One Hot June!

One hot June indeed and I do not mean the weather folks! Stocks and commodities went on a tear in the month of June logging the best June in decades for some of the indexes and other asset classes. The Dow Jones Industrial Average (see chart here) soared over seven percent last month. The S&P 500 (see chart below) hit an all time high in the month of June while both the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) notched impressive gains as well. What’s more is both oil and gold surged right along side of the key indexes.

So why the rally? I think the answer is simply an easier monetary posture by the Federal Reserve. It is no secret that inflation is well in check and it is also becoming apparent that the U.S. job market is cooling off. Another factor for the Fed to consider is what impact would a full blown trade war with China do to the U.S. economy? This is why in my opinion we are seeing a continuing upward trend in our markets and that is a dovish Fed is usually very good for stocks. One other factor that will certainly weigh in is the upcoming earnings reporting season. Now that the second quarter of the year is in the books we will see how well corporate America did in Q2 as earnings reporting season gets underway this month. I will continue to look to monitor how “top-line” growth is faring.

Let’s take a quick look at the technical shape of the key indexes. After surging over 7% in June, the Dow Jones Industrial Average (see chart here) remains clearly above its 20-day, 100-day and 200-day moving averages as does the S&P 500 (see chart here). The Nasdaq Composite (see chart here) is in a healthy technical condition and last but not least, the small-cap Russell 2000 (see chart here) has broken above its key moving averages. This is a very good sign for stocks and furthermore none of indices are in overbought territory according to the principles of the RSI also known as the relative strength index.

Both Paula and I wish everyone a very safe and Happy 4th of July holiday πŸ™‚

~George

S&P 500 - Paula Mahfouz

 

 

 

 

Fed Rate Cuts Back In Play?

The question over the past week or so is whether or not Fed rate cuts are back in play? The May jobs numbers were way below expectations with the economy only adding 75,000 jobs. This is a far cry from the 180,000 that economists were expecting in the month of May. As intuitive as it seems a weak jobs report should equal a continuing sell-off in the markets. Not the case in the first half of the month for stocks. In fact the Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the small cap Russell 2000 (see chart below) all have rallied sharply so far this month. So how is it that stocks are rallying with a slowing job market? Two out of the past four months the jobs number has come in below 100,000. This is giving hope to the markets that the Federal Reserve may actually start cutting interest rates as opposed to raising them and this is why the markets are rallying. Lower interest rates has been a boon for stocks for the past decade and if the Fed starts lowering rates again, we could see all-time highs again.

What’s more is the technical shape of the aforementioned key indexes. As stocks have rallied this month, 3 out of the 4 major averages have blown through their moving averages which can provide resistance point if a stock or index is trading below their respective averages. Since the June rally began, the Dow Jones Industrial Average (click here for chart) recaptured it’s 200-day, 100-day and 20-day moving averages as did the S&P 500 ( click here for chart) and the Nasdaq Composite (click here for chart). However the small-cap Russell 2000 (click here for chart) has run into its 100 and 200 day moving averages and has found resistance at these key pivot points.

Let’s see how the rest of June goes and see if this past weeks consolidation will offer yet another leg up in the markets. Good luck to all πŸ™‚

~George

Russell 2000 - George Mahfouz Jr

Now Mexico Too?

If it wasn’t enough to hit China harder, now Mexico too? Look by no means am I an expert on trade, tariffs or politics, but one thing I do know the stock market doesn’t like what has been going on with all three! The stock market also dislikes uncertainty and curve balls and this administration is certainly throwing a lot of both out there lately. Stocks have taken it on the chin with yet another wave of selling this week. For the first time since January the Dow Jones Industrial Average (see chart here) has fallen below the 25,000 mark. The S&P 500 (see chart here) closed in the 2,750 zone, the Nasdaq Composite (see chart here) closed near the 7,450 level and the small-cap Russell 2000 (see chart below) closed at 1,465.

