Month: March 2020

A Week To Forget…

Posted on by George Mahfouz

Certainly, a week to forget! Not since the depths of the 2008 financial crisis have we seen volatility so high (see chart here) as stocks and indexes react to the spread of the coronavirus. Last week, the Dow Jones Industrial Average (see chart here) saw multi-thousand point swings. The S&P 500 (see chart here) was not spared from the highest volatility in a decade. The Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) both experienced eye-popping swings as well. However, on Friday the President declared a national emergency and he announced a $50B relief package to combat the coronavirus. Stocks took that cue and had one of their best day’s ever with the Dow Jones Industrial Average (chart) soaring almost 2000 points, the S&P 500 (chart), the Nasdaq Composite (chart) and the Russell 2000 (chart) all gaining almost 10% on the day.

Now we find ourselves in a highly volatile environment that in my opinion won’t abate until more metrics come forward pertaining to the spread here in the U.S. and the plans to contain it. The administration took a huge step yesterday by declaring a national emergency and to promise the full resources of the government to combat and control this virus. Furthermore, the government is waiving interest rates on student loans and committed to buying oil from U.S. companies to “fill up our strategic reserves”. It’s no wonder stocks had one of their best days in history.

I always like to conclude my blogs with a take on the technical shape of the key indexes. Needless to say there was a lot of technical damage done last week pertaining to technical makeup over the markets and in particular the moving averages. All of the major indices broke their respective 20-day, 100 and 200-day moving averages. These are all significant support zones that have been broken through. The one bright spot in this dynamic is the selling was so severe that after the dust settles strong rallies can and do typically occur as we witnessed on Friday. We are also now way below the key moving averages that often times the markets go back to retest those averages. If this does occur the set-up is very promising for bargain hunters. That said, I am not suggesting that the markets will rip roar back anytime soon, but historically strong rallies do occur after panic selloffs.

Good luck to all 🙂

~George

Fear Of A Global Pandemic Grips Markets!

Posted on by George Mahfouz

Stocks went into a tailspin as fear of a global pandemic grips the markets! New outbreak clusters of the highly contagious coronavirus are beginning to surface which is pressuring leaders from around the world to act and act more aggressively. Stocks have also entered correction territory as companies and analysts begin to ratchet down their revenue and earning forecasts. Over the past week or so the Dow Jones Industrial Average (see chart here) has lost over 10% in the past week alone, the S&P 500 (see chart here) has also entered into correction mode, the Nasdaq Composite (see chart here) has been hit hard and the small-cap Russell 2000 (see chart here) is also witnessing a sharp sell-off.

Personally I believe a correction was needed because of how robotic the markets have acted. Stocks no matter what risks were out there behaved in a way never before seen. We have been in the strongest bull market ever and nothing over the past 12 years could slow this bull market down. Now I am not happy that it is a global health risk that’s the catalyst to put stocks in correction mode, but nonetheless this is where we find ourselves. Of course when fear is rampant in any market this is where opportunity can be found. I am not suggesting to jump in here because as we all know fear and/or greed can be excessive and markets tend to over do it when emotions take the lead over rational thinking. So when we get overextended to the upside or downside the first thing I look at is how the technicals look during extreme market moves.

When I now look at the technical shape of the markets at least at it pertains to the moving averages things do not look so good. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here) and the Russell 2000 (see chart here) have all breached their 20-day, 100-day and 200-day moving averages which are all seen as major support zones especially the 200-day. The Nasdaq Composite (see chart here) is the only major index that has yet to close below its 200-day. That said, all of the aforementioned indexes are oversold according to the relative strength index (RSI) which when we see the 20 value level hit on any stock or index, snap back rallies can and do occur. This type of market is great for traders if you are experienced enough to trade off of technicals, however for investors that have a long term view these type of market environments requires a lot of patience and keeping the emotions at bay. Let’s all hope that the spread of the coronavirus abates and that a vaccine becomes available as quickly as possible.

Good luck to all 🙂

~ George