George

Best week of the year…

Posted on by George Mahfouz

Stocks posted their best weekly showing of the year erasing almost half of the losses that occurred in May. The Dow Jones Industrial Average (chart) soared 3.59%, the Nasdaq (chart) +4.04%, the S&P 500 (chart) +3.72% and the Russell 2000 (chart) finished the week up 4.30%. This snapback rally was on the heels of China making a surprise interest rate cut on Thursday.

Up until this week, equites had been under immense pressure due to the European debt crisis and more recently our own country’s weakening economic picture. In last week’s blog I eluded to the potential of the global central banks stepping in and placing a floor under the markets with additional liquidity measures, and sure enough China was the first country to act. This was followed up by our own Federal Reserve reiterating to Congress thier commitment to intervene should the economy here continue to falter.

To sum up the latest actions by the global central bankers and it relates to equities, at the very least stability should come into the marketplace with the potential to recharge the bull run we had been on. In addition, I would expect that gold becomes a huge beneficiary from the heightened debt levels that are on the balance sheets of central banks around the world.

That said, at some point and time and probably sooner than later, the economies from around the globe will have to be able to stand on their own two feet. Central bankers can only do so much before the stimulus programs begin to have an overall negative effective on the economy and markets. Good luck to all.

Have a great weekend 🙂

~George

Unemployment report send equities spiraling!

Posted on by George Mahfouz

As if the European crisis wasn’t enough. Yesterday’s unemployment report was a stark reminder that our own economy is by no means out of the woods yet. U.S. employers added only 69,000 jobs to their payrolls, far less than the 150,000 that most economists projected. The unemployment rate also ticked up to 8.2%. This sent the markets into a tailspin with the Dow Jones Industrial Average (chart) losing 274.88 points, the Nasdaq (chart) -79.86, the S&P 500 (chart) -32.29 and the Russell 2000 (chart) -24.40 points. Couple yesterday’s tape with the 6%+ decline for the key indices in May, and you have almost a 10% correction in a month and a day!

Too far too fast? Not so sure? Unless the governments and central banks unite over this weekend and come up with some sort of an additional stimulus plan, we could be in for further downward pressure on Monday and the rest of next week. I am not suggesting that the central banks should step in every time we have a market meltdown, but with the incessant debt crisis in Europe and now our own economy faltering, there may not be another alternative.

As an investor/trader in this type of market environment, one must exercise extreme caution. For me it would be easy to say “well the markets have now officially broken down and broke through key technical support levels, let’s go short” and probably that strategy would work. However, I have seen this movie before in whereas technically and fundamentally speaking equities appear to heading a lot lower. Then you wake up one morning and indeed the governments from around the world come up with a blanket plan to place a floor under the markets and then the massive rally begins.

Point being this, we live in a very different world today and what appears to be undervalued or for that matter overvalued in the marketplace, it really doesn’t matter. So long as you have accommodative Fed policies, the markets will trade according to the central bank(s) guidelines, not on fundamentals. Good luck to all.

Have a great weekend 🙂

~George

A week of respite for stocks…

Posted on by George Mahfouz

Despite the Dow, Nasdaq, S&P 500 and the Russell all finishing lower on Friday, these key indices finally completed a week in positive territory. In fact, this is the first positive week for the bellwether indexes in the month of May. For the week, the Dow Jones Industrial Average (chart) closed up 0.69%, the Nasdaq (chart) +2.11%, the S&P 500 (chart) +1.74% and the Russell 2000 (chart) gained 2.57%.

Without question the markets last Monday experienced a technical bounce due to oversold conditions across the board. What was impressive to me is that equities for the most part managed to hold on to their gains. Not so sure if this will be the case this upcoming week. Between the never ending saga from across the pond and a slew of economic reports from here at home, next week is setting up to be to be a very volatile week. The most critical economic report that all will be watching is Friday’s jobs report. If we do not begin to see the private sector strengthen in a meaningful way, we could be in for a long summer and a possible new administration this fall. Good luck to all.

Have a safe and healthy Memorial Day weekend 🙂

~George

Bears take charge!

Posted on by George Mahfouz

Although the markets appear to be oversold, the bears have clawed their way back into the spotlight. For the week, the Dow Jones Industrial Average (chart) lost 3.52%, the Nasdaq (chart) -5.28%, the S&P 500 (chart) -4.30% and the Russell 2000 (chart) -5.42%. In my May 6th blog, I eluded to the 200-day moving average being tested on these key indexes and it appears that next week this major support line will indeed be intruded. In fact, the Russell 2000 (chart) not only tested its 200-day, it closed below it yesterday.

So what has happened in May to turn the markets and what is the retail investor to do? Without question the European debt crises is at the forefront of this selloff. Between Greece’s seemingly imminent default and multiple Spanish bank downgrades last week, this alone was more than enough to spook investors. Then add in the mix the continuing fallout of JPMorgan’s (NYSE: JPM) massive trading loss, plus the spectacular run that stocks have had since last October, it’s no wonder we find ourselves in the midst of a 10% correction.

So what is one to do? As an investor/trader when I see fear in the marketplace as we have now, I make a list of top notch companies and look for select buying opportunities. However, I have learned that you must be patient in this type of environment and if you think the market is close to bottoming, it is always best to take on positions very slowly and in very small increments. For example, if you are looking to buy 1000 shares of a given company that you have been waiting for to go on sale, you may want to consider 100 share lots over a period of time. Far too many times investors think that equities have hit bottom and buy all at once without considering that stocks and indexes can continue to go lower and remain oversold for an extended period of time. With the scale in method, the good news is that should the markets turn and go higher, at least you have initiated a position and will benefit from the turn. Whatever your strategies are, it’s always best to exercise patience in this type of climate and always use protective stops on all of your postions. Good luck to all.

Have a great weekend 🙂

~George