ETF

Retail Stocks Retreat!

Posted on by George Mahfouz

So does this mean the consumer have closed their wallets? The SPDR S&P Retail ETF (Symbol: XRT) which has over 500M in net assets with holdings in a wide variety of the retail space has lost over 10 percent over the past few weeks with 4.4% of this sharp decline  occurring last Wednesday alone. This was the largest one day drop for this widely followed retail stock ETF in almost 5 years. Some individual retailers have even fared worst over the past month or so as their earnings reports and outlooks have been bleak to say the least. Just take a look of the charts of Macy’s (Symbol: M) and Nordstrom Inc. (Symbol: JWN) and you can see just how much these retails missed their earnings numbers and well as how they guided for the upcoming quarter and second half of the year.

No question the retail sector sell-off had an effect on the overall markets with the Dow Jones Industrial Average (chart) closing down over one percent on the week, the Nasdaq (chart) finished lower by one half of one percent, the S&P 500 (chart) closed lower by the same margin and the small-cap Russell 2000 (chart) closed the week out down over one percent.

As mentioned in my previous blog, the technical shape of the aforementioned indices appear to be breaking down and this past week did not help at all. So now it’s not just the 20-day moving averages that have been breached, each of these indexes have all now broken through their respective 50-day moving averages. What’s more, is we do not find ourselves in an oversold condition according to the relative strength index also known as the RSI. So with no real market moving catalysts this upcoming week, it is possible that the current selling pressure continues until oversold conditions occur or other support levels are hit. Good luck to all.

~George

Back To Setting Records!

Posted on by George Mahfouz

After a tumultuous and volatile month, stocks are back to their old habits. The Dow Jones Industrial Average (chart) and the S&P (chart) 500 both closed at record highs. The month of October also saw the Nasdaq (chart) finish up over 3% and the small-cap Russell 2000 (chart) closed the month out up an eye-popping 6.5%. So as far as the long awaited correction goes, lets take a look. The Dow (chart) from it’s previous all-time high corrected 8.61%, while the S&P 500 (chart) retraced 9.83% by mid-October. Not quite the text book healthy 10% correction most investors were looking for, but close enough. The question I have is, will this snap-back rally to new all-time highs hold? Earnings for the most part have been coming in pretty good, however I have not seen the robust top-line growth you would expect in order to keep setting new records. Nonetheless, easy global monetary policies continue to keep not only a floor under these markets, but provide enough juice to lift the markets to new highs. Just yesterday the Bank of Japan unexpectedly raised its bond buying program from JPY 70 trillion to 80 trillion and it also tripled its ETF buying to JPY 3 trillion. So as long as the federal reserves from around the world continue to increase their balance sheets, the bulls should have the upper hand.

The concern I have with the most recent market correction is that it didn’t last very long. It’s true that over the past five years most modest pullbacks immediately snapped back, just like this latest quasi-correction did. Personally, I would of liked the correction to last a little longer and go a little deeper for it feel like a meaningful correction. Because of the markets most recent snap back rally, all of the major averages are now fast approaching overbought conditions according the the Relative Strength Index (RSI). I truly think early next week will be the tell. If we continue to lift, then we will certainly breach the 70 value level of the RSI and enter into overbought territory and possibly remain overbought for the rest of the year. However, if the rally stalls, we could easily reverse and then who knows? Add the wildcard of mid-term elections this upcoming week into the mix, and most likely volatility comes back into the forefront. For me I am going to the sidelines until after the mid-term elections are over, and also to see if we stall here at record levels. Good luck to all and have a great weekend 🙂

~George

 

Is That It?

Posted on by George Mahfouz

After what appeared to be the beginning of a healthy correction in the early part of August, stocks held true to form and rallied back this week even as Ukrainian forces engaged and attacked a Russian armored convoy today. When news leaked about the attack, the markets did reverse their earlier gains and dropped meaningfully only to find support and rebound off sessions lows. The Nasdaq (chart) actually finished the day in the green. If you are long this market and are bullish for the remainder of the year, you have got to feel pretty good about how the markets have responded this week to a very unstable geopolitical global environment. For the week, the Dow Jones Industrial Average (chart) gained 0.66%, the Nasdaq (chart) finished the week up 2.15%, the S&P 500 (chart) +1.215% and the small-cap Russell 2000 (chart) closed the week up 0.91%.

Does this mean we are out of the woods yet? I am not so sure. One thing that I believe will continue is market volatility. There is headline risk and equities are certainly reacting to sudden headlines that come out of Ukraine as well as the middle east. The surprise I think is how resilient the U.S. stock market remains in the midst of the geopolitical risks that are upon us. However, this is the one thing that continues to concern me is the escalation of conflict in not just one region but now in two. One way to insure a portfolio is to buy some protection in the form of S&P 500 puts, and more specifically puts on one the most popular ETF that tracks the S&P 500, the SPDR S&P 500 (NYSE: SPY) (chart). So if you have a long portfolio in equities, by buying put protection with the SPY’s, it is like buying an insurance policy should the equity market experience a correction. Put options go up in value should the equity or index you buy puts in goes down in value. Options are not for everyone and it is usually wise to consult with a certified financial planner(s) before implementing any investment strategy, I am just illustrating one way to protect a long portfolio by way of insuring it to a certain degree.

As far as I am concerned, I will continue to monitor the technical conditions of the aforementioned indexes and look for any signs of overbought or oversold conditions to act upon. As of right now the key indices are not in either condition. Good luck to all 🙂

Have a great weekend.

~George