2 Percent – That’s It?

What should of been at least a 5-10% correction last week, the major averages barely flinched. This despite North Korea incessant threats of a nuclear attack against the U.S. and President Trump’s response that “fire and fury” will be unleashed by the U.S. in such an event. I am truly in disbelief that the markets did not take this geopolitical risk to correct in a more meaningful manner. In fact stocks yesterday had their best single day of the summer. Now we find ourselves yet again near all time highs. The Dow Jones Industrial Average (chart) closed just shy of 22,000, the S&P 500 (chart) is just under its all-time high of 2490, the Nasdaq (chart) closed at 6430 and the small-cap Russell 2000 (chart) closed Monday’s session at the 1395 level.

Talk about passive, machine driving algorithmic trading. One thing that really stands out to me is how the S&P 500 (chart), Nasdaq (chart) and the Russell 2000 (chart) all held their major moving average support lines. In particular the S&P and Nasdaq’s 50-day MA and take a look how powerful the Russell 2000’s 200-day moving average held and bounced (chart). It is clear that program trading models worked to perfection on this recent market pullback at least pertaining to key technical support levels.

So are we out of the woods pertaining to the risk trade? I am not so sure. But my goodness how can anyone have any kind of short thesis on these markets. Not even the heightened and continuing threat of a nuclear attack can rattle these markets more than 2 percent. Now that the rhetoric coming out of North Korea has abated for now, it could be business as usual as traders and investors get back to focusing on corporate earnings and fed policy. Whatever the case is I continue to be baffled by the strength of the U.S. stock market and without a doubt the old adage “don’t fight the tape” couldn’t be more true this year.

Good luck to all 🙂

~George

Dow 22,000 In Sight…

The Dow Jones Industrial Average (chart) closed the month of July at a record high and came within 70 points of the 22,000 mark. Just a few short months ago that the Dow surpassed the 21,000 milestone. What an incredible run in such a short period of time! Not only is the Dow Jones Industrial Average (chart) notching new record highs almost daily, the Nasdaq (chart) last Thursday posted a new record at 6460, as did the S&P 500 (chart) setting a new record of 2484. Last but not least, the small-cap Russell 2000 (chart) also set a new record last week of 1452. However, both the Nasdaq (chart) and the small-cap Russell 2000 (chart) have reversed their upward trajectory over the last few trading sessions in a noticeable manner. Let’s keep an eye on this development.

I think it is safe to say that Q2 earnings reporting season has helped fuel the Dow Jones to new record highs as well as the S&P 500. Tech stocks have been reporting a mixed bag so far this earnings reporting season which is why that index has started to abate a bit. All eyes today are on Apple (NasdaqGS: AAPL) which report their earnings results after the close. This could be the one stock that either reverses the latest mini-downward trend in the Nasdaq or for that matter, accelerate it. As I look to the technical shape of the the aforementioned indexes, only the Dow Jones Industrial Average (chart) is on overbought territory, while the S&P 500 (chart), Nasdaq (chart) and the small-cap Russell 2000 (chart) have begun their reversion to the mean and are all approaching the 50 value level of the relative strength index.

Game plan for August? Personally, I think it is time to reduce long exposure to equities due in part to this startling run stocks have had all year long. This coupled with the month of August being an historically weak month for equities could create the perfect set up for the much anticipated market correction that the bears have been waiting on. That said, I have to remind myself that there has been no such thing as typical in these markets for we have been in unchartered territory for a long period of time. One final note, it is always recommended to consult with a certified financial planner before making any adjustments to your portfolio.

Good luck to all 🙂

~George