earnings reporting season

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

 

Rally Caps Are On!

Posted on by George Mahfouz

After breaching all moving average support lines including the 200-day, the major averages have their rally caps on! The Dow Jones Industrial Average (see chart here) finished the month of April on a high note. The same can be said for the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here and below).

After a slow start to the year including a brief dance with a bear market, stocks have rallied recently to turn green. Even the small-cap Russell 2000 is now green for 2023. So, what is causing the renewed bullish action? In part I think a stronger than expected first quarter earnings results have played a role in this latest bull run along with the Federal Reserve potentially slowing down their interest rate hike program. Positive earnings surprises have come from the health care sector, consumer discretionary and Industrials sector. It’s not just better than expected earnings results, it’s the top line revenue numbers that are also coming in stronger than expected. These data sets are great to see but we still do have some headwinds with inflation remaining high which means the Federal Reserve may not be quite done yet with higher rates.

When I take a look at the technical shape of the markets, there are some encouraging signs that may play a role in the continuation of this latest bull run. It appears that the Dow Jones Industrial Average (see chart here) is breakout out of a month’s long trading channel, as is the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) also appears to be breaking out. I also see that the aforementioned indexes have not yet breached the 70 value level of the Relative Strength Index aka the RSI. The 70-value level of the RSI is considered the beginning of overbought conditions and we are not there yet.

Let’s see how the month of May goes and we will check back on the technical shape of the markets in June. Good luck to all 🙂

~George

Rally Caps Are On! - Paula Mahfouz

The 200-Day Breached…

Posted on by George Mahfouz

In my March blog I highlighted the 200-day moving average and questioned whether or not this key support zone would hold on the major averages. Low and behold the 200-day moving averages were breached for the better part of the month only to come roaring last week. The Dow Jones Industrial Average (see chart here) closed the month up slightly at 33274, the S&P 500 (see chart here) also closed in the green at 4109, the Nasdaq Composite (see chart here) closed the month up at 12221 points, however the small-cap Russell 2000 (see chart here) did not recapture its 200-day and closed the month of March lower at 1802.

As mentioned above, although the markets experienced heavy selling pressure last month which was fueled by the collapse of Silicon Valley Bank, in the final the week of March the markets experienced a meaningful rally which propelled most of the major averages right back through their respective 200-day. The response to this 200-day breach and how the major averages blew right past this technical line is seemingly bullish.

With the first quarter in the books market participants will now begin to focus on Q1 earnings reporting season to see how well corporate America is doing. Last month there was the shock of Silicon Valley Bank failing and that certainly drew the attention of the Federal Reserve. This event may guide the Fed going forward to change their current interest hike program. If the Fed starts easing interest rate hikes this could help the overall selling pressure that the markets have experienced so far this year. Furthermore, if Q1’s earning reporting season goes better than expected or at least if companies guide up a bit, this may be enough to quell the selling.

Let’s see what is in store for April and hopefully we continue to see the selling pressure ease up. Good luck to all 🙂

~George

Best Monthly Performance In Decades!

Posted on by George Mahfouz

We just witnessed the best monthly performance for stocks in the Dow in decades. The Dow Jones Industrial Average (see chart here) closed the month of October up almost 14%. The S&P 500 (see chart here) finished the month up 8% while the Nasdaq Composite (see chart here) rose 4% and the small-cap Russell 2000 (see chart here and below) closed the month of October out up over 10%. Quite the performance considering how much pressure the markets have been under over the past several months. The one index that is standing out to me right now is the tech centric Nasdaq. Technology stocks remain under pressure as earnings reporting season for the tech sector has disappointed analysts and investors alike. Earnings out of Facebook, Amazon and Google underscores the pressures that the tech sector is currently facing. My feelings are that we are simply in the midst of coming out of an unsustainable bull market that got out of control and into a more balanced and fair valued market. By no means am I suggesting that the market is now at fair value, but it is certainly adjusting to more reasonable levels.

That being said, the Federal Reserve is not done with raising interest rates and inflation also remains at highs not seen in 40 years. Both factors may continue to put pressure on stocks. In fact, there are analysts coming out and projecting another meaningful leg down for the markets. Whatever the case may be, opportunities do present themselves in bear markets however, patience is also required and scaling in is always a good fundamental approach when entering stocks in this type of market environment.

From a technical analysis standpoint, I do see the aforementioned indexes approaching or at their respective 200 and 100-day moving averages could be a sign of pause in this powerful rally we just experienced or a continuation of the current rally.

Good luck to all 🙂

~George

 

 

Record Highs Again!

Posted on by George Mahfouz

Record highs were hit again this week as both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) continue to plow ahead. However, not the same can be said for the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here). Both of these indexes have lagged behind the Dow and S&P torrid pace.

