New Week, New Record Highs?

New week, new record highs? The Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) are fast approaching all-time highs. Both of these major indexes have been on a tear of late and could see new record highs this upcoming week. However, breaking news came out yesterday that Saudi Arabia has shut down half of its oil production after drones attacked the world’s largest oil processing facility. This attack will impact 5 million barrels of daily oil production. One sector that will certainly be affected is the energy space. The price of oil is now expected to skyrocket at least here in the short term. I am not sure if the markets will shrug this dynamic off, but I do expect energy stocks to outperform.

As I take a look at the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) both of these indexes appear to be ready to breakout and join the Dow Jones Industrials and the S&P 500 most recent performances. If the news out of the middle east has a negative impact on stocks, there are plenty of technical support levels that would come into play. All of the aforementioned key indexes are trading comfortably above their 20-day, 100-day and 200 day moving averages. During the month of August the 200-day moving average provided major support multiple times. As I look at the relative strength index to see how close we are to overbought conditions, there is still plenty of real estate before we see the 70 level of the RSI. So technically speaking the indexes appear to be in relatively good shape.

Without question the oil markets and the energy sector will be the focus this week. I am also curious to see how the overall markets react to this latest development out of the middle east. Good luck to all 🙂

~George

 

 

Dow, Nasdaq And S&P All At Record Highs!

The Dow Jones Industrial Average (see chart here), the Nasdaq Composite (see chart here) and the S&P 500 (see chart here) are all at record highs. Stocks continue to be on a tear with 3 of the 4 major indexes closing at all time highs on Friday. What’s more the S&P 500 (see chart here) closed above the 3000 mark for the first time ever. The one index that still has work to do before making a new high is the small-cap Russell 2000 (see chart below). I am not exactly sure why the Russell is lagging behind the big boys but if the Russell 2000 gets going then who knows how many more records will fall.

That said, for the first time in a while the Dow Jones and the S&P 500 have both entered into overbought territory which is above the 70 value level of relative strength index also know as the RSI. The Nasdaq Composite is fast approaching overbought conditions as well. The Russell 2000 is no where near overbought. I do expect a bit of a pullback in the coming weeks which would be rather healthy for stocks after such a strong performance. I have never been a fan of buying into record highs although momentum traders would disagree. Another factor to consider is we are heading right into second quarter earnings reporting season. Earnings reporting season could be a catalyst to pause the summer rally especially with the percentage of companies issuing warnings so far (click here)

The tariffs that our administration have imposed is expected to have a negative effect on the top and bottom lines of many U.S. companies. What I will be looking for is how much of an affect these tariffs are having on corporate America. The other side of the coin is if tariffs weigh heavier than what is anticipated, this could be yet another reason for the Federal Reserve to move to cutting interest rates which is the real reason I think we are hitting all time highs. Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz

 

 

One Hot June!

One hot June indeed and I do not mean the weather folks! Stocks and commodities went on a tear in the month of June logging the best June in decades for some of the indexes and other asset classes. The Dow Jones Industrial Average (see chart here) soared over seven percent last month. The S&P 500 (see chart below) hit an all time high in the month of June while both the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) notched impressive gains as well. What’s more is both oil and gold surged right along side of the key indexes.

So why the rally? I think the answer is simply an easier monetary posture by the Federal Reserve. It is no secret that inflation is well in check and it is also becoming apparent that the U.S. job market is cooling off. Another factor for the Fed to consider is what impact would a full blown trade war with China do to the U.S. economy? This is why in my opinion we are seeing a continuing upward trend in our markets and that is a dovish Fed is usually very good for stocks. One other factor that will certainly weigh in is the upcoming earnings reporting season. Now that the second quarter of the year is in the books we will see how well corporate America did in Q2 as earnings reporting season gets underway this month. I will continue to look to monitor how “top-line” growth is faring.

Let’s take a quick look at the technical shape of the key indexes. After surging over 7% in June, the Dow Jones Industrial Average (see chart here) remains clearly above its 20-day, 100-day and 200-day moving averages as does the S&P 500 (see chart here). The Nasdaq Composite (see chart here) is in a healthy technical condition and last but not least, the small-cap Russell 2000 (see chart here) has broken above its key moving averages. This is a very good sign for stocks and furthermore none of indices are in overbought territory according to the principles of the RSI also known as the relative strength index.

