china

Coronavirus Hits Stocks!

Posted on by George Mahfouz

The coronavirus hit stocks and major indexes this week as fear grips investors. The Dow Jones Industrial Average (see chart here) fell over 600 points yesterday, the S&P 500 (see chart here) closed lower by 58 points, the Nasdaq Composite (see chart here) fell 148 points and the small-cap Russell 2000 (see chart here) closed yesterday down 34 points. Now if you have been following me for a while you know I am a big fan of pullbacks in the market. However, I don’t like seeing the cause of this latest sell-off. I would much rather prefer to see the market retrace in a healthy manner versus a health crisis.

Some of the fear the market is experiencing is warranted. Companies are suspending business to and with China which clearly will have an impact on their businesses.  For example airline stocks have taken it on the chin recently. Most major airlines have suspended service to China and in some instances for months. Entertainment companies such as Disney (DIS:NYSE), Carnival Cruises (CCL:NYSE) and Royal Caribbean (RCL:NYSE) are also feeling the pressure due to closures and suspension of services. These companies and companies alike are doing the responsible thing here until the World Health Organization establishes the proper plan to contain the spread of this fast moving virus.

To that end, yes the coronavirus is a global threat for now. Past viruses such as the coronavirus are serious health risks and this one is no different. However, for market participants past events like this have ended up being opportunities in the marketplace. Of course the highest priority here is to not only stop the spread of the virus, but to find a swift treatment for it. Until then I do expect continuing volatility in the markets.

In the short term my plan is to be patient and not to act in haste. Historically when situations like this occur and then move to a respite, markets begin to settle in. Good luck to all 🙂

~George

It’s A Broken Record!

Posted on by George Mahfouz

It’s a broken record indeed! That is the continuing record breaking run on Wall Street. On Friday the Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) set new all time highs. Seemingly, there is no stopping this record setting run that the markets have been on, at least for now. The latest catalyst was news out of Washington that the U.S. and China are close to coming to a “Phase 1” agreement on a trade deal. As I eluded to in my November 15th blog, new record highs could come into play by year-end if we see a trade deal happen. The caveat here is the deal is being titled as a “Phase 1” agreement and there is much more to agree upon to finish the deal out. That said, this is a definite step in the right direction and the markets seem to agree. I do want to keep my enthusiasm in check because of the volatility that continues to come out of Washington on this subject. We have all seen over the past several months tweets and statements out of Washington that we are close to a deal with China to only then wake up the next day to get the opposite statement either out of Washington or China. Phase 1 is a great step, but I am looking forward to the complete deal getting done and most likely that will yield to the first quarter of 2020.

In the meantime, investors are continuing to enjoy record highs and there doesn’t seem too much ahead between now and year-end that will change the course. The technical shape of the bellwether indexes remain intact. The Dow Jones Industrial Average (see chart below), the S&P 500 (chart) and the Nasdaq Composite (chart) are all trading below the 70 value level of the relative strength index (RSI). Also, each of these indexes are trading healthily above their 20, 50, 100 and 200 day moving averages.  

Paula and I wish everyone a very safe and happy holiday season.

~George

It's A Broken Record! - Paula Mahfouz

 

$7.4 Billion In One Day!

Posted on by George Mahfouz

The consumer is alive and well which is evidenced by a record $7.4 billion in online sales in one day. Black Friday set a United States record for online sales and between Thanksgiving Day and Black Friday over $11 billion in online sales rang the register. Well it’s not that hard to believe when all that the stock market has done this year is set record after record. As we enter the last month of the year, the Dow Jones Industrial Average (see chart here) is trading above 28000, the S&P 500 (see chart here) starts December near an all-time high, the Nasdaq Composite (see chart below) is also near an all-time high and the small-cap Russell 2000 (see chart here) also has hit its stride breaking out above a triple top that has formed over the past few months.

I have been writing my blog for almost 10 years and I thought years one through five of the recovery from the depths of the 2008 financial crises was impressive. What’s even more impressive to me is that over the past year or so we keep setting record after record despite having one of the most unstable governments in our history. Who would have thought that with a pending impeachment, a trade war with China and tape bomb after tape bomb hitting the tape we would still be at or near record highs? Simply incredible! With that said, the Federal Reserve has done its part this year by reducing interest rates which is probably one of the main reasons the markets still remain at or near record highs.

The technical shape of the stock market appears to still be intact. Despite reaching overbought conditions last week, Friday’s pullback brought the RSI level of the aforementioned indexes back below the 70-value level. The relative strength index is a technical indicator that expresses overbought and/or oversold conditions. The 70-value level of the RSI is considered overbought while the 30-value level is considered oversold. The major indexes all traded above the 70-value level until the most recent pullback. Even if we see a meaningful pullback here in December, there are plenty of support levels that will come into play with the 20-day, 50-day, 100 and 200 day moving averages which are all below where we are trading at today and historically acts as support in sell-offs.