As with technology and small-cap stocks, when interest rates begin to move up these sectors begin to take notice. The 10-year treasury yield is one of the go to benchmarks that professional money managers key in on. This week the 10-year yield touched a one year high of 1.77% (see chart here). It’s easy to look at that yield and think that this yield is not that high at all. However, when you realize that just last summer the yield on these bills were at 1/2 of 1 percent, the move up to 1.77% does stand out. This sharp move from off the lows of 2020 is what has caught the eye of professional money managers that value high growth companies. It is clear that a full rotation out of high multiple stocks has not occurred yet, but higher interest rates and the threat of the continuation of higher interest rates seem to be the reason why the Nasdaq Composite (see chart below) and the small-cap Russell 2000 (see chart here) have lagged.

Now that the first quarter of 2021 has ended, Q1 earnings reporting season is on the horizon. I am not sure what to expect out of corporate America pertaining to top or bottom line growth. We find ourselves at what appears to be the start of coming out of the pandemic with some degree of normalcy. I would not be surprised if corporate America is bullish on their quarterly conference calls and speak directly to the early results of the vaccine deployment and the change that they are seeing in their customers behavior and spirits.

Good luck to all -)

~George

Record Highs Again! - Paula Mahfouz

 

 

 

 

 

Stimulus Package Chatter Buoys Markets…

Posted on by George Mahfouz

Yesterday, the lastest round of stimulus package chatter came out of Washington which helped buoy our markets. The Dow Jones Industrial Average (see chart here) closed the month of September out at 27781, the S&P 500 (see chart here) finished the month at 3363, the Nasdaq Composite (see chart below) closed at 11167 and the small-cap Russell 2000 (see chart here) finished at 1507. Although stocks had a strong close to end September, the month of September was a net negative for the markets. No question the uptick in COVID both here and abroad has put some pause to this bull market rally. Quite honestly, I think stocks have held up pretty well despite the ongoing pandemic and the constant tape bombs coming out of Washington.

Fast forward to today and we are now a month away from our Presidential election. I have got to believe that we are heading into more volatility than what we experienced in September. I think whoever watched the first Presidential debate would agree. In addition to the upcoming election, we are also heading right into Q3 earnings reporting season. Corporate America will be releasing their third quarter financial results over the next 45 days or so and that alone can create higher volatility. I am not sure what to expect when companies report their numbers and even more so how companies provide their forward looking guidance on their conference calls. Whatever the case is, I think it’s fair to say we will not be trading sideways here in the month of October.

Let’s take a gander at the technical shape of the aforementioned indexes. What has impressed me lately is how the Dow Jones Industrial Average (see chart here) found support near its 200-day moving average and more recently its 50-day moving average. The same can be said for the other major averages in how they too have found support at their respective moving averages. What’s more is these key indices are no where near overbought territory according to the relative strength index aka the RSI. So from a technical analysis standpoint, the markets look to be on solid footing.

Good luck to all 🙂

~George

Stimulus Package Chatter Buoy Markets - Paula Mahfouz

Better Than Expected…

Posted on by George Mahfouz

Q3 earnings reporting season has just begun and early on earnings are coming in better than expected. Almost 15% of the S&P 500 have reported their latest quarterly earnings and over 80% of that group have beat expectations. Included in this group that have already reported are Netflix (Nasdaq: NFLX), Bank of America (NYSE: BAC), JP Morgan Chase (NYSE: JPM), and Morgan Stanley (NYSE: MS) just to name a few. A look ahead to next week and hundreds of companies are set to report including but not limited to Halliburton (NYSE: HAL), TD Ameritrade (Nasdaq: AMTD), Biogen (Nasdaq:BIIB), Discover Financial Services (NYSE: DFS), Harley-Davidson (NYSE: HOG), McDonald’s Corp (NYSE: MCD), Proctor and Gamble (NYSE: PG), United Parcel Service (NYSE: UPS), Boeing Co (NYSE: BA), Caterpillar (NYSE: CAT). eBay (Nasdaq: EBAY), Ford Motor Co. (NYSE: F), Las Vegas Sands Corp (NYSE: LVS), Microsoft (Nasdaq:MSFT), O’Reilly Automotive (Nasdaq:ORLY), Paypal Holdings (Nasdaq:PYPL), Spirit Airlines (NYSE: SAVE), Tesla (Nasdaq: TSLA), Xilinx (Nasdaq: XLNX), 3M Co (NYSE: MMM), Aflac Inc (NYSE: AFL), American Airlines Group (Nasdaq: AAL), Capital One Financial Corp (NYSE: COF), Citrix Systems (Nasdaq: CTXS), Deckers Outdoor Corp (NYSE: DECK), First Solar (Nasdaq: FSLR), Gilead Sciences (Nasdaq: GILD), Southwest Airlines (NYSE: LUV), T-Mobile (Nasdaq: TMUS), Twitter (NYSE: TWTR), Visa Inc (NYSE: V), Goodyear Tire & Rubber (NYSE: GT), Phillips 66 (NYSE: PSX), and Royal Caribbean Cruises (NYSE: RCL). Hundreds more companies are set to report but you get the picture.

