Mahfouz

Nasdaq at 12 year highs, up over 20% year to date…

Posted on by George Mahfouz

Now who said we are in the dog days of summer? Stocks once again took off this week after the European Central Bank promised to buy the debt of struggling countries in the eurozone. For the week, the Dow Jones Industrial Average (chart) closed up 1.65%, the S&P 500 (chart) +2.23%, the Russell 2000 (chart) +3.72% and the tech heavy Nasdaq (chart) closed the week at fresh 12 year highs finishing up 2.26%. What a run this has been so far this year with staggering double digit gains for most of the major averages. Congratulations to all of the bulls out there!

The million dollar question now is; “is it time for some profit taking?” The short answer, yes! Always make sure to consult with your professional financial advisor when considering taking action, but I would think he or she would agree that it would be a good idea to take some off the table. The bulls case is that as long as the governments from around the world continue to expand their balance sheets, the markets should continue to go higher. All you have to do is look at the performance of the key indices so far this year and it’s easy to see the power of the central banks. The bears case is stocks are trading at multiples not seen in years and that earnings estimates are way too high and need to come down. No matter what the case is, and in my humble opinion, taking some profits after such an unprecedented run would be the responsible thing to do. Good luck to all.

Have a great weekend 🙂

~George

Rare August gains for key indices…

Posted on by George Mahfouz

The four most followed indexes produced unlikely gains for the month of August. Typically the dog days of summer is seasonally weak for equities, but not this year. For the month of August, the Dow Jones Industrial Average (chart) closed up 0.63%, the Nasdaq (chart) +4.34%, the S&P 500 (chart) +1.98% and the small-cap Russell 2000 (chart) finished the month up 3.2%.

Stocks once again benefited by the Fed promising to take further steps to help boost the economy if needed. Speaking in Jackson Hole, Wyoming, Ben Bernanke reiterated his concern over the state of the economy and that the central bank is prepared to act if warranted. So how will this mantra play out for the month of September?

September is typically one of the weakest months of the year for equities, however, could this month buck the trend just like August did? We should find out in short order with the release of the unemployment report next Friday. Talk about market and political implications! If the job market continues to deteriorate, you better believe this will become even more of a focal point as the election approaches. A further decay in the unemployment picture should also give the fed confirmation to further stimulate the economy. If this scenario plays out, one could surmise that the markets would continue to lift and that Mitt and Ann Romney may be soon moving to Pennsylvania Avenue.

I hope everyone has a safe and enjoyable Labor Day weekend 🙂

~George

Let’s talk technicals…

Posted on by George Mahfouz

As certain stocks and markets continue to unexpectedly plow to new 52 week highs, I think it’s time to look at the technical aspect of the indexes. For the week, the Dow Jones Industrial Average (chart) finished up 0.51%, the Nasdaq (chart) +1.84%, the S&P 500 (chart) +0.87% and the Russell 2000 (chart) +2.29%. I do not remember a time when equities have behaved this well in the month of August, albeit on very low volume.

Now to the technicals. I typically refer to two of the more popular technical indicators that certain market technicians, program trading models and even institutional investors utilize, and they are, the Relative Strength Index (RSI) and the Moving Averages technical indicators. The RSI is designed to demonstrate whether or not an index or equity is overbought or oversold, depending on certain value levels. According to the RSI principle, the 70 value level or greater, is an overbought condition and the 30 value and below is an oversold condition. Pertaining to the moving averages, the 50-day and the more closely monitored 200-day moving average, are the key markers that market technicians and program trading models look for and potentially act on.

In looking at the four major averages, they are all currently trading considerably above their respective 50-day and 200-day moving averages. However, both the Nasdaq (chart) and the S&P 500 (chart) is on the cusp of breaking through the 70 value level on the RSI. Furthermore, the Dow Jones Industrial Average (chart) and the Russell 2000 (chart) are not too far behind trading around the 65 value level. This is an indication that the markets are potentially becoming overbought and are due for some type of pullback. Please keep in mind that stocks can remain overbought or oversold for extended periods of time. That said, when the RSI on a given equity or index begins to trade at or above this key level, a reversal of some sort typically occurs. Now there are many other factors and technical indicators to refer to when analyzing market conditions, but my preference is to keep it simple when looking at the technicals, and the RSI and moving averages indicators do it for me. Good luck to all.

