Eastern crisis could of served as “the catalyst” and in fact volatility did indeed increase due to the Egyptian and Libyan crisis, but unfortunately it took the tragedy in Japan to enact the real catalyst for this current market correction we are in.

Once again history repeats itself as it pertains to the VIX index, and the lesson is that any extended period of time the VIX trades below 20 and in this case it was almost 4 months, the market usually is due for some type of correction.

All the best,

~George

Equities endured yet another day of selling as the Japan crisis takes hold. It’s hard for me to even write about the markets in the midst of one of the most serious global catastrophes in years. That said, in this type of market environment and with all of the uncertainty that exists overseas, it is probably a good idea to be as patient as possible and not panic. For now, the best thing we all should do is provide our support and prayers to all of the people that have been and are continuing to be affected by this calamitous tragedy.

~George

Although equities eked out gains on Friday, the bellwether indexes pulled back about 1% with the tech-heavy Nasdaq getting the brunt of it closing off over 2% chart. I think most market participants want to see what happens over the weekend pertaining to the Middle Eastern crises and how oil continues to fare. Recent economic data has provided some hope of a turn-around. For the most part, equities have performed exceptionally well considering all of the geopolicital concerns and economic headwinds occurring in Europe and now seemingly in China.

This coming week should be no exception to the recent volatility that the markets have been experiencing, especially when you add quadruple witching hour on Friday.

Have a safe and prosperous week 🙂

~George

Equities got walloped today as weak economic news hit the wire along with the continuing turmoil in the middle east. What’s more is the Dow chart, the S&P 500 chart and the Nasdaq chart all have broken through and closed below their 50 day moving averages. On Sunday’s blog we spoke about “the moving averages” and how this is a technical analysis tool utilized by many market technicians and institutional investors. For the better part of 6 months these leading indexes have managed to comfortably trade above their 50 day and significantly above their 200 day moving averages. So what does all this mean? Well the coming days will tell us whether or not this was a one day violation of the 50 day or if this is the beginning of a extended sell-off?

I think for now the markets will continue to be hyper-sensitive to the incessant data and news flow especially out of the middle east. Patience is key especially in an emotional market like the one we find ourselves in.

Have a good evening.

~George

Back in January we discussed technical analysis (blog) and in particular the Relative Strength Index also known as the RSI. There is another metric that market technicians use and even some institutional investors pay close attention to and that is “the moving averages“. The moving average is a technical analysis that measures the average price of a stock or index over a specific period of time. The actual time period that is plotted depends on the trading or investing style of the technician/investor. The most common time periods are the 20 day, 50 day and the 200 day, however, one can plot any other time period of their choice between the 20 and 200 day. So why is this important? As previously mentioned, some of the big institutional investors use this analysis (amongst other tools) to assist them in making entry and exit trades.

Let’s take a look at the most recent Nasdaq chart as a textbook example. You can see that when the Nasdaq had a sharp sell-0ff the week of February 22nd, it held the 50 day moving average. In fact, after it held support at the 50-day trend line on February 23rd and 24th, it proceeded to rally the next two days before another sharp one day sell-off. Once again the 50-day moving average provided the necessary support to keep the Nasdaq trading above its 50-day. It is clear to me that certain institutions and certain market technicians relied on this metric to deploy capital into the Nasdaq.

Once again this is a textbook example of how technical analysis can assist you in your trading or investment strategies. However, there are many times that the “moving averages” fail to hold their selected levels. Also, please note the keyword “assist” for there are many other factors and tools that market technicians consider. It is also important to remember that most market technicians prefer not to get too complicated with technical analysis and that is why I have highlighted two of the most popular indicators.

Have a healthy and prosperous week.

~George

Yesterday when the weekly unemployment claims were announced at nearly three year lows, the bellwether market indexes embraced the data by surging nearly 2%. Fast forward to this morning, the February jobs report was also very strong with the unemployment rate falling to 8.9%. This is the first reading below 9% since April 2009. In addition, the private sector added 192,000 jobs which was above market expectations of 185,000.

Okay so we continued to rally today, right? Not so fast thanks to 0il spiking to $104+ per barrel and the ever increasing prices at the gas pump. These two key economic factors weighed in on equities today with the Dow falling 88 points chart, the S&P 500 giving up almost 10 points chart and the Nasdaq retreating 14 points chart. These indexes did however come off their session lows.

I am still very impressed with how buoyant most equities have been considering the ongoing crises in the middle east. It is also encouraging to see stronger economic data coming out and hopefully this trend continues.

Have a wonderful weekend 🙂

~George

February was a month where we witnessed extreme geopolitical turmoil in Egypt, Libya and throughout the middle east. It was also a month in where oil spiked to over $100 a barrel, hence the markets experienced its first real pullback that many pundits had been anticipating. However, this micro-correction was met with the perennial support equities and indexes have been accustomed to over the past several months. For the month of February the Dow closed up over 2.8% chart, the S&P 500 closed the month up 3.2% chart and the Nasdaq finished February up over 3% chart.

Resilient is an understatment considering the economic and geopolitical environment we are in. That said, historically markets tend to be forward looking mechanisms and just maybe the markets are trying to tell us something? I am expecting that March will be somewhat of a volatile month especially with the ongoing developments in the middle east and the uncertainty of the price of oil.

Good luck to all.

~George