Green day, but an off week…

Stocks eked out modest gains on Friday but for the fourth week in a row the major indexes lost some ground. For the week the Dow (chart) S&P 500 (chart) Nasdaq (chart) and the Russell 2000 (chart) retreated less than 1%. One meaningful technical indicator market technicians would highlight is that all of these indexes are hovering right around their 50-day moving averages. This is on the heels of the G.D.P. report issued on Thursday which indicated that economic growth is still very tepid and another report out indicating a jump in unemployment claims continued to add to the skittishness of the markets.

So far the “Sell in May” and go away adage is holding true to form but at least the retracement so far has been orderly and some market analysts would even say healthy. Now that Q1 earnings reporting season for the most part is over, what will be the next catalyst to move the markets? For now seemingly all eyes will indeed be on the upcoming economic reports in June via the consumer, the manufacturing indexes, the real estate market and the most critical component the job market.

Have a safe Memorial Day holiday ­čÖé

~George

Gold and Silver appear to have found some footing…

After a recent sell-off in commodities including gold and especially silver, these precious metals appear to have found some support. The metal of most interest lately has been silver. After an historic run only to be followed by drop of more than 30%, traders have been eyeing the $32.oo support level of the iShares Silver Trust symbol (SLV) chart. These shares track and reflect the price of silver and has been one of the hottest ETF’s this year. Technically, the SLV still has more work to do to resume its uptrend, however it is clear that some support has been found at these levels. I will be watching the $38.00 zone which is also the 50 day moving average to see how this ETF will behave should it lift back there in the near future. Even the more broader commodity tracking index (NYSEArca: DBC) chart seemingly has stabilized in the $29.00 zone.

This could be good news for the overall markets which have been under pressure over the past few weeks.

Have a great day.

~George

The trend continues…

Equities ended lower for a third straight week despite the blockbuster debut of Linkedin (NYSE: LNKD). The social networking company soared over 100% on its first day of trading but that wasn’t enough to lift the overall markets. The Dow (chart) finished the week off 93 points, the S&P 500 (chart) – 10 points, the Nasdaq (chart) gave up 20 points and the Russell 2000 (chart) retraced 6 points. With Linkedin’s opening act, some fear that the street once again is not in line with reality and that we are now in a bubble, especially with the social networking companies. This is carrying over into the overall market landscape which is fueling the negative market sentiment trend we have been in for a few weeks now. Couple that with the traditional summer market, and we could be setting up for an additional leg down.

I certainly do not anticipate the kind of May we had last year in where the market fell almost 8%, however I do think the technicals (blog) are being challenged now and I also think it is very important to demonstrate patience and prudence when considering opening new positions in stocks or commodities in the near term.

Have a great weekend ­čÖé

~George

Technicals are teetering…

From a technical perspective,┬áthe key indexes are seemingly breaking down. The Dow, S&P 500, Nasdaq and the Russell 2000 all have something to say. Let’s start with the Dow (chart). Although this index remains above its 50-day moving average, the RSI has broken through its 50 value level. The S&P 500 (chart) is hovering right around its 50-day and has also broken through the 50 value level on the RSI. The Nasdaq (chart) did break through its 50-day but managed to close above it today with a current value of around 44 on the RSI. Finally the Russell 2000 (chart), this index has actually broken down through its 50-day with an RSI value of around 42.

Why is the 50 day moving average technically important? Institutional investors and certain market technicians use moving averages as a metric for support or resistance. The same is true for the 50 value level or the mid-point of the RSI. Certain market technicians use this technical indicator as an overbought or oversold condition. Most agree that the 70 value level of the RSI is an overbought zone and that the 30 value level is an oversold zone. The reason the 50 value level or the mid-point stands out in the RSI is that certain market technicians use that value mark as a trigger point to go long or short an underlying index or equity. Technicals are not everything to everyone, however, they can be of assistance when navigating the market waters.

All the best.

~George

Tepid week…

Last week the major U.S. indexes were primarily down albeit modestly. The Dow (chart) finished the week off 0.34%, the S & P 500 (chart) -0.18% the Russell 2000 (chart) -0.28% and the lone winner of the group last week was the Nasdaq (chart) finishing up 0.03%. Of course the commodity space remains front and center with the enormous volatility that has recently come into that sector (NYSEArca: DBC) chart.

This upcoming week earnings will continue to come out of the retail space from the likes of Wal-Mart (NYSE: WMT) and Home Depot (NYSE: HD) and in the technology sector Dell (NasdaqGS: DELL) and ┬áHewlett-Packard (NYSE: HPQ) are also scheduled to report. On the economic front traders will be looking at oil inventories out on Wednesday along with FOMC minutes to see if there are any trading opportunities there. Let’s hope that this weeks data points can change the negative market sentiment that has seeped into equities lately.

Have a great week ­čÖé

~George

Commodity correction…

After a massive sell-off in commodities last week, volatility is still rampant in the sector. Let’s take a look at the PowerShares DB Commodity Index (NYSEArca: DBC) chart. This index tracks the likes of Oil, Natural Gas, Gold, Silver, Corn and Wheat, just to name a few. As you can see in the chart, over the past six months or so this index fund has gained over 30%, however, just over the past week or so the DBC has given back over 10% of those gains. Even more impressive out of this basket of commodities is Silver. Silver (NYSEArca: SLV) chart has given back ┬áa whopping 33% of its historic run. Has the underlying fundamentals of the commodity space changed so much in the last week or so?

