200 day moving average

The 200-Day Is In Play…

Posted on by George Mahfouz

The 200-day moving average is in play! Last week, the Dow Jones Industrial Average (see chart here) breached its 200-day moving average. What does this mean? Well from a technical standpoint the 200-day moving average is one of the more respected support lines when it comes to indexes or stocks. A breach of the 200-day is not what the bulls want to see. The same rings true when stocks or indexes breakthroughs and breaks out above this key technical indicator. When this occurs, it is typically viewed as bullish. Unfortunately, this is not the case today. As mentioned above, the Dow Jones Industrial Average breached its 200-day and closed the week below this support line.

Now before this draws too much attention or significance, these types of technical breaches can be short lived to only recapture this key technical support line and resume its upward trend. We will have to see if this is the case here. Why this technical breach isn’t too alarming yet, is because when I look at the broader markets such as the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) both remain above their respective 200-day moving averages. The same cannot be said for the small-cap Russell 2000 (see chart here). Like the Dow Jones Industrials, the small-cap Russell 2000 also is trading below its 200-day.

So now what? As we head into the month of October, I can say with confidence that the markets will not hang around wondering which direction to take. A breach is a breach, either it follows through and continues its downward trend, or the breach is short lived only to resume its upward trend. One of the upcoming catalysts that will impact the markets is the 3rd quarter earnings reporting season and this my friends will be a determining factor as we head into year-end.

Good luck to all 🙂

~George

Are The Major Averages Breaking Out?

Posted on by George Mahfouz

After breaching their respective 200-day support lines in March, the major averages appear to be breaking out of their months long trading range. 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 all hitting monthly highs. Also, each of these indices appear to have strong momentum heading into July.

So why are the rally caps on? I think one of the drivers to this latest rally is how economy is faring. From the most recent GDP (gross domestic product report ) coming out stronger than expected to how inflation appears to be abating. Most every pundit expects our country to head into a recession, however, economic reports such as cited above are currently demonstrating a different backdrop. Market expectations have kept stocks in a trading range for the past several months until now.

The question now becomes is this a true “breakout” or is it a fake out? One catalyst that could answer this question is the upcoming Q2 earnings reporting season. Now that the second quarter of the year are in the books, corporate America will begin to report their Q2 earnings results here in July. This to me could prove whether or not this rally has more room to run.

When I look at the technical shape of the key indexes we are not yet in overbought territory according to the relative strength index aka the RSI. The only index that is near the 70-value level of the RSI is the S&P 500. According to the principles of the RSI, any index, stock, commodity etc. that trades above the 70 value of the RSI is considered overbought and we are not there yet. However, if this current rally continues then we could see the aforementioned indexes go into overbought territory. If this is the case, remember stocks and indexes can remain overbought for an extended period before reversion to the mean occurs.

Wishing everyone a safe and great 4th of July holiday weekend.

~George

 

Will It Hold?

Posted on by George Mahfouz

As the markets closed out the month of February, the major averages are approaching a key technical point and the question now becomes, will it hold? As stocks continue to exhibit volatility the major averages are now approaching their 200-day moving average. Institutional investors, hedge funds and  individual investors view the 200-day moving average as a key support technical indicator. Historically when indexes or individual stocks gravitate to their 200-day support level at minimum some sort of bounce occurs from this key support line. If you go back over time whether it’s months or years and look at what happens when stocks or indexes retrace to their 200-day, this will demonstrate how powerful this support line can be. Now there is no guarantee that the 200-day will hold every time and reverse its course but see for yourself how this dynamic historically performs.

The Dow Jones Industrial Average (see chart here) is in striking distance of its 200-day moving average which is currently at the 32355 level. The S&P 500 (see chart here) is only about 90 points away from its 200-day. The Nasdaq Composite (see chart here) almost touched its 200-day yesterday and the small-cap Russell 2000 (see chart here and below) is currently further away from its 200-day compared to the Dow Jones, Nasdaq Composite, and the Russell 2000. So technically speaking the small caps are currently in a better technical set up vs the other major averages.

As far as what to expect here in March, I think things will continue to be a bit choppy and should the indexes continue to retrace and end up at or near their 200-day moving average, let’s see how this technical indicator responds should it get there. As always, please consult with certified financial planners before you make any moves or adjustments in your portfolio.

