Happy New Year And New Decade!

Happy New Year and New Decade! However, I am not so sure investors want to say goodbye to 2019. What a year for stocks and the major averages. In 2019 the Dow Jones Industrial Average (see chart here) gained 22%, the S&P 500 (see chart here) soared almost 30% on the year, the Nasdaq Composite (see chart here) was the best performing major average up 35% and the small-cap Russell 2000 (see chart here) closed 2019 up almost 24%. This is the best annual performance for these key indexes in years. As far as the decade goes, the major averages also soared gaining almost 300%. Not a typo folks the markets almost tripled in value over the past decade.

So as we enter the new year the question now becomes what now? Well it is hard to imagine that we will see a similar result in 2020. Not that I am bearish at all but I do expect some higher than normal volatility throughout 2020. Geopolitic tensions have started to ramp up a bit and in Washington the focus and attention will be on the Senate impeachment trial. As much as the Republicans control the Senate, there is no guarantee that bombshells won’t come out of the trial. This especially rings true if the House Democrats gets witnesses to the stand. We cannot predict what may come out of this trial and I got to believe at times it won’t be pretty. Also, the month of January can be volatile just from the standpoint of how much the markets gained in 2019. I am pretty confident that we will see some institutional and other managed funds book gains here in January.

One other consideration is how the markets as a whole became overbought as 2019 came to an end. All of the aforementioned indexes went into overbought conditions in December according to the relative strength index (RSI). Although there was a brief retreat from the overbought 80 value levels of the RSI, we still remain near the upper end of the charts and I would not be surprised to see some selling pressure here in the month of January.

Good luck to all 🙂

~George

Tariffs and Interest Rates…

Tariffs and interest rates are at front and center. Now that Q3 earnings reporting season is winding down, without question the two remaining catalysts for these markets between now and year-end are  tariffs and interest rates. It’s been a long time since we have seen the swings that are going on right now in the stock market. Investor’s and trader’s alike are attached to every headline or tweet pertaining to the current trade war between China and the U.S. and whether or not the Federal Reserve will take its foot off of the pedal. The growing tensions between China and the U.S. regarding tariffs did abate late Friday when President Trump tweeted that China does want to make a deal. This was enough to rally the markets on Friday afternoon, but not enough to get the the key indexes out of the red on the week. On the week, the Dow Jones Industrial Average (chart) closed at 25,413, the S&P 500 (chart) closed at 2,736, the Nasdaq Composite (chart) closed at 7,248 and the small-cap Russell 2000 (see chart below) finished the week out at 1,527.

With the aforementioned looming catalysts on the horizon the big question is will we get a year end rally? My feelings are we may only need one of these catalysts to come through for a potential year-end rally. If China and the U.S. can agree upon more favorable terms to the imposed existing tariffs and/or actually withdraw some of the existing tariffs, we may have a shot. Not to say interest rates aren’t important, but relatively speaking interest rates still remain historically low. Even if the Federal Reserve raises rates in December, I still think that a China U.S. deal would be enough for a rally as we close out 2018. The G20 summit is just two weeks away and let’s hope some sort of deal can come forward out of the summit. Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz

 

Finally A Market Selloff!

In my last blog, I eluded to a market selloff that just did not happen and I was referring to how stocks typically behave in the August and September. Instead of markets selling off at the end of summer, stocks were setting records. Well the bears got what they had been anticipating over the summer and that is an eye-popping market drop last week. Over the course of two days the Dow Jones Industrial Average (chart) fell over 1300 points. Of course the S&P 500 (chart), the Nasdaq Composite (chart) and the small-cap Russell 2000 (chart) all fell in harmony as well. What’s more these bellwether indexes all breached their 200-day moving averages for the first time in months with the Dow Jones Industrial Average (chart) recapturing and closing above its 200-day on Friday, the Nasdaq Composite (chart) just closed shy of its 200-day, the S&P 500 (chart) literally closed right at its 200-day however, the small-cap Russell 2000 (chart) closed out last week meaningfully below its 200-day moving average looking to find some sort of support. The 200-day moving average is widely regarding by market technicians and institutional investors as a key metric of support and or resistance.