As long as we continue to see growth in developing countries and the global printing presses remain on, I would expect that this correction is healthy for the space and is needed in order to resume its powerful uptrend. Here is the catch and a few prerequisites should you choose to enter or re-enter the sector: 1. You must have a strong stomach to endure the volatility that is inherent in commodities. 2. You must have a higher risk tolerance than most. 3. You must limit your losses should you enter this space and the trade goes against you in a meaningful way. Of course these are only a few disciplines one should adhere to when investing in any market and also one should always seek the counsel of a professional investment advisor before consideration.

Have a good evening.

~George

The perennial pattern…

Is it me or is it every time equities pullback lately they are met with significant support and then they resume their uptrend? Let’s take a look at the past six months performance of the Dow (chart), the S&P 500 (chart) and the Nasdaq (chart). Seemingly, every time a pullback or a mini sell-off has occurred, one way or the other stocks find support and then continue to rally. Another key indicator is the 50 day moving average, this technical indicator has also provided a support zone for most of the indexes. The old adage “the trend is your friend” has never rang more true then the market environment we have been in.

This has been a text book trending market and if you have played it this way, congratulations. However, I think there are just as many investors and traders especially on the short side that are scrathing their heads and cannot figure out why this market is so resilient. Once again whether you are in a bull or a bear market, market sentiment can become an overpowering force and it is usually best to not fight the tape. If you beleive that equities are a bit frothy, then you always have the choice to sit on the sidelines until opportunities come to you rather than you chasing them down.

Good luck to all.

~George

Jobs report buoys markets, for now…

A much stronger than expected employment report released on Friday helped fend off a market sell-off that occurred during most of the week. The private sector added 244,000 jobs in April well above the 185,000 that the street was expecting. This is one of the biggest corporate hiring binges in years which supports the notion that the overall economy is indeed improving. Stocks did advance in light of the employment report, however for the week the Dow (chart) fell 171 points, the S&P 500 (chart) was down 1.7% and the Nasdaq (chart) gave back almost 46 points.

In a bull market I think it is very healthy and even necessary for equities and indexes to pullback and consolidate before resuming its trend. However, when you have such a hot market especially in the commodities space and even more specifically the unbelievable run in silver, sell-offs tend to be more dramatic and unnerving. Now that volatility is increasing, this should serve as a reminder to not let the emotion of fear or greed get in the way of investment objectives.

As Q1 earnings reporting season winds down, more attention will be placed on the economy and the jobs market and it will be very interesting to see how the markets will set up for the end of the Fed’s quantitative easing program which expires at the end of June.

Have a great weekend ­čÖé

~George

Overbought conditions weigh in on the indexes…

Despite a stronger than expected report on Monday coming out of the construction sector and a higher reading from the ISM manufacturing index, equities and commodities for the most part have been trading lower. The question now is are we experiencing a market that is just tired and needs to consolidate for a bit, or is this something more? Even the consumer is showing signs of life according to MasterCard (NYSE: MA). The company came out yesterday and reported a very strong quarter with an earnings per share increase of 24% on the heels of cardholders spending more money. A much welcomed sight to see a more confident consumer. However, the markets seemingly have gone straight up over the past several months only to be met with occasional pullbacks.

If a consolidation pattern occurs with the indexes or commodities, a common investment thesis in this type of market is to implement a covered call program on your long positions. This is one way to generate income while you wait out a consolidating or sideways market. This strategy is complex and is not for everyone, so be sure to consult your professional financial advisor should you choose to consider such a strategy. Time will tell whether or not we are entering a period of consolidation and I will certainly be keeping my eyes open should it turn out to be something more.

Good luck to all.

~George

“Sell in May and go away”? Not so fast…

For those of you that have been investing in the markets for some time, you have undoubtedly heard the old adage “Sell in May” and go away. This premise is based on that most of the money ┬ámade in the markets typically occur from November through April and that the summer months are generally lower in volume, hence more volatility can occur. Well this summer may not hold true to form. After a blistering April where the Dow (chart) surged almost 4% for the month, the S&P 500 (chart) rose almost 3%, the Nasdaq (chart) climbed over 3% and the benchmark for small-caps, the Russell 2000(chart) closed at all time highs. Could this current momentum carry over into May and possiibly throughout the summer?

The bullish case for the continuation of this incessant rally is as simple as how strong corporate earnings are and that the Fed is showing no signs of hiking interest rates anytime soon. This is a one-two punch for the bulls. The bearish case is that the markets are technically overbought and that the underlying fundamentals of the economy do not justify multi-year highs in a variety of asset classes.

This upcoming week promises to be filled with more transparency pertaining to the health of the economy and corporate America. A slew of economic reports are due to come out from construction spending to factory orders as well as the closely watched non-farm payroll report due out on Friday. Also, earnings from Visa (NYSE: V) and Mastercard (NYSE: MA) should shed some light on the health of the consumer.

Have a safe and prosperus week.

~George