Both Paula and I wish everyone a very safe and Happy 4th of July holiday 🙂

~George

S&P 500 - Paula Mahfouz

 

 

 

 

Stocks End Q1 On Fire!

Stocks ended the first quarter of the year on fire! The Dow Jones Industrial Average (see chart here) closed Q1 up over 11%, the S&P 500 (see chart here) closed the first quarter up over 12% which is the best performing quarter in years for this bellwether, the Nasdaq Composite (see chart here) closed up more than 17% and the small-cap Russell 2000 (see chart below) closed out the first quarter of the year up over 14%. Yes folks these gains are incredibly impressive especially considering how global growth is slowing. That said, these eye-popping market gains are not too surprising considering the sharp sell-off that stocks experienced in that latter part of 2018. Without a doubt the aforementioned indexes were way oversold in late December and an oversold bounce of some sort was definitely in the cards. As we know, market swings can and do overshoot to downside such as what we saw in late 2018 and now the question is, will we overshoot to the upside?

It sure does not appear that way at least from a technical perspective and according to the Relative Strength Index (RSI). 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 no where near overbought conditions yet. This despite all of these key indices rallying double digits in Q1. What’s more, all but one of these indices are also trading above their key moving averages including their 20-day, 100-day and 200-day with the lone exception being the small-cap Russell 2000. Now there could be some consolidation going on here over the next few weeks and up until first quarter earnings reporting season begins which would actually be healthy for the markets.

Speaking of the upcoming earnings reporting season, this could be the one catalyst that sheds the most light for the rest of the year on how stocks will fare. It is no secret global growth has slowed and I think corporate America will speak to whether this current global slowdown is just a blip on the radar or something much more meaningful.

Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz

 

Traders And Investors Are Awaiting A September Selloff…

Traders and investors are awaiting a September selloff that actually may not come. Stocks continue to demonstrate strength and resiliency despite the political turmoil in Washington DC, rising interest rates and a seasonality headwind that just isn’t happening. August and September are typically weaker months for the stock market, instead the S&P 500 (see chart below), the Nasdaq Composite (chart) and the small-cap Russell 2000 (chart) hit all-time record highs and the end of August and despite a mini pullback shortly thereafter, the markets appear to have stabilized near all time highs. The Dow Jones Industrial Average (chart) did not make an all-time high in August, however, this index remains within striking distance of its all time high. The pundits are speaking to the strength of corporate America where earnings and profits are at their highest levels in decades as to the reason why the markets are not selling off. What is undeniable is that any time stocks have experienced a pull back it has been met with support from institutional investors and retail investors alike.

Speaking of support, let’s take a closer look at the technical shape of the aforementioned key indexes. Let’s start with the S&P 500 (chart). After pulling back to its 20-day moving average the S&P is right back at a breakout point. Next week we should see if the S&P can indeed breakout or fail and head back to its 20-day. The Nasdaq Composite index (chart) has similar chart pattern although it traded a bit below its 20-day support line for a few days before recapturing its 20-day and is now trading above it. A look at the Russell 2000 (chart), it too closed above its 20-day moving average and last but not least the Dow Jones Industrial Average (chart) also closed above its 20-day and this index is also right at a breakout or breakdown point. These bellwether indexes are also not in an extreme overbought condition according to the Relative Strength Index. The RSI tracks overbought or oversold conditions and is a momentum indicator that measures the degree and velocity of recent price changes to determine what is overbought and what may be oversold. We are simply not in any extreme condition according to the RSI principle.

Let’s see how the back half of September plays out and we will revisit the technical set-up of the markets in October. Good luck to all 🙂

~George

S&P 500 - George Mahfouz Jr

 

 

 

Bellwether Indexes Surge To All Time Highs!

