Month: June 2012

Flat week…

Posted on by George Mahfouz

Despite Thursday’s 250 point Dow drubbing, the key indices closed mixed on the week. The Dow Jones Industrial Average (chart) finished the week down 126.39 points, the Nasdaq (chart) finished up 19.62, the S&P 500 (chart) closed lower by 7.82 points and the Russell 2000 (chart) closed the week out gaining 3.84 points. Equities digested a lot of news this week including the Federal Reserve indicating they are ready to step in should the economy continue to falter. However, certain traders were disappointed the Fed did not provide another round of quantitative easing, hence a significant sell-off ensued on Thursday.

Personally, I think the markets need to quit relying so much on central bank stimulus and begin to focus on corporate earnings, which have been overall quite impressive. We are entering the last trading week of the second quarter which could prompt end of quarter window dressing. Window dressing is a strategy used by certain mutual funds and institutions near the end of the quarter to improve the appearance of their fund(s), this could bode well for the markets. Another potential positive for equities is Q2 earnings reporting season which begins in July. In my opinion, this is a key catalyst in whether or not stocks will stabilize over the summer and hopefully de-emphasize what the central banks may or may not do. Good luck to all.

Have a great weekend 🙂

~George

Central banks boost stocks…

Posted on by George Mahfouz

After China announced a surprise rate cut last week, central bankers from Japan to Britain went on the record this week indicating they are ready to flood the system with liquidity if need be. This was enough to continue to fuel the key indices to one month highs. The Dow Jones Industrial Average (chart) closed the week up 1.70%, the Nasdaq (chart) +0.50%, the S&P 500 (chart) +1.30% and the Russell 2000 (chart) +0.28%.

I thought you were supposed to sell in May and go away? Apparently not this year. The concern I have here is that the markets are rallying on stimulus hopes and not fundamentals. In looking at the most recent economic data released this week, manufacturing activity is falling sharply, consumer sentiment is at its lowest level in months and unemployment is still a big threat.

Looking ahead to next week, obviously the outcome of the Greek elections will be the highlight for the markets on Monday. One thing is for sure, no matter the what the results are, central banks from around the world are ready to do what it takes to stabilize the financial markets and financial system. This stance taken by the global bankers should continue to bode well for not only equities, but in particular gold. Good luck to all.

Have a great weekend 🙂

~George

Best week of the year…

Posted on by George Mahfouz

Stocks posted their best weekly showing of the year erasing almost half of the losses that occurred in May. The Dow Jones Industrial Average (chart) soared 3.59%, the Nasdaq (chart) +4.04%, the S&P 500 (chart) +3.72% and the Russell 2000 (chart) finished the week up 4.30%. This snapback rally was on the heels of China making a surprise interest rate cut on Thursday.

Up until this week, equites had been under immense pressure due to the European debt crisis and more recently our own country’s weakening economic picture. In last week’s blog I eluded to the potential of the global central banks stepping in and placing a floor under the markets with additional liquidity measures, and sure enough China was the first country to act. This was followed up by our own Federal Reserve reiterating to Congress thier commitment to intervene should the economy here continue to falter.

To sum up the latest actions by the global central bankers and it relates to equities, at the very least stability should come into the marketplace with the potential to recharge the bull run we had been on. In addition, I would expect that gold becomes a huge beneficiary from the heightened debt levels that are on the balance sheets of central banks around the world.

That said, at some point and time and probably sooner than later, the economies from around the globe will have to be able to stand on their own two feet. Central bankers can only do so much before the stimulus programs begin to have an overall negative effective on the economy and markets. Good luck to all.

Have a great weekend 🙂

~George

Unemployment report send equities spiraling!

Posted on by George Mahfouz

As if the European crisis wasn’t enough. Yesterday’s unemployment report was a stark reminder that our own economy is by no means out of the woods yet. U.S. employers added only 69,000 jobs to their payrolls, far less than the 150,000 that most economists projected. The unemployment rate also ticked up to 8.2%. This sent the markets into a tailspin with the Dow Jones Industrial Average (chart) losing 274.88 points, the Nasdaq (chart) -79.86, the S&P 500 (chart) -32.29 and the Russell 2000 (chart) -24.40 points. Couple yesterday’s tape with the 6%+ decline for the key indices in May, and you have almost a 10% correction in a month and a day!

Too far too fast? Not so sure? Unless the governments and central banks unite over this weekend and come up with some sort of an additional stimulus plan, we could be in for further downward pressure on Monday and the rest of next week. I am not suggesting that the central banks should step in every time we have a market meltdown, but with the incessant debt crisis in Europe and now our own economy faltering, there may not be another alternative.

As an investor/trader in this type of market environment, one must exercise extreme caution. For me it would be easy to say “well the markets have now officially broken down and broke through key technical support levels, let’s go short” and probably that strategy would work. However, I have seen this movie before in whereas technically and fundamentally speaking equities appear to heading a lot lower. Then you wake up one morning and indeed the governments from around the world come up with a blanket plan to place a floor under the markets and then the massive rally begins.

Point being this, we live in a very different world today and what appears to be undervalued or for that matter overvalued in the marketplace, it really doesn’t matter. So long as you have accommodative Fed policies, the markets will trade according to the central bank(s) guidelines, not on fundamentals. Good luck to all.

Have a great weekend 🙂

~George