Month: March 2016

Stocks Are Back!

Posted on by George Mahfouz

Since losing over 10 percent of their values and going into correction territory earlier this year, the major averages now find themselves almost back to par. Year-to-date the Dow Jones Industrial Average (chart)  is only down around one percent, the S&P 500 (chart) is also lower by around one percent, the Nasdaq (chart) on the year has gained back over half of its losses and the small-cap Russell 2000 (chart) is lower by 4.5%. Since this bull market began over seven years ago, time and time again stocks have demonstrated astounding resilience. Seemingly every time there is a sell-off, willing buyers are ready to step in at varying support levels and buy up equities.

Today the Federal Reserve left interest rates unchanged and actually slashed their forecast to project only two additional rate hikes for the rest of this year versus the four rate hikes they had originally targeted. Stocks initially popped on the news and only one can conclude that the continuing accommodating monetary policies not only here in the United States, but from around the world is most likely the reason why this seven year bull market continues.

That said, the aforementioned indices are approaching overbought conditions according to the relative strength index. Remember the RSI is one of the favorite technical indicators by market technicians, certain algorithmic programs and institutional investors alike. The relative strength index measures and compares the size of moves in a selected period of time and according to the RSI, the 70 or greater value level signals an overbought condition and the 30 value level or lower indicates an oversold condition. Keep in mind stocks and/or indexes can remain overbought or for that matter oversold for an extended period of time. Currently the Dow Jones Industrial Average (chart) is almost touching the 70 value level and the other indexes are not too far behind. Of course this is only one of many technical indicators that traders and investors utilize, but I have found over the years the RSI is one of the more reliable indicators out there.

Good luck to all 🙂

~George

Volatility Back In Vogue…

Posted on by George Mahfouz

Since the start of the year there has been a very noticeable uptick in volatility in the marketplace. Twice over the past couple of months volatility has spike past the coveted 30 value level which is considered to be the level that demonstrates a large amount of investor uncertainty and/or fear. This you can see clearly in the chart of the Chicago Board Options Exchange Volatility Index, Symbol: VIX (chart). The VIX tracks the S&P 500 and calculates the next 30-day expectation of implied market volatility of a wide range of call and put options related to the S&P 500. Investors have not seen this type of volatility in quite some time and traders and short sellers have certainly taken advantage of it.

Let’s take a look at what the increase in vol has done to the major averages. Year to date the Dow Jones Industrial Average (chart) is down over five percent, the Nasdaq (chart) is lower by almost nine percent, the S&P (chart) is off by over five percent and the small-cap Russell 2000 (chart) is down almost nine percent on the year as well. That said, these key indices have bounced sharply off of their recent lows in mid-Feburary and crude oil (chart) has seemingly found a interim bottom around the $30 dollar level.

So now what? I am expecting volatility to continue throughout the month of March especially as we lead up into the upcoming Federal Reserve policy meeting March 15-16th. Most experts do not expect the Fed to raise interest rates at this meeting and furthermore not until the economic data consistently proves otherwise.  In fact, there are certain economists out there that think that the Federal Reserve is handcuffed for now and won’t raise rates until the fourth quarter because of the global turmoil that has surfaced this year especially in China and Europe. The current global equity sell-off is without question part of the reason for the increase in vol here in the United States. Whatever the case is, I will be listening to what tone and language Janet Yellen will use at her press conference post meeting to get a sense of what’s next for rates and how this will effect our markets.

Good luck to all 🙂

~George