Good luck to all 🙂

~George

$7.4 Billion In One Day! - Paula Mahfouz

An Absolutely Incredible Stock Market!

Posted on by George Mahfouz

It is absolutely incredible that this stock market is weathering the threat of impeachment! We have witnessed the strongest bull market in history! Not even the threat of impeachment can rattle this market. I do not want to get too political here but if half of this is true the markets just don’t care. Then throw into the mix the constant flip flopping that is going on with the China trade war and we are still near all-time highs? This makes me believe more now than ever that passive investing has almost got a total grip on stocks. Seemingly NOTHING can shake these markets. It’s almost like close your eyes and hang on for the ride. This worries me a bit. Why? Well for starters stocks used to be valued by their proprietary nature, growth potential, earnings power and ultimate dividend yields. We have witnessed a melt up in the stock market for more than a decade despite the shocks that have come and gone. What’s more is the geopolitical risks that are here and present and now our own President is going through an impeachment process and we still are near all time highs? Simply an absolutely incredible stock market we find ourselves in!

Well there is an old saying on Wall Street and that is the “trend is your friend!” My friends there is no denying this over the past decade. Let’s also keep in mind that the market is a lot smarter than we think. Meaning, there is no panic with this latest tape bomb of impeachment. Well one can say there is no way this President will get impeached because the Senate will not roll over. This very well may be the case. One thing we can do is pay attention to how corporate America continues to perform or not perform. At some point in time one would think that valuations will matter and that the markets will begin to pay attention to the normal risks that are inherent with any market.

Good luck to all 🙂

~George

 

 

Now Mexico Too?

Posted on by George Mahfouz

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 🙂

~George

Russell 2000 - Paula Mahfouz

 

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

8 In A Row!

Posted on by George Mahfouz

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)  which has entered overbought conditions with its RSI aka the Relative Strength Index (click here RSI) closing out the week at a value of 74.

Good luck to all 🙂

~George

Dow Jones Industrial Average - 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

 

Undeniable Market Correction!

Posted on by George Mahfouz

Despite this morning’s relief rally, stocks and indexes are either in an undeniable market correction or in an actual bear market. Healthy corrections are 10% or so declines, bear markets are defined by a 20% or more of a decline. This is where the small-cap Russell 2000 (click here for chart) finds itself and that is in a bear market. The Dow Jones Industrial Average (chart) is not quite in bear market mode nor is the Nasdaq Composite (chart) or the S&P 500 (chart). However, these indexes have lost over 6% of their value in December alone. Not since the great depression has the markets been hit this hard in the month of December. Furthermore, market sentiment has not hit this low since the 2008 crisis either.

So what is going on? The default answer to this question is the Federal Reserve and rising interest rates. The Fed actually meets tomorrow to decide on whether or not to raise by a quarter point. I think what’s even more important than whether or not they hike rates, it’s how dovish or hawkish they are in their testimony. I have to believe with how sharp and how fast stocks have corrected they may lean towards the more dovish spirit with a wait and see approach before raising rates again. The other default answer as to why stocks have been beaten down is the confusing messages that constantly flow out of Washington, especially as it pertains to the China trade war. The markets hate to be confused by policy makers especially our President and instead of holding on, clearly investors and traders alike have been dumping stocks for weeks now. If the Fed communicates their intentions clearly and if Washington is capable of doing the same, this could be just a market correction. If not, then I think we could see all of the aforementioned indexes fall into bear market territory. Good luck to all:-)

~George

Tariffs and Interest Rates…

Posted on by George Mahfouz

Tariffs and interest rates are at front and center. Now that Q3 earnings reporting season is winding down, without question the two remaining catalysts for these markets between now and year-end are  tariffs and interest rates. It’s been a long time since we have seen the swings that are going on right now in the stock market. Investor’s and trader’s alike are attached to every headline or tweet pertaining to the current trade war between China and the U.S. and whether or not the Federal Reserve will take its foot off of the pedal. The growing tensions between China and the U.S. regarding tariffs did abate late Friday when President Trump tweeted that China does want to make a deal. This was enough to rally the markets on Friday afternoon, but not enough to get the the key indexes out of the red on the week. On the week, the Dow Jones Industrial Average (chart) closed at 25,413, the S&P 500 (chart) closed at 2,736, the Nasdaq Composite (chart) closed at 7,248 and the small-cap Russell 2000 (see chart below) finished the week out at 1,527.

With the aforementioned looming catalysts on the horizon the big question is will we get a year end rally? My feelings are we may only need one of these catalysts to come through for a potential year-end rally. If China and the U.S. can agree upon more favorable terms to the imposed existing tariffs and/or actually withdraw some of the existing tariffs, we may have a shot. Not to say interest rates aren’t important, but relatively speaking interest rates still remain historically low. Even if the Federal Reserve raises rates in December, I still think that a China U.S. deal would be enough for a rally as we close out 2018. The G20 summit is just two weeks away and let’s hope some sort of deal can come forward out of the summit. Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz