Back in January we discussed technical analysis (blog) and in particular the Relative Strength Index also known as the RSI. There is another metric that market technicians use and even some institutional investors pay close attention to and that is “the moving averages“. The moving average is a technical analysis that measures the average price of a stock or index over a specific period of time. The actual time period that is plotted depends on the trading or investing style of the technician/investor. The most common time periods are the 20 day, 50 day and the 200 day, however, one can plot any other time period of their choice between the 20 and 200 day. So why is this important? As previously mentioned, some of the big institutional investors use this analysis (amongst other tools) to assist them in making entry and exit trades.

Let’s take a look at the most recent Nasdaq chart as a textbook example. You can see that when the Nasdaq had a sharp sell-0ff the week of February 22nd, it held the 50 day moving average. In fact, after it held support at the 50-day trend line on February 23rd and 24th, it proceeded to rally the next two days before another sharp one day sell-off. Once again the 50-day moving average provided the necessary support to keep the Nasdaq trading above its 50-day. It is clear to me that certain institutions and certain market technicians relied on this metric to deploy capital into the Nasdaq.

Once again this is a textbook example of how technical analysis can assist you in your trading or investment strategies. However, there are many times that the “moving averages” fail to hold their selected levels. Also, please note the keyword “assist” for there are many other factors and tools that market technicians consider. It is also important to remember that most market technicians prefer not to get too complicated with technical analysis and that is why I have highlighted two of the most popular indicators.

Have a healthy and prosperous week.

~George

Yesterday when the weekly unemployment claims were announced at nearly three year lows, the bellwether market indexes embraced the data by surging nearly 2%. Fast forward to this morning, the February jobs report was also very strong with the unemployment rate falling to 8.9%. This is the first reading below 9% since April 2009. In addition, the private sector added 192,000 jobs which was above market expectations of 185,000.

Okay so we continued to rally today, right? Not so fast thanks to 0il spiking to $104+ per barrel and the ever increasing prices at the gas pump. These two key economic factors weighed in on equities today with the Dow falling 88 points chart, the S&P 500 giving up almost 10 points chart and the Nasdaq retreating 14 points chart. These indexes did however come off their session lows.

I am still very impressed with how buoyant most equities have been considering the ongoing crises in the middle east. It is also encouraging to see stronger economic data coming out and hopefully this trend continues.

Have a wonderful weekend 🙂

~George

February was a month where we witnessed extreme geopolitical turmoil in Egypt, Libya and throughout the middle east. It was also a month in where oil spiked to over $100 a barrel, hence the markets experienced its first real pullback that many pundits had been anticipating. However, this micro-correction was met with the perennial support equities and indexes have been accustomed to over the past several months. For the month of February the Dow closed up over 2.8% chart, the S&P 500 closed the month up 3.2% chart and the Nasdaq finished February up over 3% chart.

Resilient is an understatment considering the economic and geopolitical environment we are in. That said, historically markets tend to be forward looking mechanisms and just maybe the markets are trying to tell us something? I am expecting that March will be somewhat of a volatile month especially with the ongoing developments in the middle east and the uncertainty of the price of oil.

Good luck to all.

~George

This week the markets gave what market technicians have been looking for, and that is, a pullback! After three days of a sell-off which was long overdue, equtites for the most part held true to form and closed the week on a high note. Let’s take a look at the chart of the S&P 500 Index chart. By looking at the candlesticks on the daily chart you can see from Tuesday through Thursday the retracement that occurred. I was paying closer attention to the RSI technical indicator at the top of the chart as it broke down through the 70 value(overbought) level. Notice how it approached the 50 or so value level and traded around there. Most technicians view this level as confirmation as to the continuing direction or a turning point, in fact they will use the 50 value level as the actual “trigger” to put on their position. So had the RSI continued through 50, certain traders and technicians might of put on some sort of short position(same principle applies to an oversold condition). The fact that it held and turned up certain traders and technicians might of put on some sort of long position. Please note this is technical analysis only and does not consider macro factors.

Time will tell whether today’s action was a head fake or not. I think that question will be answered over the coming weeks with all eyes on the geopolitical turmoil in the middle east and the future price of oil.

Have a great weekend 🙂

~George

When there is a market environment such as the one we find ourselves in, it is easy to get complacent and comfortable in the assumption that your portfolio will continue to climb uninterrupted. Who can blame you for thinking this way for that’s exactly what has been going on. Another metric which confirms how fearless the markets are is the Volatility Index, otherwise known as the VIX. This index measures the amount of fear or lack thereof as it pertains to investor sentiment looking out 30 days. For months now the VIX index chart has stayed below 20 which historically is a sign of a courageous and overwhelmingly confident marketplace.

Indeed this rally can continue and most probably will, point being it best to remember that historically equities, commodities and indexes whether they are in a bear or bull market, usually pause and or reconcile at some point and time. By no means is this a bearish call, just a friendly reminder of not getting too comfortable or complacent. 🙂

Have a safe and prosperous week.

