Bellwether

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

 

 

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

Bellwether Indexes Surge To All Time Highs!

Posted on by George Mahfouz

Bellwether indexes surge to all time highs as the S&P 500 (chart) closed the month of August at 2901, the Nasdaq Composite (chart) closed at 8109, the small-cap Russell 2000 (chart) closed at 1740 and the Dow Jones Industrial Average (chart) is within striking distance of its all time high. I thought August is supposed to be a tough month for stocks? Not this year! New highs are happening while the political environment in our country is at a seemingly all-time low, the word impeachment surfaces daily now, tariffs are in the headlines daily, interest rates have been on the rise and now it seems that any type of progress made over the summer with North Korea may be in jeopardy. One would think that the aforementioned risks would be enough for an outright 10-20 percent market correction. Add in the seasonality factor and we should indeed be going red, not making all-time highs.

Now I am afraid to even mention that the month of September is historically the weakest month of the year for stocks right alongside with August. Do I dare say that September will be the month that our markets correct in a meaningful way? Do I have the courage to predict that this will be the month where the markets recognize and adjust for all of the risks that are present in our current environment? I don’t know people, I am as baffled as the next guy as to how these markets keep shrugging off real market issues. Oh by the way I forgot to mention we have mid-term elections forthcoming, the markets are not pricing in any risk there either. These markets are priced and acting like there is no absolute risks at all out there. Ok enough banter already!

How to play the markets now? I am a fan of the old adage “the trend is your friend” but folks I just can’t hop on this train at this point in time. I am heading to the sidelines until I see any type of technical breakdown to possibly consider implementing a short thesis or just wait for the inevitable pullback/sell-off to identify any potential long set-ups. Until then, Paula and I wish everyone a very safe and Happy Labor Day weekend 🙂

~George