A Weak Week For Stocks…

Stocks closed out the final week of May on a softer note with the Dow Jones Industrial Average (chart) falling 221.34 points, the Nasdaq (chart) lost 19.33 points, the S&P 500 (chart) -18.67 points and the small-cap Russell 2000 (chart) closed the week lower by 5.69 points. Considering the record closing highs that have been set over the past month or so, its no surprise that equities took a bit of a breather.

Now that we are in the month of June, let’s see if this seemingly temporary pause turns into something more meaningful. The month of June historically is a unfavorable month for stocks and this year may be no different. In fact, in this trading week headline risks are abound. Internationally speaking, without a doubt Greece’s debt talks will continue to grab the attention of investors this week as well as the ECB’s central bank meeting. Here in the states, traders will continue to pay attention to the continuing strength of our dollar as well as May’s jobs report at the end of the week. As you can see there are plenty of catalysts that could become market moving events.

Technically speaking, the aforementioned indexes are finding support at their respective 50-day moving averages and none of these indices are in overbought or oversold territory according to the relative strength index (RSI). One technical point I do want to make is when stocks were setting records earlier in May, the volumes associated with those records were on the lighter side. As mentioned in my previous blog, my preference would of been to see these records being set with much stronger volume.

Have a great week and good luck in the month of June 🙂

~George

Record breaking July!

The month of July served up all time highs as Q2 earnings reporting season begins to wind down. For the month, the Dow Jones Industrial Average (chart) closed up 3.50%, the tech-heavy Nasdaq (chart) gained a whopping 6.8%, the S&P 500 (chart) +4.38% and the small-cap Russell 2000 (chart) closed the month up 5.6%. The rally in stocks continue thanks to favorable corporate earnings for the most part, and the Federal Reserve keeping its commitment to do whatever it takes until the economy can stand on its own two feet. Yesterday, after the Federal Reserve’s 2-day policy meeting ended, the central bank reiterated that it would continue its $85 billion per month bond buying program and keep interest rates near zero to help support and strengthen the economy.

That said, August begins with quite the test as all eyes will be on tomorrow’s  jobs report. The July unemployment report should be the most scrutinized report of the year as the Federal Reserve has been on the record recently signaling as to when they may start pulling back on its monthly bond purchases. A stronger than expected report may compel the Fed to begin tapering as early as September. However, if job growth continues to be modest, then I think its safe to say the accommodative policies of the Fed will continue into the foreseeable future. So you may ask what does this all mean to the market? This may become the case where good news in the labor market may be bad news for stocks. I know it seems counterintuitive, however, just the notion in late May that the Fed was considering tapering sooner than later sent the markets down five percent in a matter of a couple of weeks. I think everyone from the hedge fund community to mutual funds to institutional investors and even the individual retail investor have been so reliant on this accommodative Fed, that once the tapering actually begins, we may just see the stock market correction the bears have been anticipating all year long.

Technically speaking, although the markets are seemingly overbought, the key indices are not at extreme overbought conditions, just yet. Let’s take a look at the relative strength index (RSI) on the Dow Jones Industrial Average (chart), the Nasdaq (chart), the S&P 500 (chart) and the Russell 2000 (chart). As you can see, these indexes are trading below the 70 value level which is the level most market technicians consider an extreme level. I personally consider the 75-80 value level as extreme, especially in today’s market environment. That said, it appears there has been some consolidation going on over the past couple of weeks with the aforementioned indexes which have been trading in a pretty tight range.  Just maybe tomorrow’s unemployment report will be the catalyst for stocks to breakout of its recent trading range and begin a new trend. I view a breakdown of the 1650 zone in the S&P 500 (chart) as bearish. However, should the S&P 500 (chart) break and close above 1700 in a meaningful way, we may just see the extreme overbought conditions come into the marketplace as mentioned above. Good luck to all and I wish you all a very profitable month.

All the best 🙂

~George

It’s parabolic!

Stocks remain on fire in January as most of the major averages are hitting multi-year highs, and in some instances all time highs! For the week, the Dow Jones Industrial Average (chart) closed up 1.8%, the Nasdaq (chart) +0.48%, the S&P 500 (chart) +1.14% and the small-cap Russell 2000 (chart) finished the week higher by 1.39% and closing at an all time high. Once the S&P 500 was able to breakout and remain above the 1475 level, which had been a major resistance level, the money that had been sitting on the sidelines seemingly went to work. Also there has been a slow rotation out of bond funds and into stocks.

One would thing that a pullback of some sort is in the cards for equities. However, with earnings reporting season coming in better than expected so far, and the debt ceiling issue being pushed out, we may very well continue to see this upward trajectory for stocks at least in the short term. There could be one catalyst that may give the market a pause and that is next weeks jobs report. If the employment picture continues to remain weak, I would think that this could be a reason for stocks to take a breather.

In addition to the January jobs report released next week, we will also get earnings reports out of Caterpillar (NYSE: CAT), Yahoo (NasdaqGS: YHOO), Ford (NYSE: F), Amazon (Nasdaq: AMZN), Facebook (NasdaqGS: FB), Mastercard (NYSE: MA) and ExxonMobil (NYSE: XOM) just to name a few. Good luck to all.

Have a great weekend 🙂

~George

 

Is this a sign of things to come?

Stocks flew out of the gate yesterday thanks in part to a stronger than expected ISM manufacturing report. After the report was released, the Dow Jones Industrial Average (chart) was up over 150 points, then pared its gains closing the day up only 70. This morning stocks are mainly lower trading in a narrow range. So now that we are in October and in the final quarter of the trading year, will volatility finally kick in? After two months of tepid volatility and rare August and September market gains, we may just be in store for what most market pundits have been calling for all summer long.

Once again all eyes will be on this Friday’s jobs report to see if there is any sign of meaningful hiring in the private sector. I am not sure how the market will react if hiring remains weak because this might just spur the Federal Reserve to expedite its highly touted stimulus programs. Should that be the case, once again equities most likely will continue to benefit. The challenge I think most traders and investors have is with such a weak economy and corporate profits declining, how can one feel comfortable being long this market? The answer is seemingly a broken record, so long as we have the Fed as our backstop, volatility should create certain buying opportunities. Make sure to always consult a professional financial advisor before implementing any investment strategy. Good luck to all.

~George  🙂

 

A week of respite for stocks…

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