Super week for stocks!

Stocks rallied for the second straight week as the key indices have now just about recaptured all of their losses incurred in August. The Dow Jones Industrial Average (chart) had one of its best weekly showings of the year gaining over 3%, the Nasdaq (chart) closed the week up 1.7%, the S&P 500 (chart) +1.98% and the small-cap Russell 2000 (chart) finished the week up 2.37%. Over the past couple of years, time and time again whenever equities as a whole have had a five percent pullback or so, such as what we experienced in August, a significant rally ensues and the bull market seemingly resumes. They say markets are forward looking indicators, well we must be in store for quite the year-end closeout, or are we?

This upcoming week the FOMC meeting will take center stage. The debate is on as to whether or not the Fed will start reducing its bond and mortgage back securities purchases and what effect this could have on the markets. My feelings are that there is still enough tepid economic data coming in for the Fed not to begin to taper. However, there are plenty of pundits out there that argue that the economy is beginning to show pockets of strength which could give the Fed the green light to begin with a small reduction with their future purchases. Either way, the technicals are now on their way to overbought territory, and interest rates are continuing to rise with the 10-year treasury note (chart) closing in on 3%. This could be a one-two punch to once again slow down and even potentially reverse this most recent rally.

That said, if you are a technical trader, this is an almost perfect environment to trade in. Support levels are continuing to be honored as well as resistance marks. We now find ourselves butting up against the upper end of the trading range in the S&P 500 (chart) and we could very well be headed back to support levels which in this case would be the 1630 zone on the S&P (chart). If the markets embrace the Fed’s action or lack thereof, a breakout above the all time high of 1709 of this key index could very well be in the cards.

Good luck to all and have a great week 🙂

~George

 

Chalk one up for the bears…

The month of August proved to be the most challenging for the bulls in over a year. For the month, the Dow Jones Industrial Average (chart) closed down 4.45%, the tech-heavy Nasdaq (chart) -1.01%, the S&P 500 (chart) -3.13%, and the small-cap Russell 2000 (chart) finished the month lower by 3.29%. There are many factors that one can point the finger to as to why equities retraced last month, however, let’s keep in mind that on the year, these key indices are still up double digits with the Nasdaq (chart) and Russell 2000 (chart) leading the way up nearly 20%.

In my last blog, I questioned whether or not the weakness in August was a mere pause in this incessant bull run, or a preview of things to come? I think we will most certainly get this answer here in September and as early as this upcoming week. Between the crisis in Syria and what the ramifications could be after the possible airstrikes, to a slew of economic reports which culminates on Friday with the August employment report. Friday’s jobs report is expected to be the determining factor as to if and how much the Fed will begin to reduce its bond purchases. The Fed taper seemingly is all we have heard about since the beginning of summer and is part of the reason for the recent increase in volatility. Traders really don’t know what to expect once quantitative easing begins. For years the markets have had the back stop of the Federal Reserve and from central banks around the world. Personally, I think that once the Fed begins to pullback its bond purchases, we will then begin to see a more realistic market environment. This would be an environment that investors and traders can finally gauge their actions from true economic and corporate earnings performances, rather than what the Fed will or will not do. With that said, I expect volatility to continue to increase with a more normal ebb and flow of asset prices.

Technically speaking, the Dow Jones Industrial Average (chart), the S&P 500 (chart) and the Russell 2000 (chart) are all now trading below their 50-day moving averages  which is something I am paying close attention to now. In the coming days if the Nasdaq (chart)  joins in and begins trading below its 50-day, we could be in for very choppy trading and another leg down in September. Good luck to all.

Happy Labor Day 🙂

~George