The 200-Day Moving Average Holds!

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!

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?

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!

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!

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!

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

Stocks Go On A Bumpy Ride…

The stock market ended the week eking out slight gains. For the week, the Dow Jones Industrial Average (chart) closed higher by 0.6%, the Nasdaq (chart) barely closed in the green on the week, the S&P 500 (chart) closed up 0.7% and the small-cap Russell 2000 (chart) finished the week up one half of one percent. I guess this could be viewed as a big win for the key indices considering how light crude oil (chart) has plummeted recently which directly correlates to the energy industry as a whole. Energy stocks have also gotten crushed along with oil which is why I think it’s rather impressive that aforementioned indexes were able to end the week in positive territory. However, volatility (chart) is continuing to spike and the 200-day moving average on the S&P 500 (chart) continues to get challenged. Some pundits believe that it’s only a matter of time that the 200-day on the S&P (chart) will not hold much longer, however, if you look back, no one can deny how this technical metric has been a pillar of support for this most watched index.

So what does an investor or trader do in this historically weak month for stocks and with volatility spiking now weekly? For me personally, I am not as active in the markets due the volatility spikes and typically lower volumes associated with the summer month of August. I prefer to spend my time in research identifying opportunities in the marketplace. For instance, watching the oil markets unravel the way that they have, without question opportunities are forthcoming in this space. The majority of individual energy stocks do indeed trade with the price of oil (chart) and to predict when the price of oil will stabilize is almost impossible. However, at some point in time oil will indeed stabilize and a plethora of opportunity will surface. If you do not want to take the risk on individual names, you can always consider the most popular ETF that tracks the energy space (symbol: XLE). This equity energy fund has an approximate $11.69 billion in net assets with holdings in some of the largest and most respected energy companies in the world. Of course and as I always recommend, it is always best practice to consult with a certified financial planner(s) that you feel comfortable and confident with before making any investment decisions. Good luck to all 🙂

~George

Despite A Pop In Volatility, Bull Market Remains Intact!

In the month of July, the major averages continued to demonstrate what a bull market looks like despite an increase in volatility $VIX (chart )and global macro concerns. For the month, the Dow Jones Industrial Average (chart) closed up a modest 0.40%, the Nasdaq (chart) gained 2.8% in July, the S&P 500 (chart) advanced 2.0% and the small-cap Russell 2000 (chart) actually ticked down on the month giving up 1.28%. One interesting note and if you look at the charts of the above mentioned indices, in the month of July each of these indexes breached their 200-day moving average and three of the four breached this support line twice only to rebound sharply and keep the technical makeup of the markets intact. Without question and throughout this six year long bull run, the technicals of stocks and indexes have done their job and has acted as technicians would expect.

Fast forward to today August 1st and if you have been on Wall Street long enough, yes we are now entering the dog days of summer. As Q2 earnings reporting season works its way through and begins to wind down, I would expect volatility also begin to abate as it has towards the latter part of this past week. Without question these markets could still react to China’s extreme volatility as of late or if there is a big surprise in next week’s job’s report, however, without any big surprise here or overseas, I think this becomes a stock-pickers market as well as a technically traded market paying attention to trend lines and overbought and oversold conditions. This could also be the perfect environment to sell put option premium on your most favorite stocks in order to generate some additional income. One other option which may be a very valid one, and that is turn off your screens and head to the beach until after Labor Day :-).

Whatever you choose to do as we enter the “dogs days of summer” it is always best practice to consult with a certified financial planner(s) before making any investment decisions or changes to your portfolio. Good luck to all 🙂

~George

Will the month of December be jolly for stocks?

Although the key indices finished essentially flat for the month of November, everyone now is asking “will a Santa Claus rally come into effect?” For the month, the Dow Jones Industrial Average (chart) closed lower by 0.55%, the Nasdaq (chart) finished up 1.11%, the S&P 500 (chart) +0.29% and the small-cap Russell 2000 (chart) closed the month up 0.39%.

With the ever increasing rhetoric coming out of Washington regarding the fiscal cliff and whether or not a deal can be made, I am not so sure that we can have a year end rally. Markets hate uncertainty and unfortunately it may take a market swoon for both sides of the aisle and the President to come together on a deal. If this is the case, we could indeed retest the mid-November lows on the S&P 500 (chart) which would be about 70 S&P points from the close on Friday. That said, the markets right now are so sensitive to every word that comes out of Washington, a rally could also occur should there be any positive developments. Most traders embrace this type of environment for it does produce opportunities on the long and short side.

Technically speaking, all of the aforementioned indexes including the transports remain above their respective 200-day moving averages and appear to want to go higher, however, politics and policy do hold the cards as to how we close out the year. Good luck to all.

Have a great weekend 🙂

~George

Tough week for stocks…

Earnings reporting season is in high gear and the markets are not liking what they are seeing. For the week, the Dow Jones Industrial Average (chart) fell 1.77%, the Nasdaq (chart) -0.59%, the S&P 500 (chart) -1.99% and the small-cap Russell 2000 index (chart) declined 2.89%.

For the most part, corporate America continues to show a slowdown in their businesses and companies are also providing tepid outlooks in the near term citing the uncertainty of the pending fiscal cliff, and the expiration of the Bush era tax cuts. Even tech-titan Apple (NasdaqGS: AAPL) guided with an outlook that caught the street off guard. Despite the disappointing earnings reporting season so far, the key indices have managed to remain above their respective 200-day moving averages. The 200-day is one of the most closely watched key technical support indicator that market technicians and institutional investors respect.

Next week, Q3 results will continue to pour in so I expect that the 200-day will once again be tested. If this is the case, and this key technical level can hold, we just may make a run into the end of the year? Good luck to all.

Have a great weekend 🙂

~George