What does all this mean? First, a market that constantly goes up with no retracement to speak of can never be healthy long term. There must be backing and filling along the way so that the risk of a sudden and potentially drastic drop doesn’t occur as what we witnessed last week. I mean c’mon going up in the way that we have over the past decade is not only unheard of but the risk that can come forward from this can spark a nasty correction. I am not suggesting that this will be the case but for the first time since earlier in the year, investors and traders felt the selloff last week.

Earnings reporting season kicks in this week with hundreds of companies set to report. Let’s see if corporate earnings can buoy the market here during this long anticipated selloff. Good luck to all 🙂

George

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

 

 

 

Triple Top Or Breakout?

After chopping between the 2700 and 2800 zone for the past couple of months, is the S&P 500 (chart) at a triple top, or is it ready to breakout? I think we are going to find out this week in which second quarter earnings reporting season kicks into high gear. Although volatility has reared its head in first half of 2018, vol now has come back to what the markets have been accustomed to over the past few years (see chart below). Whether we breakout and test all time highs is a head scratcher. Of course earnings will play a key role in which way the markets will go, but there are other market moving factors in the mix. Any minute President Trump could put out a tweet on trade which could kill the most recent rally in stocks or propel it to new highs. On Tuesday and Wednesday, Federal Reserve Chairman Jerome Powell will speak in front of the Senate Banking Committee and the House Financial Services Committee. Without a doubt investors will be paying close attention to the tone and context of Chairman Powell’s testimony in front of both committees. Oh yes, we must not forget the Trump/Putin summit and I can’t even guess what comes out of that meeting and how the markets will react. So as you can see, chance are we will breakout of the triple top we are in or pullback within the trading range as mentioned above.

This week kicks off with high flying Netflix (NasdaqGS:NFLX) which reports their quarterly results tomorrow after the close, followed by Goldman Sachs (NYSE: GS) on Tuesday along with Johnson & Johnson (NYSE: JNJ), T-Mobile (NYSE: TMUS) and rounding the week out we will hear from the likes of Alcoa Corp (NYSE: AA), American Express (NYSE: AXP), eBay Inc. (NasdaqGS: EBAY), International Business Machines (NYSE: IBM), Etrade Financial Corp. (NasdaqGS: ETFC), Intuitive Surgical (NasdaqGS: ISRG), Microsoft Corp. (NasdaqGS: MSFT), General Electric (NYSE: GE) and Honeywell International Inc. (NYSE: HON) just to name a few. Good luck to all 🙂

~George

VIX - George Mahfouz Jr.

Tech Stocks Under Fire!

Despite a modest rebound on Friday tech stocks remain under fire. From Facebook (NasdaqGS: FB) to Tesla (NasdaqGS: TSLA) and now even Amazon (NasdaqGS: AMZN) are all under pressure for a variety of reasons. This is spilling over into the overall tech sector (see chart below) and even into the overall marketplace. Facebook is facing significant scrutiny regarding user privacy while Tesla continues to trip up with deliveries and debt issues and now even Amazon is under pressure due to President Trump’s direct attack on the online retailer’s sales tax structure. This was enough to send the major averages down to close out the quarter at or in negative territory. The Dow Jones Industrial Average (chart) finished Q1at 24103, the S&P 500 (chart) closed the quarter at 2640, the Nasdaq Composite (chart) closed at 7063 and the small-cap Russell 2000 (chart) finished the first quarter of the year at 1529.

