Since the beginning of this indomitable bull market run one of the quiet leaders has been small-cap stocks. Typically small-caps are at the forefront in the beginning stages of a bull market, however this class continues to surge. Small-caps also carry a much higher degree of risk, hence much greater potential returns. Let’s look at chart of the Russell 2000 chart. At the market depths in March 2009 the Russell traded below 350 before bottoming out. Since then this bellwether small-cap index has returned an astounding 142%.

Even the most speculative equities that trade on the bulletin board continue to see inflows of significant capital despite having the highest degrees of risk. So what does all this mean? Some market historians believe that too much speculation in the marketplace is a tell tale sign of equities overheating. From my perspective, no matter what the metrics or statistics are, prudent risk management is essential in any market and never invest with money you can’t afford to lose.

All the best.

~George

There is an interesting development going on right now with the Dow Jones Industrial Average, the S&P 500, the Nasdaq and their small-cap brethren the Russell 2000. When you look at the charts of the Dow chart, S&P 500 chart and the Nasdaq chart, these indexes are close to or at a double top formation pattern. In short, a double top from a technical analysis standpoint is two successive rises to the same price zone. If the double top pattern holds true to form, this could mean a reversal of the upward trend and a subsequent pullback.

Now let’s take a look at the Russell 2000 index chart of small-cap stocks. Here the Russell 2000 established a double top pattern and then broke through it and has continued to move higher. It will be interesting to see if  the “Big 3” bellwether indexes can follow suit? What probably will be the deciding factor in whether or not the Dow, S&P and Nasdaq will breakout or for that matter breakdown, is the upcoming first quarter corporate earnings reporting season which is about to begin.

Have a safe and prosperous week.

~George

Despite worldwide turbulence ranging from the Middle East to the Far East, equities in the first quarter demonstrated how resilient they truly are. The Dow Jones Industrial Average chart had a whopping gain of 6.4%, the S&P 500 chart lifted 5.4% and the Nasdaq chart advanced 4.8%.

Is there a Q2 encore performance? Well so far so good! This morning the March jobs report was released and the economy added 216,000 jobs with the unemployment rate falling to 8.8%, a 2-year low. What’s more is that the hiring all came from the private sector which is a very encouraging sign. For the second straight month the private sector is responsible for the majority of new jobs. The pace of job growth is still relatively slow in comparison to the 450,000 jobs or so needed per month to make a real dent in the unemployment rate. Nonetheless, a much welcomed sight.

All eyes now are on the upcoming Q2 earnings reporting season. The pundits are expecting corporate earnings as a whole to contract a bit, however with the private sector showing signs of life, just maybe corporate earnings are continuing to grow and hopefully from the top-line. Earnings reporting season is most always a very volatile period and if you are long this market one way to protect your holdings is by initiating a protective put a.k.a. a married put on your holdings or on the indexes. Protective puts act like an insurance policy on your long position(s) and defends against a drop in the share price of an underlying stock or index. This strategy is something to consider especially during times of uncertainity and volatilty.

Have a great weekend 🙂

~George

Don’t look now but the end of the first quarter is upon us which also means first quarter earnings reporting season is right around the corner. This could be the next significant market catalyst in determining whether or not equities can make new 52 week highs? As impressive as this 2-year bull run has been, at some point and time market valuations will have to align with what corporate America can earn rather than relying on the extraordinary support of the federal reserve.

In this type of environment it is essential to identify companies with top-line growth as well as avoiding companies that are experiencing operating margin contractions. This will not only be quite the balancing act for the federal reserve as to when to let the markets fend for themselves, but also for investors and how diligent they are when making investment decisions.

Good luck to all.

~George

Dow chart up 3.05%, Nasdaq chart up 3.8%, S&P 500 chart up 2.7%. For market technicians another highlight is that all three indexes are trading above their 50 day moving averages. The short sellers must be asking how is this possible considering all of the headwinds here and abroad? I don’t even think the bulls expected this type of market rally considering the economy and the recent geopolitical conditions. This indeed must be one of the most teflon markets in memory as investors keep riding this seemingly unstoppable bull.

