indices

Chalk one up for the bears…

Posted on by George Mahfouz

The month of August proved to be the most challenging for the bulls in over a year. For the month, the Dow Jones Industrial Average (chart) closed down 4.45%, the tech-heavy Nasdaq (chart) -1.01%, the S&P 500 (chart) -3.13%, and the small-cap Russell 2000 (chart) finished the month lower by 3.29%. There are many factors that one can point the finger to as to why equities retraced last month, however, let’s keep in mind that on the year, these key indices are still up double digits with the Nasdaq (chart) and Russell 2000 (chart) leading the way up nearly 20%.

In my last blog, I questioned whether or not the weakness in August was a mere pause in this incessant bull run, or a preview of things to come? I think we will most certainly get this answer here in September and as early as this upcoming week. Between the crisis in Syria and what the ramifications could be after the possible airstrikes, to a slew of economic reports which culminates on Friday with the August employment report. Friday’s jobs report is expected to be the determining factor as to if and how much the Fed will begin to reduce its bond purchases. The Fed taper seemingly is all we have heard about since the beginning of summer and is part of the reason for the recent increase in volatility. Traders really don’t know what to expect once quantitative easing begins. For years the markets have had the back stop of the Federal Reserve and from central banks around the world. Personally, I think that once the Fed begins to pullback its bond purchases, we will then begin to see a more realistic market environment. This would be an environment that investors and traders can finally gauge their actions from true economic and corporate earnings performances, rather than what the Fed will or will not do. With that said, I expect volatility to continue to increase with a more normal ebb and flow of asset prices.

Technically speaking, the Dow Jones Industrial Average (chart), the S&P 500 (chart) and the Russell 2000 (chart) are all now trading below their 50-day moving averages  which is something I am paying close attention to now. In the coming days if the Nasdaq (chart)  joins in and begins trading below its 50-day, we could be in for very choppy trading and another leg down in September. Good luck to all.

Happy Labor Day 🙂

~George

Just like August, September produces unlikely gains…

Posted on by George Mahfouz

Although stocks were mostly lower on the week, the month of September produced rare gains for the benchmark indexes. For the month of September, the Dow Jones Industrial Average (chart) gained 2.65%, the Nasdaq (chart) +1.61%, the S&P 500 (chart) +2.42% and the small-cap Russell 2000 (chart) closed the month up 2.12%. This capped a very impressive third quarter for equities with all of these key indices advancing sharply higher.

So now the encore! What promises to be an event driven final stretch of the year, investors can look forward to Q3 earnings reporting season in October and of course the Presidential and congressional elections in November. Not to mention the ongoing saga in Europe, the seemingly everlasting middle east crisis, and whether or not our country will face the “fiscal cliff” outcome which could spin our economy into a recession?

So as you can see stocks and bonds are certainly exposed to an enormous amount of uncertainty in the final quarter of the year. Typically when markets are in such a quandary, much higher volatility usually ensues. In any market environment and  especially the one we are heading into, it is always best to use protective stops and or protection in the form of puts if you have a long portfolio. Furthermore, it is always a good idea to consult with a professional investment advisor before implementing any type of strategy. Good luck to all.

Have a great weekend 🙂

~George

What a day for the bulls!

Posted on by George Mahfouz

Stocks took off right out of the gate this morning thanks in part to a better than expected payroll number. Private sector hiring had its best showing in five months creating 163,000 new jobs compared to the 100,000 number most economists anticipated. This was enough to send the Dow Jones Industrial Average (chart) up 217.29 points, the Nasdaq (chart) +58.13, the S&P 500 (chart) +25.99 and the Russell 2000 (chart) +19.88. After trading the majority of the week in the red, three of these four key indices closed slightly up on the week, with the sole exception being the Russell 2000 (chart).

One of the concerns I have about the July labor report is that even though the private sector hired more workers than anticipated, this number is still way below the 250,000 monthly jobs necessary to have a meaningful impact on the unemployment picture. I have also watched a deterioration of consumer confidence as of late along with sluggish retail sales numbers. This does not bode well for the overall economy because the consumer plays a significant role in how our economy performs.

Now to the markets. If you are an investor, or a trader for that matter, you might be scratching your head and asking, “how could equities be at multi-month highs when we have anemic job growth and weakening consumer confidence?” The answer is very simple and that is – the Fed. Policymakers here and abroad have made it abundantly clear, if the markets and/or the economy needs us, we will accommodate! This mantra and position has helped fuel stocks all year long. Unless the central banks change their tune, a floor will continue to be placed underneath this marketplace.