What was also obvious in Q1 was how volatility came back to life. For years the market was in a lullaby state melting up and setting record after record. Well the first quarter has swiftly reminded us on how markets can and should behave. Investors that placed money into mutual funds or passive funds over the past several years made out like a bandit with not a worry in the world. Abnormal stock market gains were in vogue especially after the election. Now with rising interest rates, the Federal Reserve reducing its debt load and the daily drama out of Washington DC, I think it is safe to say the melt up mode and daily records being set are in the rear view mirror. That said, market corrections are very normal and healthy and so is volatility at least for traders that is 🙂

Looking ahead and with earnings reporting season right around the corner, let’s see how corporate America fared in the first quarter of the year. This could be the catalyst that calms things down a bit but in the same breath should there be any slippage in earnings growth, we could be in for more even more volatility. Good luck to all 🙂

~George

Nasdaq - george mahfouz jr

Within Striking Distance!

In my previous blog, I said I wouldn’t be at the very least surprised if the Dow Jones Industrial Average (see chart below) closed above 25000 by year end. Well don’t look now, we are in striking distance of that milestone. In fact, if the Dow does close above 25000 by year end, it would have taken it a month to do so. That’s right only a month! In late November the Dow closed above the 24000 mark for the very first time and now its a mere 350 points away from yet another 1000 point gain. What’s impressive about this 1000 point clip is how fast it is getting there, I mean a month? This is unprecedented for sure. Market observers are expecting this insatiable bull market to keep on truckin into the end of the year, especially if the tax bill goes live! The S&P 500 (chart) and the Nasdaq Composite (chart) also closed at records highs on Friday with the S&P 500 closing in on the 2700 mark and the Nasdaq approaching the 7000 mark. The small-cap Russell 2000 (chart) is lagging behind but on Friday the Russell did find support at its 200-day moving average to close higher on the week.

With only 2 weeks left in the trading year what can investors or traders expect? More of the same or a sell the news type event? The news being the proposed tax bill getting through and going live. I truly don’t know? However, when you add seasonality into the mix with December being one of the strongest months for stocks on the year, I would not be surprised if the Dow Jones Industrial Average does indeed eclipse the 25000 mark. We could also see the S&P 500 overtake 2700 and the Nasdaq surpass 7000. Now if there is a snag in getting the tax bill through or if it ends up being a “sell the news” type of event meaning the proposed tax bill does go through by year end, then I will have a much different take heading into the new year. Both Paula and I wish everyone the healthiest and happiest holiday season 🙂

~George

Dow Jones Industrial Average - Paula Mahfouz

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

Stocks Are Back!

Since losing over 10 percent of their values and going into correction territory earlier this year, the major averages now find themselves almost back to par. Year-to-date the Dow Jones Industrial Average (chart)  is only down around one percent, the S&P 500 (chart) is also lower by around one percent, the Nasdaq (chart) on the year has gained back over half of its losses and the small-cap Russell 2000 (chart) is lower by 4.5%. Since this bull market began over seven years ago, time and time again stocks have demonstrated astounding resilience. Seemingly every time there is a sell-off, willing buyers are ready to step in at varying support levels and buy up equities.

Today the Federal Reserve left interest rates unchanged and actually slashed their forecast to project only two additional rate hikes for the rest of this year versus the four rate hikes they had originally targeted. Stocks initially popped on the news and only one can conclude that the continuing accommodating monetary policies not only here in the United States, but from around the world is most likely the reason why this seven year bull market continues.

That said, the aforementioned indices are approaching overbought conditions according to the relative strength index. Remember the RSI is one of the favorite technical indicators by market technicians, certain algorithmic programs and institutional investors alike. The relative strength index measures and compares the size of moves in a selected period of time and according to the RSI, the 70 or greater value level signals an overbought condition and the 30 value level or lower indicates an oversold condition. Keep in mind stocks and/or indexes can remain overbought or for that matter oversold for an extended period of time. Currently the Dow Jones Industrial Average (chart) is almost touching the 70 value level and the other indexes are not too far behind. Of course this is only one of many technical indicators that traders and investors utilize, but I have found over the years the RSI is one of the more reliable indicators out there.

Good luck to all 🙂

~George