Bellwether indexes surge to all time highs as the S&P 500 (chart) closed the month of August at 2901, the Nasdaq Composite (chart) closed at 8109, the small-cap Russell 2000 (chart) closed at 1740 and the Dow Jones Industrial Average (chart) is within striking distance of its all time high. I thought August is supposed to be a tough month for stocks? Not this year! New highs are happening while the political environment in our country is at a seemingly all-time low, the word impeachment surfaces daily now, tariffs are in the headlines daily, interest rates have been on the rise and now it seems that any type of progress made over the summer with North Korea may be in jeopardy. One would think that the aforementioned risks would be enough for an outright 10-20 percent market correction. Add in the seasonality factor and we should indeed be going red, not making all-time highs.

Now I am afraid to even mention that the month of September is historically the weakest month of the year for stocks right alongside with August. Do I dare say that September will be the month that our markets correct in a meaningful way? Do I have the courage to predict that this will be the month where the markets recognize and adjust for all of the risks that are present in our current environment? I don’t know people, I am as baffled as the next guy as to how these markets keep shrugging off real market issues. Oh by the way I forgot to mention we have mid-term elections forthcoming, the markets are not pricing in any risk there either. These markets are priced and acting like there is no absolute risks at all out there. Ok enough banter already!

How to play the markets now? I am a fan of the old adage “the trend is your friend” but folks I just can’t hop on this train at this point in time. I am heading to the sidelines until I see any type of technical breakdown to possibly consider implementing a short thesis or just wait for the inevitable pullback/sell-off to identify any potential long set-ups. Until then, Paula and I wish everyone a very safe and Happy Labor Day weekend 🙂

~George

Trading Between The Lines…

Trading between the lines is how this August is playing out so far. In what is supposed to be a seasonal volatile period, August seemingly has been playing right to the tune of this almost decade long bull market. The Dow Jones Industrial Average (chart), the S&P 500 (chart), the Nasdaq Composite (see chart) and the small-cap Russell 2000 (see chart below) to my surprise have all traded in a tight range this month. Furthermore, the 20-day moving average and even more so the 50-day moving average have played a major role in supporting the indexes whenever any selling does come in. Now we have had a couple days here in August where it looked like these support lines would be breached and in fact in some instances they were. However, whenever these support lines were touched or breached, buying came right in and placed a floor beneath the selling pressure.

I am not sure how the rest of the month will play out but August at least from a seasonality perspective still has the potential to demonstrate volatility and experience meaningful selling pressure. I really do believe that the bear camp expected to see August as their month, but from the looks of things the bears may have to wait until September or beyond. Corporate earnings for the most part have been topping expectations, the economy is seemingly firing on all cylinders and rising interest rates are not that big of a factor yet to be weighing heavily on stocks.

My plan for the rest of the month is simple. Pay attention to the support and resistance zones of the aforementioned indexes and for that matter any stock that I am considering to trade. Secondly, I need to see the trading volume pick up before any definitive trend can be trusted. The market volume just has not been here this month which is also typical of the dog days of summer. Patience is the keyword between now and month end. That said, I expect after the labor day holiday we will be having a much different conversation. Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz

Strong Earnings Results Buoy Stocks!

Q1 strong earnings results buoy stocks! Corporate profits for this past quarter have exceeded expectations. On average corporate earnings growth surpassed 20 percent for the quarter however, it appears that the markets have priced in this impressive growth. For the most part stocks have had a muted response to their earnings results so far this year. The S&P 500 (chart) is barely up on the year. The Dow Jones Industrial Average (chart) finds itself essentially flat with the Nasdaq Composite modestly up (chart), however, the small-cap Russell 2000 (chart) quietly hit an all time high today. Interestingly enough when small-cap stocks are outperforming the other bellwether indexes, it’s usually a good sign for a rest of the market. We will have to see if history repeats itself here.

Yes the markets as a whole may not be up that much this year, but I am impressed with how the overall landscape has held up. The pending trade war with China, the on again and off again tensions with North Korea and rising interest rates have yet to really take hold of these markets in a negative manner. Yes we did experience a 10% sell-off in February but only to be met with support and a resumption of the upward bias towards stocks. That said, I do feel the markets are teetering on the potential of another pullback. Let’s take a look at the technical shape of the aforementioned indexes.