Good luck to all 🙂

~George

 

Two Days To Go…

Posted on by George Mahfouz

It’s two days to go before our country’s Presidential election takes place. I think most everyone now is exhausted by the process. How many more commercials can be displayed? How many more rallies can we take? What’s more is I think we have all had enough of the bashing and trashing that is going on and quite honestly this type of behavior is unbecoming of our great nation. Thank goodness this is almost over.

What has impressed me the most is how the markets have held up especially with all that is going on in our country. Yes, over the past couple of weeks the major averages have had a noticeable pullback. However, with the election at the forefront of everyone’s minds and the pandemic reaching all time highs, I have to ask myself why haven’t we seen a 20% or more correction? Instead we find ourselves in the midst of a 7-8% pullback. One of the answers very well may be how the averages are responding to their key technical support levels. Let’s first look at the Dow Jones Industrial Average (see chart here). On Friday, the Dow Jones on a intraday basis temporarily breached its 200-day moving average which is at the 26263 level. Then this bellwether average bounced sharply off of its support to close at 26501. Time and time again we have seen how important key support levels are to the markets and this was text book action pertaining to support levels at work. Friday was the perfect intraday response in how the Dow Jones Industrial Average responded to its 200-day moving average.

Now let’s take a look at the Nasdaq Composite (see chart below). On Friday, the Nasdaq essentially closed right at its 100-day moving average. So we will see this week whether or not this particular support line holds true to form. There are instances to where I have seen support levels breached for a few days or so and then respond. Whatever the case is, I am impressed with how the overall markets have weathered the backdrop of the current environment we find ourselves in.

Good luck to all 🙂

~George

Two Days To Go - Paula Mahfouz

 

 

The 200-Day Moving Average Holds!

Posted on by George Mahfouz

The 200-day moving average held its ground despite the constant tape bombs and tweets that continues to come out of Washington. It is no secret that stocks have been on a wild ride over the past few weeks from making all-time highs to rip roaring selloffs. The continuation of tariff threats out of Washington has been a huge catalyst for the increase in volatility in stocks. That said, with all of the madness that is swirling around the Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) have all managed to stay above their respective 200-day moving averages. This key technical support line has held true to form during these market selloffs. The small-cap Russell 2000 (see chart here) has not been as fortunate and could not hold its 200-day.

So in addition to the Washington D.C. threats of additional tariffs, the markets also had to deal with the dreaded 10-year and 2-year yield curve inverting. Whenever longer term interest rates fall below shorter term interest rates in the bond market that historically is a signal that a recession might be looming. Now there is a meaningful lag here whenever we see the yield curve inverting, so as long as the curve flattens out and returns to a normalized dynamic, we should escape the threat. However, if the yield curve remains inverted for an extended period of time then we could be in for something else.

Let’s get back to the technical shape of the markets. As mentioned, three of the four major averages held above their respective 200-day moving average support line which is a good thing technically. What also helped is during these meaningful selloffs is that the markets did go into oversold territory and technically bounced. Let’s see how the next couple of weeks shape up as we wind down the dog days of summer.

Good luck to all 🙂

~George

The T-Word Has Done It Again!

Posted on by George Mahfouz

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). 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.  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) 

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.  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 🙂

~George

$VIX - george mahfouz

Is A Retest In The Cards?

Posted on by George Mahfouz

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 🙂

~George

S&P 500 - George Mahfouz Jr

Earnings And The Fed!

Posted on by George Mahfouz

Stocks took off this week and we can blame earnings and the Fed! Now that we are fully into earnings reporting season the investors so far have liked what they see. Couple that with the Federal Reserve coming out on Wednesday stating that the central bank is “changing its tune” on interest rates, and you have a one-two bull market punch. Also on Wednesday, Fed Chairman Powell stated “the case for raising rates has weakened somewhat” and that the Federal Reserve will be more patient toward further rate hikes. Stocks rallied hard on the Fed’s new position along with stronger than expected earnings reports that are coming in from corporate America. For the month of January, The Dow Jones Industrial Average (see chart here) is up over 2000 points, the S&P 500 (see chart below) is also up over 200 points, the Nasdaq Composite (see chart here) is up 800 points and the small-cap Russell 2000 (see chart here) closed out the month of January up 175 points. January 2019 has been one of the best performing months in years.