What’s more eye catching to me is that all of the major averages have now fallen below their respective 200-day moving averages. Let’s do take a look at the technical shape of the market to see how much damage has been done. Now that the 200-day moving averages have been breached lets look at the RSI of each index. The relative strength index is a technical indicator that expresses whether or not a stock or index is overbought or oversold (click here for RSI). The Dow Jones Industrials (chart), the S&P 500 (chart), the Nasdaq Composite (chart) and the small-cap Russell 2000 (chart) all are racing toward the oversold level of 30. In fact, the Dow Jones breached the 30 level of the RSI yesterday.

Historically when stocks or indexes break their key support levels and head down towards the 30 level of the RSI, there is usually a continuation through that metric as well. That said, history does not always repeat itself but I would also not be surprised to see more selling pressure in the near future. Good luck to all πŸ™‚

~George

Russell 2000 - Paula Mahfouz

 

The T-Word Has Done It Again!

No question the T-word has done it again aka tariffs. The week started off with China’s retaliation to the Trump tariffs with a market sell-off on Monday sending the Dow Jones Industrial Average (see chart here) down 600 points. The trade war also sent volatility soaring earlier in the week as well $VIX (see chart below).Β This after the market set all-time highs. No matter what the case is, stocks will continue to sell-off on any negative tariff news. Why not? Tariffs can essentially act as a tax on American businesses and the consumer at least in the short term.Β  Without question the tariff tape bombs have hit the market and had nearly doubled the price of vol over the past week or so. (see chart here)Β 

Now that the wild market swings are back, what’s next? Whenever I see a pick up in vol I take a closer look at the technical shape of the key indexes. Let’s start with the Dow Jones Industrial Average (see chart here). Since volatility kicked back in the Dow Jones Industrial Average lost around 1000 points, but found support at its 100 and 200-day moving averages and bounced off of those key support levels. The S&P 500 (chart) also sold off sharply over the past week or so but it too bounced off of key support zones. The Nasdaq Composite (chart) sold off almost identical to the S&P and bounced back nicely.Β  Last but not least, the small-cap Russell 2000 (chart) actually fell through its 200-day moving average and found support at its 100-day. So technically speaking and if you are in the bull camp this is a very good sign for the continuation of the latest upward trend in the market. I am always a fan of pullbacks that meet support, holds that support and resumes its uptrend and that’s what we seemingly have now.

Let’s see if we get any positive developments on the trade war to calm the markets down a bit. Good luck to all πŸ™‚

~George

$VIX - george mahfouz

Strong Economy Equals A Strong Stock Market!

The economy posted a 3.2% gain in the first quarter and as the saying goes, a strong economy equals a strong stock market! Is it any wonder as to why the Nasdaq Composite (see chart here) hit an all-time high on Monday! The same rings true with the S&P 500 (see chart below). The S&P 500 hit an all-time high on Monday as well. Now the Dow Jones Industrial Average (see chart here) has a bit more work to do in order to tap its own record as does the small-cap Russell 2000 (see chart here). However, I am sure the bulls will take 2 out of the 4 major averages setting all time highs. What is also helping the stock market is how the Federal Reserve has taken a cautious approach to raising rates any further. In fact, there are calls out of Washington DC asking the Fed to start lowering rates to stimulate the economy even further. Now I am not so sure that the Fed will accommodate Washington’s request, but I do think it is safe to say that we should not see a rate hike in the near future or maybe not at all for the rest of this year.

One note of caution to me is that with nearly half of corporate America reporting their Q1 earnings so far, we are seeing on average a year over year decline in earnings. There are still 100’s of companies set to report over the coming weeks but if this trend continues, this will be the first year over year decline in corporate earnings in years. I will be keeping an eye on this development.

The technical shape of the aforementioned indexes remain intact. The Dow, Nasdaq, S&P 500 and the Russell 2000 all are trading above their respective key moving averages. However, both the Nasdaq Composite (see chart here) and the S&P 500 (see chart here) have entered into overbought territory according to the relative strength index also know as the RSI. That said, I would not be surprised to see at the very least some consolidation or an outright healthy pullback. Good luck to all πŸ™‚

~George

S&P 500 - Paula Mahfouz

Will Earnings Take The S&P To All Time Highs?

