This is beginning to sound like a broken record and the bulls like what they are hearing. Once again stocks closed the week up across the board. On the week the Dow Jones Industrial Average (chart) + 1.16%, for the year the DJIA is up almost 6%. The Nasdaq (chart) finished the week up 1.65% and for the year the Nas is up a whopping 13.31%. The S&P 500 (chart) closed the week up 1.38% and so far this year the S&P is up 8.24% and last but not least, the Russell 2000 (chart) finished the week up 1.89% and for the year the Russell is up a stellar 11.84%. This has been one of the best starts coming out of the gate for the stock market in decades and there doesn’t appear to be too much getting in its way.

Market technicians including myself have been expecting a pullback to occur and have been citing “overbought” conditions for weeks now (blog). However, these markets remain incredibly resilient and are seemingly poised to go higher. I am remaining cautious as to how much longer this incessant bull run will continue and will look for additional clues as to when the inevitable retracement will occur. There were a lot of traders and investors who missed this enormous bull run over the past few months. What kept many investors on the sidelines was and is the on-going debt crisis in Europe and what has caught many investors off guard, is the stronger than expected flow of economic data here at home.

That said, there are now a lot of traders and hedges funds licking their chops on short side opportunities in this overbought market. However, a short strategy is incredibly risky and requires an enormous amount of experience to execute successfully, so let’s see if this time they get it right.

Have a great holiday weekend 🙂

~George

Last week marks the first time this year that the key indices retreated, albeit modestly. The Dow Jones Industrial Average (chart) fell 0.47%, the S&P 500 (chart) -0.17%, the Nasdaq (chart) 0.06% and the Russell 2000 (chart) lost 2.14%. Still for the year these bellwether indexes are up sharply.

So why the pause? For the most part the pundits want you to believe that the Greek debt crisis is the reason. That in part may be true, but hardly anyone seems to be talking about how the markets appear to be a little exhausted and looks to be topping out? Let’s take a deeper look. One of the things I look for over and above the Relative Strength Index on stocks and indexes is market sentiment. There is extreme optimism in the markets right now with seemingly all of the headlines pointing to a bullish thesis. Also, there are a plethora of analysts coming out and raising their target prices on indexes and equities which can be construed as another indication of a topping pattern. Even BlackRock’s Larry Fink was recently quoted as saying “be 100% in stocks”.

Historically speaking, when you have the key indices and equities trading above the 70 and 80 value levels on the RSI, and you have market sentiment at extreme levels as we have today, a respectable pull back may be in the offing. Now if you add the continuing uncertainty of the European debt crisis to the mix, especially with Greece, this could cement the much anticipated retracement certain investors and traders have been looking for. Whatever the case is, it’s usually a good idea to lock in gains and make sure to use protective stops in your trading strategies.

Good luck to all 🙂

~George

Stocks took off out of the gate this morning on the heels of a better than expected jobs report. The headline unemployment number fell to 8.3%, its lowest level in three years. This propelled the major averages to multi-year highs. So far this year, the Dow Jones Industrial Average (chart) is up over 5%, the Nasdaq (chart) is up a whopping 11.54%, the S&P 500 (chart) +6.94% and the small cap index Russell 2000 (chart) is up an astonishing 12.17%. This is no typo and yes, these gains have occurred in a little over a month’s time.

Let’s look at the technical perspective of the markets and see if this current bull run will continue uninterrupted. In one of my January posts I referred to a technical indicator call the Relative Strength Index or the RSI. This indicator tracks oversold and overbought conditions and is used by a variety of market technicians as part of their analysis when evaluating current market conditions. As of the market close, all of the key indices and in particular, the Nasdaq (chart) are now in overbought territory with the Nasdaq (chart) on the cusp of the 80 value level – a level not see in over a year.

So what does all of this mean? Well, markets or stocks can be overbought and remain overbought for extended periods of time. However, historically when RSI levels are as elevated as they are today, especially with the indexes, be very careful about jumping on this bull freight train. I would expect a pullback, which actually would be very healthy for the markets, then hold at support levels and continue its uptrend. I am not suggesting that any of this will occur, I am merely pointing out that it would be prudent to allow the markets to take a breather before considering any additional long strategies.

Have a great weekend 🙂

~George

The markets closed out the week with mixed results following the Commerce Department’s release of the fourth quarter G.D.P. report. The Dow Jones Industrial Average (chart) finished the day down 74.17 points, the S&P 500 (chart) -2.11 with the Nasdaq (chart) and the Russell 2000 (chart) both eking out modest gains.