~George

When stocks or indexes go parabolic it is like a freight train with no brakes. Yet another week of multi-year highs for the bellwether indexes with the S&P 500 now more than doubling from the crash of 2008. Take a look at the parabolic moves on the charts of the big three: Dow Jones Industrial Average chart – S&P 500 chart – Nasdaq chart. Now if you have been long this market there couldn’t be a prettier sight.

However, even the pros are finding it difficult to invest in this type of market. When equities or indexes have these types of parabolic moves, it’s hard to put new money to work because of the seemingly overbought conditions and expectations of a pullback. Also it’s hard to stay in cash for no one wants to miss out on this extraordinary bull run. And finally how in the heck could you ever short sell this kind of market?

So what in the world does one do? One thing I have learned through the years is that sometimes it’s better to be patient than to speculate on what’s next. This could be one of those periods in time where it’s best to simply do nothing and wait for some type of catalyst before you act.

Have a great weekend 🙂

~George

The Government came out this morning and reported a 0.3% increase in retail sales for the month of January. This marks the seventh straight month of an increase however, this was far less than what economists expected, hence the markets retreated. Albeit a very modest pullback for the bellwether indexes. I think for most of the bulls out there this is just fine. I have been saying for sometime that pullbacks and even reasonable corrections are very healthy for a continuing bull market. We simply have not gotten a meaningful pullback or correction over the past several months and I think from a technical perspective that would be a welcomed sight.

Having said this, in one of my previous blogs I referred to the need for top-line growth out of corporate America as one of the key factors for the current market rally to continue. With the bulk of the 4th quarter earnings reporting season behind us, it seems like revenues are picking up and businesses are not just relying on cost cutting measures and layoffs to fuel their bottom line. With top-line sales growth beginning to surface, just maybe this translates into job growth which should bode well for this market.

All the best 🙂

~George

Yet another week of gains for the stock market. For the week the Dow Jones Industrial Average closed up 1.5% at 12273, the Nasdaq gained 1.45% to close over 2800, the S&P 500 tacked on 1.39% to close at 1329 and the small cap barometer Russell 2000 Index finished the week with a 2.75% gain wrapping up at 822.

These gains occurred despite a tepid outlook from Cisco Systems (NasdaqGS: CSCO) which reported disappointing earnings and provided weak guidance after the close on Wednesday. Now in the past whenever this bellwether has provided a softer outlook the markets typically would of reacted negatively. But not this amazing bull market, seemingly nothing can spook these markets. That’s spooky in itself. The pundits are also referring to the statistic that the 3rd year of a Presidential cycle is historically a double digit year of gains in equities?

Call it what you will but for me this is simply amazing. Be careful, it’s probably best not to get too caught up in historical data, however there is no denying this bull market right now.

Have a great weekend.

~George

As stocks continue their torrid pace let’s take a look at gold. Gold sold off sharply a couple of weeks ago as investors became more confident about the health of the global economies. In one of my previous blogs I spoke about a technical indicator called the “Relative Strength Index” or the RSI. This is one of the preferred indicators utilized by certain market technicians. Now let’s analyze an example of an oversold asset at least as it pertains to the principles of the RSI and in this case the most popular ETF that tracks the movement of gold, symbol: GLD chart.

At the top of the chart you will see a plot of the RSI and right around the end of January the GLD closed in the $128.00 per share range. In that same time frame the RSI fell to the 30 value level which is an oversold level according to the RSI. Since falling to that level, the GLD has move back up almost 5% to close at $133.14 today. A market technicians dream, a classic example how this powerful tool can be when making trading and investing decisions.

Please remember that this is a text book example that worked to perfection, however equities or indexes can stay oversold  or overbought for extended periods of time. Also the RSI values can breach the 30(oversold) or 70(overbought) value level and can continue to even further decline and stay oversold or increase and stay overbought. Point being, the pundits suggest to use more than just one indicator when including a technical analysis approach. Going back to the chart of the GLD you will notice at the bottom of the chart a plot of the MACD. Certain market technicians will look for confirmation of the RSI with the crossing of the moving averages and in this case the cross occurred a few days ago.

Having said this, I am not recommending to buy gold or the GLD, however I do want to illustrate how technical analysis can assist when considering trading or investing.

Have a great evening.

~George

So what else is new? The Dow finished the week up +2%, the S&P 500 up almost 3%, the Nasdaq up +3% and the Russell 2000 also up +3%! Furthermore, this impressive market action is occurring in an anemic economy as evidenced by this mornings jobs report in where only 36,000 net jobs were added in January. That number was far less than 145,000 jobs that the pundits expected for the month.

The fact that the market did not continue to sell-off from the geopolitical turmoil in Egypt is one thing, but I don’t think anyone expected a green close today with such a soft employment number? Bottom line, you can’t ignore how strong corporate earnings have been, the power of the momentum in this market and the power of the Fed and the floor that they have put in.

Earnings will continue to come in next week and I will be very interested to see what Cisco Systems (NasdaqGS: CSCO) reports on Wednesday. I will be even more keen as to how John Chambers the CEO of the company sees the health of the economy from his vantage point, for the markets have historically payed close attention to his view. Good luck to all.

Have a great weekend 🙂

~George