Next week there will be no shortage of economic news with personal income and spending released on Monday, followed by consumer confidence on Tuesday and all eyes will be on the non-farm payroll report on Friday. In addition, the first quarter is ending this upcoming week and the markets could be affected by the end of quarter window dressing. Window dressing is a strategy used by some mutual funds and portfolio managers to improve the appearance of their funds performance. This occurs when fund managers sell stocks with large losses and purchase momentum stocks near the end of the quarter.

Needless to say we should be in for a very interesting and potentially volatile week ahead.

Have a great weekend 🙂

~George

Over the weekend we covered the Volatility Index (Chicago Options: $VIX chart) and how this index has almost doubled in price over the past month due to the ongoing tumult in the world. This metric is best known for investor sentiment as it pertains to fear and market expectations. Seemingly the markets are becoming more confident as the nuclear risks in Japan appear to be abating, hence the VIX chart is now below 20 once again. Over the past four trading days the three leading indexes have all rebounded respectfully with the Dow actually moving above its 50 day moving average. Dow chart, S&P 500 chart, Nasdaq chart.

Equities continue to demonstrate remarkable resiliency despite the geopolitical climate we are in and the unfortunate tragedy in Japan. Having said this, I expect to continue to see markets very volatile as almost everyone is paying close attention to the headlines and outcomes. As investors and especially in times like these, patience and discipline is always one of the best policies.

~George

Also known as the fear gauge. In February (blog) we spoke about not getting too complacent and assume that this 2 year bull run would just continue to go without interruption. We also spoke about the VIX and how this widely followed index was trading well below 20 and as low as 15, which is an indication of how confident investors were back then. Fast forward to today, and now let’s take a look at the chart of the VIX chart. Clearly you can see that just in the past 3 weeks or so how much volatility has increased with the VIX index nearly doubling in price. So what does this mean? In hindsight it was obvious that the market was overdue for a correction and all it needed was a catalyst to correct.

Certainly the Middle Eastern crisis could of served as “the catalyst” and in fact volatility did indeed increase due to the Egyptian and Libyan crisis, but unfortunately it took the tragedy in Japan to enact the real catalyst for this current market correction we are in.

Once again history repeats itself as it pertains to the VIX index, and the lesson is that any extended period of time the VIX trades below 20 and in this case it was almost 4 months, the market usually is due for some type of correction.

All the best,

~George

Equities endured yet another day of selling as the Japan crisis takes hold. It’s hard for me to even write about the markets in the midst of one of the most serious global catastrophes in years. That said, in this type of market environment and with all of the uncertainty that exists overseas, it is probably a good idea to be as patient as possible and not panic. For now, the best thing we all should do is provide our support and prayers to all of the people that have been and are continuing to be affected by this calamitous tragedy.

~George

Although equities eked out gains on Friday, the bellwether indexes pulled back about 1% with the tech-heavy Nasdaq getting the brunt of it closing off over 2% chart. I think most market participants want to see what happens over the weekend pertaining to the Middle Eastern crises and how oil continues to fare. Recent economic data has provided some hope of a turn-around. For the most part, equities have performed exceptionally well considering all of the geopolicital concerns and economic headwinds occurring in Europe and now seemingly in China.

This coming week should be no exception to the recent volatility that the markets have been experiencing, especially when you add quadruple witching hour on Friday.

Have a safe and prosperous week 🙂

~George

Equities got walloped today as weak economic news hit the wire along with the continuing turmoil in the middle east. What’s more is the Dow chart, the S&P 500 chart and the Nasdaq chart all have broken through and closed below their 50 day moving averages. On Sunday’s blog we spoke about “the moving averages” and how this is a technical analysis tool utilized by many market technicians and institutional investors. For the better part of 6 months these leading indexes have managed to comfortably trade above their 50 day and significantly above their 200 day moving averages. So what does all this mean? Well the coming days will tell us whether or not this was a one day violation of the 50 day or if this is the beginning of a extended sell-off?

I think for now the markets will continue to be hyper-sensitive to the incessant data and news flow especially out of the middle east. Patience is key especially in an emotional market like the one we find ourselves in.

Have a good evening.

~George