According to this mornings G.D.P. report, the U.S. economy grew at a 2.8% annualized rate in the fourth quarter coming in short of certain economists expectations. This seemed to affect the Industrials throughout the day and caused some apprehension as to the growth estimates going forward. Also, the Federal Reserve came out this week and said they expect short-term interest rates to stay near record lows at least through 2014. To me this is an indication that the Federal Reserve still sees an anemic economy well into the future, which might not bode so well for equities going forward. Couple that with earnings reporting season beginning to wind down and there doesn’t seem to be any near term catalyst in the markets to continue to propel stocks.

That said, momentum is a very powerful dynamic to the upside or downside and certainly equities have been on a tear as of late with the bulls in full control. However, it’s probably not a good idea to get too complacent and think that stocks can go up forever as we all have learned.  At the very bare minimum this market is seemingly poised for a pullback which actually could be very healthy for a sustainable uptrend. My concern is that one big sneeze out of Europe or if the most recent positive economic data here in the U.S. was just an anomaly, we could be in for more than just a “healthy pullback”?  Good luck to all.

Have a great weekend 🙂

~George

Stocks posted yet another week of gains as corporate earnings for the most part are coming in as expected and the Euro Zone had some success with their most recent bond issuances. For the week, the Dow Jones Industrial Average (chart) closed up 2.4%, the Nasdaq (chart) +2.8%, the S&P 500 (chart) +2.04% and the Russell 2000 (chart) closed the week +2.67%.

This week earnings will continue to take the spotlight with a slew of companies reporting their results. To kick off the week earnings will be out from Halliburton (NYSE: HAL) and Texas Instruments (NasdaqGS: TXN). On Tuesday, McDonald’s (NYSE: MCD) and Apple (NasdaqGS: AAPL) will give us their quarterly results and later in the week we will hear from AT&T (NYSE: T) and Caterpillar (NYSE: CAT) on how their quarter went.

Other key events this week will be a meeting in Brussels with the EU finance ministers, here at home the FOMC meeting takes place and President Obama holds his State of the Union address. Needless to say quite an eventful week ahead for the markets to contemplate.

One other unfolding technical event I will pay closer attention to is the beginning of “overbought conditions” in the key indexes and certain equities. For example, let’s take a look at the Relative Strength Index (RSI) of the S&P 500. We should all know by now, but for those of you who don’t, the RSI typically indicates whether or not a given index or equity is either overbought or oversold, depending on certain value levels. According to the RSI principle, the 70 value level or greater can be interpreted as an overbought condition and the 30 value or lower can be interpreted as an oversold condition. As you can see in the upper box of the S&P 500 (chart) the 70 value level is fast approaching. Now that doesn’t mean I am going to rush out there and short the markets, however, the RSI is a technical indicator that has historically been a reliable indicator as to overbought or oversold conditions. Please note that markets or equites can remain overbought or oversold for extended periods of time. I just want to point out that we are seemingly overdue for a bit of a pullback and certain market technicians employ the RSI model as a guide to assist them with their strategies.

Good luck to all and have a great week 🙂

~George

After the first two weeks of the trading year, the perennial January effect is holding true to form. The year to date gains so far the key indices are; Dow Jones Industrial Average (chart) + 1.67%, the Nasdaq (chart) +4.05%, the S&P 500 (chart) +2.5% and the Russell 2000 (chart) +3.14%.

Fast forward to this upcoming week and we are heading full throttle into fourth quarter earnings reporting season. The markets will be closed tomorrow in recognition of the MLK holiday, however, on tap for Tuesday from the banking sector is earnings out of Citigroup (NYSE: C) and Wells Fargo (NYSE: WFC). Later in the week we will hear from tech titan Google (NasdaqGS: GOOG), global powerhouse IBM (NYSE :IBM) and Microsoft (NasdaqGS: MSFT) just to name a few.

Between companies reporting their earnings results and the ongoing drama unfolding out of Europe, I am expecting volatility to kick in significantly. Also, the VIX ($VIX) which is a widely used measure of market risk, has been relatively complacent over the past few weeks trading at the lower end of a multi-month range. Certain market technicians interpret that this type of complacency and lower end value could mean an imminent move up in volatility. Whatever the case may be, the markets are seemingly poised to start trading in much wider ranges. Good luck to all.

