fiscal cliff

Happy New Year!

Posted on by George Mahfouz

Despite all of the domestic and global political and economic uncertainties that persisted throughout 2012, the Dow Jones Industrial Average (chart) managed to gain 7.3% for the year, the Nasdaq (chart) soared 15.9%, the S&P 500 (chart) leaped by 13.4% and the small-cap Russell 2000 (chart) closed the year up notching a 14% gain. I think most investors and traders were caught off guard with the double digits gains that occurred in 2012, especially with the pending fiscal cliff dilemma that our country is facing. However, in the wee hours of this morning the Senate did overwhelmingly approve a bipartisan deal that is now headed over to the House for a vote. Here is what part of the revised deal looks like:

The new deal postpones for two months the start of $1.2 trillion in automatic spending cuts over 10 years, known as the “sequester.” For those two months, $24 billion in savings would be substituted. Half of those savings would be split between defense and non-defense programs. The other half includes new revenues.

Raises $600 billion in revenue over 10 years through a series of tax increases on wealthier Americans.

Permanently extends tax cuts made in 2001 by Republican President George W. Bush for income below $400,000 per individual, or $450,000 per family. Income above that level would be taxed at 39.6 percent, up from the current top rate of 35 percent.

Above that income threshold, capital gains and dividend tax rates would return to 20 percent from 15 percent.

Includes a permanent fix for the alternative minimum tax.

Extends child tax credit, earned income tax credit, and tuition tax credit for five years.

Extends unemployment insurance benefits for one year for 2 million people.

Avoids a cut in payments to doctors treating patients on Medicare – the so-called “doc fix.”

Temporarily extends farm programs.

So now we have to wait and see if the House of Representatives will pass this modified deal and hopefully we can get that answered today.

Have a very safe, healthy, prosperous and Happy New Year 🙂

All the best,

~George  

 

No deal, no problem?

Posted on by George Mahfouz

Despite Washington’s inability to come to terms yet on the fiscal cliff, stocks continue to march higher this week. Today, the Dow Jones Industrial Average (chart) closed up 59.75 points and is up around 1.5% so far this week, the S&P 500 (chart) finished the day up 7.88 points, the Nasdaq (chart) +6.03 points and the small-cap Russell 2000 (chart) closed up 4.60 points.

With only six trading days left in the year, maybe all we need is the proverbial “Santa Clause” rally to close the year out on a high note. Hopefully, Washington can help Santa out and get some sort of deal done before year end, if not, the markets could be in for some rough sledding.

Have a safe and happy holiday season 🙂

~George

Stimulus to continue…

Posted on by George Mahfouz

Stocks finished the week modestly lower despite the Federal Reserve extending its commitment to keep interest rates near zero. For the week, the Dow Jones Industrial Average (chart) closed lower by 20.12 points, the Nasdaq (chart) -6.71 points, the S&P 500 (chart) -4.49 points and the small-cap Russell 2000 (chart) was one of the sole indexes that managed to eke out a gain finishing the week up 1.48 points.

On Wednesday the central bank enhanced its accommodative policies by now tying the near zero interest rate environment to the unemployment rate vowing that interest rates will not increase until the unemployment rate in our country moves down to 6.5%. I think this creative move surprised most economists for never before has interest rates been directly tied to the unemployment rate. However, the market reaction was less than impressive to latest addition that the Fed made to its policy. My beleif is that until we get some sort of deal out of Washington on the fiscal cliff, not too much will be able to move the needle on these markets. That said, once we have clarity on the fiscal cliff dilemma, I will continue respect the power of the central bank and its ability to remain a significant force in our economy and our markets. In the meantime I will pay close attention to how the market action looks vis-a’vis the technicals on the key indices, and will be ready to deploy a long bias strategy once the coast is clear, Good luck to all.

Have a great weekend 🙂

~George

Impressive resilience…

Posted on by George Mahfouz

Despite the incessant flow of “fiscal cliff” news from all of the media outlets, stocks continue to hold their own. For the week, the Dow Jones Industrial Average (chart) closed up 1%, the S&P 500 (chart) + 0.13%, the Nasdaq (chart) -1.07% and the small-cap Russell 2000 (chart) finished the week flat. Not too shabby considering all of the fear and uncertainty surrounding the fiscal cliff and that Washington has not really progressed towards a deal.