So with earning reporting season kicking into high gear, let’s see how investors continue to respond. On the week the Dow Jones Industrial Average (chart) closed at 26770, the S&P 500 (chart) closed just under the 3000 mark, the Nasdaq Composite (chart) closed at 8089 and the small-cap Russell 2000 (chart) closed the week at 1535. With the exception of today’s pullback the aforementioned indexes have all been in a recent uptrend. I think it is safe to say that next week’s earnings results will play a role in the markets direction.

Good luck to all 🙂

~George

First Rate Cut In Over A Decade!

Posted on by George Mahfouz

Yesterday the Federal Reserve conducted its first rate cut in over a decade! Although widely expected, the markets were disappointed as to how Fed Chairman Jerome Powell signaled that this is does not necessarily mean more rate cuts are forthcoming. Chairman Powell’s statement sent stocks down sharply. The Dow Jones Industrial Average (see chart here) closed down over 330 points, the S&P 500 (see chart here) closed lower by 32.80, the Nasdaq Composite (see chart here) finished down almost 100 points and the small-cap Russell 2000 (see chart below) finished the day down 11 points. The markets were hoping that Mr. Powell would remain dovish and it was clear he was the opposite. That said, a rate cut is a rate cut and the intention is to keep the economy moving. Despite the rate cut move, The White House came out and complained about how Chairman Powell handled his statement and it is no secret that administration wants further rate cuts. I do think additional rate cuts may not be needed due to how Q2 earnings reporting season is going so far. The street was expecting an “earnings recession” at least in the last quarter. But as we are now half way through earnings reporting season, so far so good. There are not many earnings surprises to the downside and future guidance is not too shabby so far.

Let’s take a look at the current technical shape of the markets. The indexes have been going sideways as of late with the exception of yesterday’s selloff. That said, yesterday’s selloff did break the 20-day moving averages of the Dow Jones Industrials, the S&P 500 and the Nasdaq Composite, however, the small-cap Russell 2000 closed above its 20 day and actually demonstrated more relative strength than the other averages. A one day selloff does not necessarily mean the beginning of a new downward trend so let’s wait and see how the rest of earning reporting season goes and then we can assess how the back half of the year shapes up.

Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz

 

 

Will Earnings Take The S&P To All Time Highs?

Posted on by George Mahfouz

Now that earnings reporting season is upon us, will Q1 corporate earnings take the S&P 500 (see chart here) to all time highs? We are about to find out. For the first time in months the S&P 500 (see chart here) closed above the 2900 mark and is now within striking distance of its record close of 2940 set back in September. Once again the markets feel like they are in melt up mode. The Dow Jones Industrial Average (see chart below) closed on Friday at 26412 just 500 points away from its record high, the Nasdaq Composite (see chart here) is approaching the 8000 level a level it hasn’t seen in months, and last but not least the small-cap Russell 2000 (see chart here) is approaching the 1600 level and trading above its 200-day moving average.

The technical shape of the markets also appear to be healthy heading into Q1 earnings reporting season. All of the aforementioned indexes are trading above their 20-day, 100-day and 200-day moving averages. A good sign. Furthermore, none of these averages are in overbought territory this according the the relative strength index. Yet, another good sign.

Back to Q1 earnings reporting season. Although analysts and market pundits expect corporate earnings to have declined this quarter, I will be paying attention to the guidance that companies give. It’s no secret there has bee a global slowdown lately due to a variety of factors. However, if companies give better than expected guidance, then most likely we should indeed see new record highs.

Companies to look out for this week that are reporting are, Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC), Johnson & Johnson (NYSE: JNJ), Netflix (NasdaqGS: NFLX), United Continental Holdings (NasdaqGS: UAL), Abbott Labs (NYSE: ABT), Alcoa (NYSE:AA), Las Vegas Sands, Corp. (NYSE: LVS), PepsiCo, Inc. (NasdaqGS: PEP), American Express (NYSE: AXP) and Honeywell International (NYSE: HON) just to name a few. Let’s see if Q1 earnings reporting season becomes the catalyst for new record highs. Good luck to all 🙂

~George

Dow Jones Industrial Average - Paula 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.