The Dow Jones Industrial Average (chart) closed just under its 100-day moving average at 24714, S&P 500 (chart) is on the other side of that coin closing just above its 100-day moving average at 2720, the Nasdaq Composite (chart) closed at 7382 and as previously mentioned, the small-cap Russell 2000 (chart) notched an all time high today breaking out of a triple top closing at 1625. So technically speaking these key indexes are not in any type of extreme condition either overbought or oversold and we will have to see how the balance of earnings reporting season plays out and whether or not we break out to the upside or have another retracement. Good luck to all 🙂

~George

Russell 2000 – All Time High!

So now the small-caps join in! The Russell 2000 (chart) closed the week at an all time record high of 1490. For most of the year the widely followed small-cap Russell 2000 has lagged the other major averages. Now it has broken out, see (chart). In fact, when you look at the chart of the Russell, one can say this index has gone parabolic. The Nasdaq (chart) and the S&P 500 (chart) also closed at their all time highs on Friday, while the Dow Jones Industrial Average (chart) posted yet another positive week. What’s more is the month of September is typically one of the weakest months of the year for equities losing on average of 1.5% happening 70% of the time since the 1970’s. Not this year, in fact there have been so many record-breaking closes on all of the aforementioned indices it’s hard to keep track.

Question is, now what? With the third quarter of the year now in the books, Q3 earnings reporting season is right around the corner. I have got to believe with the Federal Reserve closing the chapter on their quantitative easing policy and now taking those assets off of their books, plus interest rates scheduled to rise, investors should pay closer attention to the health and growth of corporate earnings. Do you remember the days when earnings and earnings growth actually mattered? Well those days may be back upon us. Hence, the report cards that come in from corporate America may actually move the markets in a fundamental way. This we have not seen in almost a decade. However, if the market momentum that we have experienced since the election continues, and investors ignore the fundamentals, then why couldn’t we end the year at even higher highs?

One thing for sure is October will be filled with many catalysts that should bring in some volatility and a lot of opportunity.  Between now and year end may be the time to implement a hedged strategy where one can potentially profit regardless of how the indexes or individual stocks react to what’s ahead. I’ll cover this in my next blog. Good luck to all. 🙂

~George

Where Is The Vol?

As the second quarter came to a close yesterday volatility is no where to be found. The CBOE Market Volatility Index also referred to as the VIX has been pretty much dormant this entire year (chart). Typically vol ticks up as we approach summer for a variety of reasons such as earnings reporting season, seasonality and of course the Federal Reserve policy actions. As expected the Fed did raise rates in June but the markets appear to be pricing in a higher interest rate environment. So far this year the Dow Jones Industrial Average (chart) is up 8.03%, the S&P 500 (chart) is up 8.24%, the Nasdaq Composite (chart) is up a whopping 14% and the small-cap Russell 2000 (chart) is up a modest 4.29%.

Seemingly everyday stocks are in melt-up mode. There are days where volatility tries to rear its head up, but that does not last very long. (See chart below). Even when Goldman Sachs came out with a bearish report on June 9th comparing the red-hot tech sector to the internet bubble era, the negative effect of that report lasted only a couple of days before tech found support and then proceeded to make new highs. The traders and investors that are waiting for the proverbial 10% or more correction are just not getting it. Buying the pullbacks is what has been working ever since the election but the problem is that if you are not stepping in on the 1-3% percent retracements, you are missing the next leg up. How much longer can this type of market environment last? Now that Q2 is in the books, earnings reporting season will soon begin. Let’s see if corporate earnings continue to come in stronger than analyst expectations and if so, stocks may just continue to remain bulletproof.

A quick gander at the technical shape of the aforementioned indexes and there are no signs of overbought or oversold conditions according the relative strength index. Therefore I am expecting vol to remain relatively low until at least second quarter earnings season begins. Good luck to all!

Both Paula and I wish everyone a very safe and happy Fourth of July holiday weekend 🙂

~George

VIX Chart - Paula Mahfouz