Now that earnings reporting season is upon us, will Q1 corporate earnings take the S&P 500 (see chart here) to all time highs? We are about to find out. For the first time in months the S&P 500 (see chart here) closed above the 2900 mark and is now within striking distance of its record close of 2940 set back in September. Once again the markets feel like they are in melt up mode. The Dow Jones Industrial Average (see chart below) closed on Friday at 26412 just 500 points away from its record high, the Nasdaq Composite (see chart here) is approaching the 8000 level a level it hasn’t seen in months, and last but not least the small-cap Russell 2000 (see chart here) is approaching the 1600 level and trading above its 200-day moving average.

The technical shape of the markets also appear to be healthy heading into Q1 earnings reporting season. All of the aforementioned indexes are trading above their 20-day, 100-day and 200-day moving averages. A good sign. Furthermore, none of these averages are in overbought territory this according the the relative strength index. Yet, another good sign.

Back to Q1 earnings reporting season. Although analysts and market pundits expect corporate earnings to have declined this quarter, I will be paying attention to the guidance that companies give. It’s no secret there has bee a global slowdown lately due to a variety of factors. However, if companies give better than expected guidance, then most likely we should indeed see new record highs.

Companies to look out for this week that are reporting are, Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC), Johnson & Johnson (NYSE: JNJ), Netflix (NasdaqGS: NFLX), United Continental Holdings (NasdaqGS: UAL), Abbott Labs (NYSE: ABT), Alcoa (NYSE:AA), Las Vegas Sands, Corp. (NYSE: LVS), PepsiCo, Inc. (NasdaqGS: PEP), American Express (NYSE: AXP) and Honeywell International (NYSE: HON) just to name a few. Let’s see if Q1 earnings reporting season becomes the catalyst for new record highs. Good luck to all πŸ™‚

~George

Dow Jones Industrial Average - Paula Mahfouz

 

 

 

 

Stocks End Q1 On Fire!

Stocks ended the first quarter of the year on fire! The Dow Jones Industrial Average (see chart here) closed Q1 up over 11%, the S&P 500 (see chart here) closed the first quarter up over 12% which is the best performing quarter in years for this bellwether, the Nasdaq Composite (see chart here) closed up more than 17% and the small-cap Russell 2000 (see chart below) closed out the first quarter of the year up over 14%. Yes folks these gains are incredibly impressive especially considering how global growth is slowing. That said, these eye-popping market gains are not too surprising considering the sharp sell-off that stocks experienced in that latter part of 2018. Without a doubt the aforementioned indexes were way oversold in late December and an oversold bounce of some sort was definitely in the cards. As we know, market swings can and do overshoot to downside such as what we saw in late 2018 and now the question is, will we overshoot to the upside?

It sure does not appear that way at least from a technical perspective and according to the Relative Strength Index (RSI). The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) are no where near overbought conditions yet. This despite all of these key indices rallying double digits in Q1. What’s more, all but one of these indices are also trading above their key moving averages including their 20-day, 100-day and 200-day with the lone exception being the small-cap Russell 2000. Now there could be some consolidation going on here over the next few weeks and up until first quarter earnings reporting season begins which would actually be healthy for the markets.

Speaking of the upcoming earnings reporting season, this could be the one catalyst that sheds the most light for the rest of the year on how stocks will fare. It is no secret global growth has slowed and I think corporate America will speak to whether this current global slowdown is just a blip on the radar or something much more meaningful.

Good luck to all πŸ™‚

~George

Russell 2000 - Paula Mahfouz

 

Is A Retest In The Cards?

Stocks apparently want to move higher and now the question comes to mind is a retest of the all time highs in the cards? Well if you look at the S&P 500 (see chart below) it sure seems so. The S&P 500 (chart) is at the earliest stages of technically breaking out of a 4 month trading range. Back in early November and again in early December the S&P flirted with the 2800 level before failing that level each time. In fact, in early December when the S&P tried to break the 2800 level not only did it fail to break through, it also went on to hit multi-year lows by the end of December. This is the time period where the bears started to growl and predict that stocks would continue to fall. Fast forward to today and not only did stocks reverse course since that late December sell-off, but now the key indices appear to be on the verge of breaking out. The Dow Jones Industrial Average (see chart here) also has bounced off its multi-year lows in December and is trading above its key moving averages, the Nasdaq Composite (see chart here) from a technical standpoint is also on the verge of breaking out, however the small-cap Russell 2000 (see chart here) has work to do to reclaim its 200-day moving average.