With only a few weeks left in trading year and the fiscal cliff deadline, what is an investor or trader to do? Well if you are a trader you should love this type of environment. I am expecting volatility to pick up steam between now an year end. This should present larger market swings and provide excellent trading opportunities both on the long and short side. If you are an investor you may want to sit it out until we get a deal out of Washington. I remember the days when you would make investment or trading decisions based on fundamentals and technical analysis. Now seemingly the biggest factors are whether or not the central banks will continue to support the markets and whether or not Washington can get along. Needless to say, this dynamic has placed additional uncertainty on the markets and investors or traders now have to add this in the mix of their decision making processes. Good luck to all.

Have a great weekend 🙂

~George

Will the month of December be jolly for stocks?

Posted on by George Mahfouz

Although the key indices finished essentially flat for the month of November, everyone now is asking “will a Santa Claus rally come into effect?” For the month, the Dow Jones Industrial Average (chart) closed lower by 0.55%, the Nasdaq (chart) finished up 1.11%, the S&P 500 (chart) +0.29% and the small-cap Russell 2000 (chart) closed the month up 0.39%.

With the ever increasing rhetoric coming out of Washington regarding the fiscal cliff and whether or not a deal can be made, I am not so sure that we can have a year end rally. Markets hate uncertainty and unfortunately it may take a market swoon for both sides of the aisle and the President to come together on a deal. If this is the case, we could indeed retest the mid-November lows on the S&P 500 (chart) which would be about 70 S&P points from the close on Friday. That said, the markets right now are so sensitive to every word that comes out of Washington, a rally could also occur should there be any positive developments. Most traders embrace this type of environment for it does produce opportunities on the long and short side.

Technically speaking, all of the aforementioned indexes including the transports remain above their respective 200-day moving averages and appear to want to go higher, however, politics and policy do hold the cards as to how we close out the year. Good luck to all.

Have a great weekend 🙂

~George

Snap back rally!

Posted on by George Mahfouz

Bulls took charge this holiday shortened trading week sending the four key indices up over 3%, albeit on light volume. The Dow Jones Industrial Average (chart) closed the week at 13009.68, the Nasdaq (chart) 2966.85, the S&P 500 (chart) 1409.15, and the small-cap Russell 2000 (chart) finished the week above 800. This after weeks of incessant selling pressure which created extreme oversold conditions. What also boosted equities this past week was the kickoff to the 2012 holiday shopping season and early reports of long lines and busy shopping malls.

The week ahead promises to be volatile as politics once again takes center stage. Congress and the President will meet to negotiate and hopefully move towards a resolution of the fiscal cliff dilemma facing our country. Although the fiscal cliff scenario continues to grab headlines, I am also keeping a close eye on the geopolitical backdrop out of the middle east and Europe. To me all of the above is enough risk to not get too comfortable with last weeks rally and to have protective stops in any and all positions. Good luck to all.

Have a great weekend 🙂

~George

5% haircut since election day…

Posted on by George Mahfouz

One can surmise that the markets have most certainly voted! Once again stocks sold off this week in light of the fiscal cliff fears and whether or not Washington will be able to get a deal done. For the week, the Dow Jones Industrial Average (chart) fell 1.77%, the Nasdaq (chart) -1.78%, the S&P 500 (chart) -1.45% and the small-cap Russell 2000 (chart) closed lower by 2.36%. There was a bit of reprieve from the selling pressure yesterday after both sides of the aisle came out of their first formal fiscal cliff meeting and indicated progress was being made. This was enough to help the aforementioned indexes to close in the green on Friday.

The market climate that we are now in reminds me of last summer when Congress was battling it out over the debt ceiling crisis and how the key indices were down close to 10% in a short period of time. Back then market volatility was historic while the politicians were duking out that crisis. Although stocks are certainly in correction mode, what I am not seeing this time is enormous volatility. Let’s take a look at the VIX index (chart). The VIX, also known as the fear gauge, is used as an indicator of investor sentiment. Right now the value of the VIX (chart) is not indicative of extreme panic in the marketplace especially when you compare it to last summer. Hopefully Washington can come up with a solution to resolve the fast approaching cliff which would restore confidence and calm the markets. Good luck to all.

Have a great weekend 🙂

~George