Record Setting Week!

A three-week stock market winning streak has propelled the Dow Jones Industrial Average (chart) and the S&P 500 (chart) to close at record highs. In one of the most dramatic turn of events from the shocking Brexit vote to today, these key indices were breaking records all week long. The Nasdaq (see chart below) and the small-cap Russell 2000 (see chart below) also posted a strong week of gains.

I stand corrected! In my previous blog I referred to the fact that the S&P 500 (chart) had been stuck in a trading range and that upcoming earnings reporting season should act as the catalyst to break stocks out of this range. Furthermore, my view was that corporate earnings most likely would underperform hence a breakdown out of this trading would be more probable. Well here we are today at record highs and we haven’t even gotten into the bulk of earnings reporting season. The largest U.S. bank J.P. Morgan (NYSE: JPM) did however report their results this past week posting a profit of $6.2B. J.P. Morgan’s results came in stronger than expected which also helped fuel this week’s rally, especially in the banking sector.

As much as we were oversold leading up to and just after the Brexit vote, the markets now find themselves approaching overbought territory. Now the question becomes what to do next? As mentioned above, we are full steam ahead into the bulk of earnings reporting season which can come with plenty of surprises. From a technical standpoint I find it hard to commit any new capital into a market at record highs and do so with most of corporate America yet to report their results. I will be paying attention to the top-line growth of companies to get more of an accurate read how their business is fairing compared to their bottom line which can be adjusted in many ways that may not tell the whole story. My concern now is how can record highs continue if top-line growth is not there in a meaningful way? Let’s look to next week to see if the record setting trend continues, or a pause and reversal comes forward.

Good luck to all 🙂

~George

George Mahfouz Jr. Russell 2000 chart

george mahfouz jr Nasdaq chart

What A Rollercoaster Ride!

This week started off with the vote no one expected. Global markets were shocked with the outcome of the United Kingdom’s vote to the leave the European Union. Here at home, the Dow Jones Industrial Average (see chart below) lost close to 1,000 points between Monday and Tuesday, the Nasdaq (see chart below) over that same two-day period lost close to seven percent as did the S&P 500 (chart) and the small-cap Russell 2000 (chart). A breathtaking 2-day drop which was so swift and profound that it violated the 200-day moving averages of all of the aforementioned indexes. Fast forward to today and what seemingly was the start of an angry correction, has turned into yet another “buy the dip” opportunity. No matter what the challenges are or have been on the macro-economic or political front, markets over the past several years have shrugged them off. I honestly did not think stocks would snap back this time as quickly and as powerfully as they have.

Yet again, oversold conditions created a trader’s dream with this snap-back rally. Ever since this bull market began, every shocking or unexpected headline which have rattled the markets have always been met with strong support that then turns into the resumption of this protracted bull market. However, it is also very clear that we have been trading in a range for quite some time now and every time we have tried to breakout of this trading range, resistance is met and we retrace back to a variety of moving averages.

So you may be asking how do we break out of this S&P 500 (chart) 2000 to 2120 trading range? One catalyst that can do this is the upcoming second quarter earnings reporting season which kicks off here in July. I do not think that the economy is such that record earnings results will come forward. In fact, companies may take it upon themselves to use the Brexit circumstance to soften their future guidance? We will see. In my humble opinion I think the possibility of a downward break is more probable in the near term than stocks breaking out to all-time highs, especially after this snap back rally. Good luck to all!

Paula and I wish everyone a safe and Happy 4th of July holiday 🙂

~George Mahfouz, Jr.
Dow Jones George Mahfouz JrNasdaq George Mahfouz Jr.