Have a great weekend 🙂

~George

 

What a difference a year makes…

Posted on by George Mahfouz

Last year at this time stocks were in a free-fall. At one point in August of 2011, the top four indicies were all down well over 10% on the month. Fast forward to this year and so far in August the Dow Jones Industrial Average (chart) is up 1.53%, the Nasdaq (chart) +2.77%, the S&P 500 (chart) +1.92% and the Russell 2000 (chart) +1.85%. It is very unusual for the markets to be posting gains in the dog days of summer. This is especially true when earnings reporting season has been less than stellar. Add into the mix a continuing flow of disappointing economic reports from around the world, and one would think we would be down 10% on the month!

So what gives? Call it an election year, call it the global flow of liquidity, call it what you want, but I am going to refer to the old adage on Wall street and that is “you can’t fight the tape!” This means when markets are trending lower or higher in this case, it’s best to go with the flow rather than try to pick the top to sell or sell short. However, it doesn’t make a lot of sense that we are at multi-month highs considering the global-macro picture. One thing is for sure, and that is stocks or indexes can remain overbought for extended periods of time regardless of the circumstances. Next week we will take a look at how the technicals are playing out in the markets to see if there is anything from a technical perspective that we should be paying attention to. 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

Whatever it takes…

Posted on by George Mahfouz

That was the message sent mid-week by European Central Bank President Mario Draghi. That statement alone was enough to spike the markets into a breathtaking three-day rally pushing the Dow Jones Industrial Average (chart) above the 13,000 mark for the first time in since early May. For the week, the Dow Jones Industrial Average (chart) finished up almost 2%, the Nasdaq (chart) +1.12%, the S&P 500 (chart) +1.71% and the Russell 2000 (chart) +0.56%.

As a trader or investor it has become somewhat challenging to form a thesis on the markets. Despite weakening economic data and tepid corporate earnings, equities continue to outperform the data. Logically, one could surmise based on the weak data and somber outlook, a short thesis could be developed and implemented. However, when you have the central banks from around the world ready to provide consistent stimulus measures, and have a “whatever it takes attitude”, equities benefit.

I am not sure how much longer these stimulus resolutions will have a positive effect on stocks, however, if you try to short this market in this environment, make sure you have protective stops in on all of your positions. 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

June jobs report puts the brakes on the market…

Posted on by George Mahfouz

Once again a disappointing jobs report issued on Friday sent stocks lower. The Dow Jones Industrial Average (chart) closed down 124.20 points, the Nasdaq (chart) -38.79 points, the S&P 500 (chart) -12.90 points and the Russell 2000 (chart) -10.29 points. Markets were lower on Friday due to the lack of job growth that continues to plague the economy. For the month of June, the private sector only added 80,000 jobs compared to the 90,000 jobs economists were expecting. Even if the 90,000 mark was met, I still believe equities would of sold off. This economy needs 200,000+ jobs added monthly in order to make a meaningful dent in the unemployment rate and to have a real effect on the economy.

Next week marks the beginning of the second quarter earnings reporting season. Aluminum producer Alcoa (NYSE: AA) kicks things off with reporting their results on Monday. Two other standouts that report their earnings next week are JPMorgan Chase (NYSE: JPM) and Wells Fargo & Company (NYSE: WFC) which issue their results on Friday. I will be particularly interested in what JPMorgan has to say for their second quarter. This is the period in which their trading division experienced a multi-billion dollar trading loss.

As we enter into second quarter earnings reporting season, market expectations are so low for the quarter that I am looking for some upside surprises to occur within certain sectors. I am not sure if we are going to see much top line growth, however, over the past several quarters, companies especially in the tech sector have demonstrated exceptional productivity prowess which have certainly accentuated their bottom lines. That said, I will be extremely careful with how I navigate and trade these markets with a preference towards waiting until earnings reporting season concludes before making any considerable commitments. Good luck to all.

Have a great weekend 🙂

~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