Not since 1932 had the markets suffered such a sharp decline the week of Thanksgiving. Although volume was relatively light, the Dow Jones Industrial Average (chart) on the week fell 564.22 points or 4.85%, the Nasdaq (chart) -130.92 or 5.1%, the S&P 500 (chart) -56.98 or 4.7% and the Russell 2000 (chart) -50.64 which was a whopping 7% decline.

In today’s world, we do live in a global economy, but are we that tied to Europe? For weeks now every single headline that comes out of Europe seemingly jolts our market. What is being overlooked here by investors is the improving U.S. economic data points from the consumer, all the way through to the manufacturing sector. This is causing some analysts to revise up their future growth forecasts. However, market participants are fixated on when and what the European Central Bank will do to begin to solve the credit crisis in the Euro Zone. Until then, I would expect extreme volatility in our markets to continue.

This week also marked the break of the 50-day moving average on the S&P 500 (chart). Now, certain market technicians are looking for the 1150 level of the S&P to hold. Also, when you take a step back and analyze what has occurred over the past four months or so, what’s new? This market has been extremely volatile and has traded in a 16% or so trading range since early August. So as long as the S&P 500 or other indexes remain range bound, there can indeed be long and short opportunities at both ends of the range.

Have a great weekend 🙂

~George

Stocks took it on the chin this week as the markets continue to digest the constant flow of news out of Europe. The Dow Jones Industrial Average (chart) fell 2.94%, the Nasdaq (chart) -3.97%, the S&P 500 (chart) -3.81% and the Russell 2000 (chart) -3.39%. This despite some positive U.S. economic news released earlier in the week regarding the consumer, and Friday’s report by the Conference Board on its index of economic indicators, which is bullish.

Separate from all of the headlines that we are bombarded with on a daily basis, I always keep an eye on how the markets look from a technical standpoint. Right now it appears that we are continuing to trade in an extended trading range. Historically speaking, the longer indexes or equities trade in an extended range, the more explosive the breakout will be. Let’s take a look at the S&P 500 (chart). As you can see, since early August this bellwether index has essentially traded between 1100 and the 1275 level. Both ends of this range has been tested multiple times only to stop and reverse its course.

The S&P 500 now is testing it’s 50-day moving average and should that hold true to form, we could easily see ourselves testing the upper end of the trading range once again. Should the 50-day fail and the S&P breaks down below it, there is a strong likelihood that we would revisit the bottom end of the range or 1100 level. I am looking forward to the day that this market experiences a true breakout. That would make the trading picture a lot more clearer, which would give investors and traders alike, a more definitive view at least from a technical perspective.

Have a great weekend 🙂

~George

After yet another scare out of Europe on Wednesday when Italian bond yields hit a record, U.S. stocks managed to close out the week on Friday with impressive gains. The Dow Jones Industrial Average (chart) closed up 259.89 points, the S&P 500 (chart) +24.16, the Nasdaq (chart) +53.60 and the Russell 2000 (chart) +19.13.

What seems to be working over the past several weeks is whenever there are tape bombs coming out of Europe, and the markets here react negatively, buying opportunities are abound. I cannot remember a time when we have had 300-400 point down days in the Dow Jones Industrial Average (chart), only to rebound within the next day or so and regain all of the daily losses that just occured. Historically, when any major index loses three or four percent in a given day, it usually takes weeks if not months to recover from. Not the case in today’s markets, which makes investing and in particular trading a very arduous task.

We have a about six weeks left in the year and I see no alteration in the trading patterns that have come into the markets since the summer. It is possible that year end window dressing could break us out above the 1300 level on the S&P 500 (chart), however, if any additional shockwaves come out of Europe, we could easily find ourselves back at the 1200 level on the S&P. That said, should we experience any significant pullback, I will be keeping an eye on the energy and tech sectors for potential opportunities.

Have a great weekend 🙂

~George

U.S. stocks finished lower on the week as the ongoing crisis in Europe forges ahead. What didn’t help matters is that earlier in the week Greek Prime Minister George Papandreou tried to back out of the deal that the EU consummated just days prior. This sent our markets tumbling on Tuesday and helped create yet another volatile week. The Dow Jones Industrial Average (chart) closed down on the week 2.0%, the Nasdaq (chart) -1.9%, the S&P 500 (chart) -2.5% and the Russell 2000 (chart) -1.9%.

So how can anyone cogently understand how to trade or invest in this environment knowing that any point and time news out of Europe could jolt the markets in either direction? To answer that question you must first understand the type of trader/investor you are. If you are a long term investor (5 years or more) it is not too hard to find solid companies within the S&P 500 or any other major exchange to consider investing in. Simply go to a subject company’s balance sheet, look at their cash position, debt load and growth rate and you will be surprised at how many companies there are that have boatloads of cash, no debt, paying a dividend and are growing respectfully.

You must do some homework in finding these gems, but this is not too difficult. To me no matter what the day to day, week to week, or month to month gyrations are of the markets, these are the type of companies that you can hide in during these highly volatile times. Of course it’s always a good idea to conduct a check up on the balance sheets from time to time to make sure nothing dramatic is occuring that could change your view of any given investment.

If you are a short term trader/investor, say less than one year, or even of a shorter mindset, this type of market environment requires very strict guidelines as to implementing protective stop losses and clearly defining what you are willing to risk on each trade. This environment also creates much higher premiums in stock and index options that short term traders can definitely take advantage of. However, you especially need to do your homework here and have a complete understanding of how options can be an effective strategy in an overall portfolio. Options are extremely risky and require a high level of expertise in order to get this strategy working for you and not against you.

Point being this, Europe will continue to grab headlines, so do we run from this or do we embrace it? My feelings are as long as you have a defined plan with protective stops in place, and whether it is a long or short term strategy, opportunity usually occurs out of fear and volatility. Good luck to all.

Have a great weekend 🙂

~George

Despite the eurozone coming to an agreement in principle last week to resolve their lingering debt crisis, Greek Prime Minister George Papandreou called for a vote late Monday of the Greek people, which was not part of the deal. This move has shocked the European Union and the markets to boot. In October the U.S. markets enjoyed one its best performing months in years with all of the major averages posting double digit percentage gains on the month; Dow Jones Industrial Average (chart), S&P 500 (chart), Nasdaq (chart), Russell 2000 (chart).

With the run that the markets enjoyed in October, it was inevitable that a healthy pullback would occur. However, I don’t think anyone expected that the pullback would happen in the first two days of this week.

Between the ongoing saga across the pond and the computerized trading models that have seemingly taken over trading desks, my friends volatility is most likely here to stay. That said, if you participate in these markets do not forget two of the top rules of trading or investing, and they are, define your risk in every trade and always use protective stops. Good luck to all.

Have a good day.

~George