Let’s take a look at the technical shape of the markets from a moving averages perspective. The Dow Jones Industrial Average (chart) has just broken through its 200-day moving average, while the S&P 500 (chart) and the Nasdaq Composite (chart) are both sitting on its 100-day moving average and the small-cap Russell 2000 (chart)is not too far behind. There are still plenty of earnings reports that will be released over the next few weeks and to me this is the remaining catalyst that could drive stocks higher here in the short term. Let’s keep in mind there are still other catalysts on the horizon that could put the brakes on this most recent rally with the government having yet another deadline to reach a deal on border security and of course the looming tariff deal with China. If one or both of these deals do not get done, I think we will be having a different conversation in March. Until then, let’s enjoy the current wave of positive news and market action and then see what kind of adjustments that would possibly need to be made. Good luck to all 🙂

~George

S & P 500 - Paula Mahfouz

 

Finally A Market Selloff!

Posted on by George Mahfouz

In my last blog, I eluded to a market selloff that just did not happen and I was referring to how stocks typically behave in the August and September. Instead of markets selling off at the end of summer, stocks were setting records. Well the bears got what they had been anticipating over the summer and that is an eye-popping market drop last week. Over the course of two days the Dow Jones Industrial Average (chart) fell over 1300 points. Of course the S&P 500 (chart), the Nasdaq Composite (chart) and the small-cap Russell 2000 (chart) all fell in harmony as well. What’s more these bellwether indexes all breached their 200-day moving averages for the first time in months with the Dow Jones Industrial Average (chart) recapturing and closing above its 200-day on Friday, the Nasdaq Composite (chart) just closed shy of its 200-day, the S&P 500 (chart) literally closed right at its 200-day however, the small-cap Russell 2000 (chart) closed out last week meaningfully below its 200-day moving average looking to find some sort of support. The 200-day moving average is widely regarding by market technicians and institutional investors as a key metric of support and or resistance.

What does all this mean? First, a market that constantly goes up with no retracement to speak of can never be healthy long term. There must be backing and filling along the way so that the risk of a sudden and potentially drastic drop doesn’t occur as what we witnessed last week. I mean c’mon going up in the way that we have over the past decade is not only unheard of but the risk that can come forward from this can spark a nasty correction. I am not suggesting that this will be the case but for the first time since earlier in the year, investors and traders felt the selloff last week.

Earnings reporting season kicks in this week with hundreds of companies set to report. Let’s see if corporate earnings can buoy the market here during this long anticipated selloff. Good luck to all 🙂

George

Within Striking Distance!

Posted on by George Mahfouz

In my previous blog, I said I wouldn’t be at the very least surprised if the Dow Jones Industrial Average (see chart below) closed above 25000 by year end. Well don’t look now, we are in striking distance of that milestone. In fact, if the Dow does close above 25000 by year end, it would have taken it a month to do so. That’s right only a month! In late November the Dow closed above the 24000 mark for the very first time and now its a mere 350 points away from yet another 1000 point gain. What’s impressive about this 1000 point clip is how fast it is getting there, I mean a month? This is unprecedented for sure. Market observers are expecting this insatiable bull market to keep on truckin into the end of the year, especially if the tax bill goes live! The S&P 500 (chart) and the Nasdaq Composite (chart) also closed at records highs on Friday with the S&P 500 closing in on the 2700 mark and the Nasdaq approaching the 7000 mark. The small-cap Russell 2000 (chart) is lagging behind but on Friday the Russell did find support at its 200-day moving average to close higher on the week.

With only 2 weeks left in the trading year what can investors or traders expect? More of the same or a sell the news type event? The news being the proposed tax bill getting through and going live. I truly don’t know? However, when you add seasonality into the mix with December being one of the strongest months for stocks on the year, I would not be surprised if the Dow Jones Industrial Average does indeed eclipse the 25000 mark. We could also see the S&P 500 overtake 2700 and the Nasdaq surpass 7000. Now if there is a snag in getting the tax bill through or if it ends up being a “sell the news” type of event meaning the proposed tax bill does go through by year end, then I will have a much different take heading into the new year. Both Paula and I wish everyone the healthiest and happiest holiday season 🙂

~George

Dow Jones Industrial Average - Paula Mahfouz