Have a great week 🙂

~George Mahfouz

Stocks opened modestly higher this morning ahead of the much anticipated fourth quarter earnings reporting season. The Dow Jones Industrial Average (chart) opened up 20 points, the Nasdaq (chart) +6 points, the S&P 500 (chart) +3 points and the Russell 2000 (chart) +3.5 points.

Aluminum producer Alcoa (NYSE: AA) unofficially kicks off the fourth quarter earnings reporting season by issuing their quarterly earnings report after the bell. Analysts expect the company to earn a penny a share amid falling aluminum prices and industry oversupply. In the banking sector all eyes will be on global bank J.P. Morgan (NYSE: JPM) which is scheduled to report on Friday.

The first day of the trading year the S&P 500 (chart) broke above the 1280 level which certain market technicians looked at that mark as a breakout point. However, in my previous blog I eluded the need for the S&P to trade above that level for an extended period of time in order for a true breakout to be confirmed. So far we have not got that and I am afraid the bulls are going to have to be more patient to see this through.

The concern I have regarding the markets lifting much higher is if corporate earnings are not strong enough to please the markets or if companies give weak guidance. If either of the two dynamics occur, we could see a triple top on the S&P 500 (chart) and find ourselves back in this protracted 100 point or so trading range of the S&P that we have been for multiple months now. Time will tell where we end up and earnings reporting season should provide the answer. Good luck to all and have a great week.

~George

Happy New Year! Stocks opened sharply higher this morning with the Dow Jones Industrial Average (chart) surging over 200 points, the S&P 500 (chart) +23 points, the Nasdaq (chart) +60 points and the Russell 2000 (chart) +18 points.

The S&P 500 (chart) for the first time in over two months is trading over the 1280 mark which is the breakout point that certain market technicians have been looking for. Before anyone gets too excited though, it is not uncommon for stocks to lift in the first couple of days of the trading year. Personally, I would like to see at least a week of the 1280 level of the S&P to hold before I am convinced that this is a true breakout. Furthermore, we are heading right into fourth quarter earnings reporting season which should also confirm whether or not this is truly a market breakout.

As far as volatility is concerned, chances are that we are in for a similar pattern as we experienced in 2011, which was breathtaking. There are still far too many uncertainties that lie ahead which includes the ongoing saga out of Europe, our own economy, corporate profits, and of course the 2012 Presidential elections here at home. Nevertheless, this should be a very exciting year for the bulls and the bears, however, whichever camp you are in, make sure to always use protective stops on all of your positions. Good luck to all and Happy New Year 🙂

~George

Stocks posted impressive gains this week with the Dow Jones Industrial Average (chart) closing up 3.6% hitting a five month high. The S&P 500 (chart) also finished the week up 3.7%, the Nasdaq (chart) +2.5% and the Russell 2000 (chart) +3.6%. Albeit, these gains did occur on relatively light volume.

Once again positive U.S. economic news helped fuel this week’s rally with encouraging news on the housing front where builders broke ground on over 600,000 new homes and building permits increase at a 5.7% rate. Also, on the jobs front, applications for unemployment benefits fell by 4000. Even Europe had some positive news with German business and consumer confidence rising unexpectedly in December and Spain also had a successful debt auction.

Once again the S&P 500 (chart) is at the upper end of its protracted trading range and appears to be on the cusp of breaking out. With four trading days left in the year, let’s see if the bulls get their long awaited technical breakout. Good luck to all.

Have a wonderful Holiday weekend 🙂

~George

As the markets continue to toil with the news flow out of Europe, stocks took it on the chin this week. The Dow Jones Industrial Average (chart) fell 317.87 points or 2.6%, the Nasdaq (chart) -91.52 points or 3.5%, the S&P 500 (chart) -35.53 points or 2.8% and the Russell 2000 (chart) finished the week off down 23.35 points or 3.1%. This despite Thursday’s release on jobless claims and manufacturing data which was very bullish for the markets.

So why the drop? One word, Europe! As long as negative headlines continue to hit the tape regarding Europe, I am afraid that the markets will continue this very volatile pattern it has been in for months now. However, after this week’s sell-off the S&P 500 (chart) did manage to hold key technical support levels above the 1200 mark. Also, with two weeks left in the trading year, it is possible that we could see year end window dressing instituted by fund managers. Window dressing is a strategy used by fund mangers to improve the appearance of their funds performance before each quarter’s end or year end. Let’s see if this comes into play over the next couple of weeks. Good luck to all.

Have a great weekend 🙂

~George