Personally, it is difficult for me to have the confidence in going long or short equities in this environment. On one hand, you have a struggling economy and lagging corporate earnings. On the other hand, you have central banks from around the globe having a “whatever it takes” attitude while injecting a steady flow of cheap money into the system. That said, there are trading opportunities on both sides of the fence and seemingly technical analysis may become more influential on stocks or indexes then anything else right now. Good luck to all.

Have a great weekend 🙂

~George

Nothing too spectacular, so far…

Posted on by George Mahfouz

Earnings reporting season went into overdrive last week and quite honestly the markets were a lot quieter than I expected. For the week, the Dow Jones Industrial Average (chart) gained a modest 0.36%, the Nasdaq (chart) +0.58%, the S&P 500 (chart) +0.43% and the Russell 2000 (chart) actually pulled back 1.18%. So far earnings have come in rather tepid with a few exceptions. Also, volumes on the key indices have been relatively low which is playing a role in the lack of volatility. Technically speaking, nothing is standing out either. The major averages remain above their 50-day moving averages and also remain locked in their multi-week trading ranges.

Next week the financial world will be looking at Apple (NasdaqGS: AAPL) to see how their quarter fared. Apple has the ability to move the entire tech sector and the overall market for that matter, so I will certainly be keying into what the company reports financially, and what the tone is in their earnings conference call. Another highly anticipated earnings report next week will come from Facebook (NasdaqGS: FB). After a disastrous IPO, the street will be looking to see if the company has found its footing or if there is more downside to come. Let’s not forget about the other 750 companies that are reporting next week as we enter into the height of the Q2 earnings reporting season. Good luck to all.

Have a great weekend 🙂

~George

Next week promises to be a doozy…

Posted on by George Mahfouz

Stocks closed the week with a bang, but that’s nothing compared to what’s in store next week. Between dozens of companies reporting their Q2 results, and Ben Bernanke speaking before Congress on Tuesday and Wednesday, I am looking for a spike in volatility that may last all week long. Yesterday, the Dow Jones Industrial Average (chart) closed up 203.82 points, the Nasdaq (chart) +42.28, the S&P 500 (chart) +22.02 and the Russell 2000 (chart) +11.37. With all that’s in store next week, I am also looking at the technicals to see if these key indices can breakout of their respective trading zones. What was impressive to me yesterday is that all four indices either held, or moved and closed above their 50-day moving averages.

With earnings reporting season kicking into high gear, I would expect that this will be the catalyst to whether the markets breakout or breakdown. On Monday all eyes will be on Citigroup (NYSE: C), followed by reports out of Goldman Sachs (NYSE: GS), Intel (NasdaqGS: INTC) and Yahoo (NasdaqGS: YHOO) on Tuesday. Wednesday we will hear from Bank of America (NYSE: BAC), U.S. Bancorp (NYSE: USB), American Express (NYSE: AXP) and eBay (NasdaqGS: EBAY), just to name a few. Closing out the week, Q2 earnings reports will be issued from Morgan Stanley (NYSE: MS), Phillip Morris (NYSE: PM), Google (NasdaqGS: GOOG), Microsoft (NasdaqGS: MSFT) and General Electric (NYSE: GE).

So as you can see, next week should indeed be a doozy! Good luck to all and happy trading 🙂

~George

One hot June!

Posted on by George Mahfouz

And I am not just referring to the hot summer temperatures across the country. Stocks were on fire on Friday capping off the best June for the key indices in over a decade. For the month, the Dow Jones Industrial Average (chart) finished up almost 4%, the Nasdaq (chart) +3.81%, the S&P 500 (chart) +3.96% and the leading small cap index Russell 2000 (chart) gained almost 5% on the month.

Equities got a huge boost on Friday after the European Union agreed that the rescue funds that have been established could be used for their bond markets without compliance to established budgets rules which would increase austerity measures. This caught investors off guard for no one expected such a drastic measure from the EU considering how historically slow their governments have acted during this crises. There now is a level of confidence globally that the EU is finally getting how serious the situation is, and seemingly are prepared to take meaningful action.

Back here at home, the second quarter is over and the markets’ attention will be shifting to corporate earnings reporting season this month. The good news here for stocks is that expectations are very low for Q2 earnings, so if companies are able to demonstrate any signs of growth, this alone could lift markets to new 52 week highs?

Next week is a shortened trading week due to Independence Day. Equity markets close early on Tuesday, and on the fourth of July, both bond and equity markets are closed for the day.

Have a great week and Happy 4th of July 🙂

~George