A Weak Week For Stocks…

Stocks closed out the final week of May on a softer note with the Dow Jones Industrial Average (chart) falling 221.34 points, the Nasdaq (chart) lost 19.33 points, the S&P 500 (chart) -18.67 points and the small-cap Russell 2000 (chart) closed the week lower by 5.69 points. Considering the record closing highs that have been set over the past month or so, its no surprise that equities took a bit of a breather.

Now that we are in the month of June, let’s see if this seemingly temporary pause turns into something more meaningful. The month of June historically is a unfavorable month for stocks and this year may be no different. In fact, in this trading week headline risks are abound. Internationally speaking, without a doubt Greece’s debt talks will continue to grab the attention of investors this week as well as the ECB’s central bank meeting. Here in the states, traders will continue to pay attention to the continuing strength of our dollar as well as May’s jobs report at the end of the week. As you can see there are plenty of catalysts that could become market moving events.

Technically speaking, the aforementioned indexes are finding support at their respective 50-day moving averages and none of these indices are in overbought or oversold territory according to the relative strength index (RSI). One technical point I do want to make is when stocks were setting records earlier in May, the volumes associated with those records were on the lighter side. As mentioned in my previous blog, my preference would of been to see these records being set with much stronger volume.

Have a great week and good luck in the month of June 🙂

~George

Q1 Ends With A Bang!

Stocks closed out the first quarter of the year down impressively. The Dow Jones Industrial Average (chart) closed down 200.19 points, the Nasdaq (chart) -46.55, the S&P 500 (chart) -18.35 and the small-cap Russell 2000 (chart) finished the day down 5.03 points. The Dow Jones Industrials (chart) also finished the quarter slightly in the red, while the other aforementioned indices eked out modest gains.

Looking ahead to Q2, I suspect that we will be in for a very volatile and choppy market. As the first quarter was winding down we were experiencing triple digit swings on the Dow, as well as spikes in volatility across the board. Now I am beginning to think we will even see more volatility come into the market. April historically is a strong month for stocks, but we find ourselves entering into Q1 earnings reporting season in which I think corporate America may see widespread earnings declines. This is due in large part to how strong the U.S. dollar (chart) has been and how this will affect a wide array of multi-national companies who generate meaningful revenues overseas. A strong dollar does not bode well for U.S. companies with this type of earnings profile. Of course not all U.S. companies rely on overseas revenue and I would also think that certain technology and healthcare companies will do just fine.

The one sector I will be paying the closest attention to this upcoming earnings reporting season is the energy sector. Oil (chart) has been taken out to the woodshed since last fall as well as the majority of oil related stocks. So with the price of oil plunging as it has, earnings out of this sector should be horrific. However, these are the times when rare opportunities can and do present themselves. I will look for “washout” moments with certain oil related stocks after they report their earnings to step in and start building positions. I would expect most of the bad news in this sector is about to be released, hence, a set-up for the right buying opportunity. Of course, I will be looking for companies with pristine balances sheets, with minimal to no debt and have those companies at the top of my list. That said, before you make any investments in any sectors, make sure that you consult with a trusted and certified financial advisor(s) to understand the risks associated with stocks, commodities and the like. Also note, this is a holiday shortened trading week due to Good Friday and both Paula and I wish everyone a very safe and happy holiday weekend 🙂

~George