So what does all this technical jargon mean? It’s no secret the markets trade in algos and bots. Many of these algorithm trading platforms are programmed to certain technical indicators i.e. the 20-day, 50-day, 100-day and 200-day moving averages and/or the relative strength index aka the RSI. Furthermore, in many instances when the key indices are setup at a breakout level such as where the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) find themselves at, momentum traders also come up to the plate and act. So we could very well indeed see the markets make a run to retest the all-time highs. Paula and I wish everyone a safe and Happy St. Patricks Day!

Good luck to all πŸ™‚

~George

S&P 500 - George Mahfouz Jr

Best Start Of The Year In Decades!

Stocks have opened the month of March rip roaring again adding to the best start of the year for the averages in decades. The Dow Jones Industrial Average (see chart here) opened the trading day up over 200 points, the S&P 500 (see chart here) opened up over 20 points, the Nasdaq Composite (see chart below) opened up over 55 points and the small-cap Russell 2000 (see chart here) opened up over 11 points. These gains are adding to the double digits percentage gains the markets have already realized in 2019.

So why such a strong start to the year? I am not trying to sound like a broken record but this 10 year long bull market is a head scratcher.Β  No matter what has been thrown at one of the longest bull markets in history, nothing seems have an adverse affect. You name the crises and stocks shrug it off. Whether it is a geopolitical event, the Federal Reserve raising rates or the daily chaos that comes out of Washington, nothing has disrupted this incessant rise in stocks. We did get a definitive correction late last year in where the bears came out of hibernation and predicted the end of the bull market and that a 40% correction is now imminent. Well don’t look now but we are not too far off from setting new all time highs in the aforementioned indexes.

Technically speaking it appears that the coast is clear for now as well. All of the major averages are now trading above their respective 20-day, 50-day and 200 day moving averages which is a very bullish sign. The one caveat to the technical shape of the market is that stocks are a bit overextended. Overbought conditions do exist technically and according to the relative strength index also known as the RSI. That said, the pullbacks that do occur continue to be met with support with buyers stepping in willing to add to their existing positions or open up new positions. The trend remains your friend in our current environment. Good luck to all πŸ™‚

~George

Nasdaq Composite - Paula Mahfouz

8 In A Row!

8 in a row is the number of weeks that the Dow Jones Industrial Average (see chart below) and the Nasdaq Composite (see chart here) have notched gains. The S&P 500 (chart) and the small-cap Russell 2000 (chart) have also rallied sharply. So what’s going on? Earnings reporting season is well underway and so far it’s been somewhat of a mixed bag, although more bullish than bearish I would say. I think the obvious reason the rally is continuing is the fact the government did avoid another partial shut down this week and the chatter that has been coming out of China and the U.S. is that progress is being made towards an agreement on tariffs. That said, I am leery about an agreement coming together in the near future simply due to how both sides seemingly come together then fall back on whatever the tariff subject matter of the day. If there are any delays or signs of negotiations going sideways this could put a lid on the current rally and act as the catalyst for another pullback or correction. Some other chatter that has come up recently is corporate buybacks and how some politicians want to cap buybacks or outright regulate them. My friends if this happens, this too can be a catalyst for a pause and reversal of the 2019 market rally. Company buybacks have been a huge tailwind for this decade long bull market and if buybacks actually do become regulated, then things could look very different going forward especially in market sell-offs. We will see if this is just political chatter or something more.

Regardless of the pending outcome of the tariff negotiations or the balance of the Q4 earnings reporting season, I think we are due for a potential pullback of some sort after running for 8 straight weeks. The markets as a whole are a bit extended especially the small-cap Russell 2000 (chart)Β  which has entered overbought conditions with its RSI aka the Relative Strength IndexΒ (click here RSI) closing out the week at a value of 74.

Good luck to all πŸ™‚

~George

Dow Jones Industrial Average - George Mahfouz Jr.