Now Mexico Too?

If it wasn’t enough to hit China harder, now Mexico too? Look by no means am I an expert on trade, tariffs or politics, but one thing I do know the stock market doesn’t like what has been going on with all three! The stock market also dislikes uncertainty and curve balls and this administration is certainly throwing a lot of both out there lately. Stocks have taken it on the chin with yet another wave of selling this week. For the first time since January the Dow Jones Industrial Average (see chart here) has fallen below the 25,000 mark. The S&P 500 (see chart here) closed in the 2,750 zone, the Nasdaq Composite (see chart here) closed near the 7,450 level and the small-cap Russell 2000 (see chart below) closed at 1,465.

What’s more eye catching to me is that all of the major averages have now fallen below their respective 200-day moving averages. Let’s do take a look at the technical shape of the market to see how much damage has been done. Now that the 200-day moving averages have been breached lets look at the RSI of each index. The relative strength index is a technical indicator that expresses whether or not a stock or index is overbought or oversold (click here for RSI). The Dow Jones Industrials (chart), the S&P 500 (chart), the Nasdaq Composite (chart) and the small-cap Russell 2000 (chart) all are racing toward the oversold level of 30. In fact, the Dow Jones breached the 30 level of the RSI yesterday.

Historically when stocks or indexes break their key support levels and head down towards the 30 level of the RSI, there is usually a continuation through that metric as well. That said, history does not always repeat itself but I would also not be surprised to see more selling pressure in the near future. Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz

 

Trade War Back On!

Here we go again, the trade war is back on! Donald Trump yesterday once again fired up the trade war this time including the EU, Mexico and Canada. How is an investor supposed to confidently invest when the message and policies of our government change almost daily. Stocks all week have been whipsawed around which is great for the trader, but no so much for the investor. Now we have countries from around the world retaliating with their own tariffs on our goods. The Dow Jones Industrial Average (chart) finished the week at 24635, the S&P 500 (chart) closed the week out at 2734, the Nasdaq Composite (chart) closed at 7554 and the small-cap Russell 2000 (see chart below) showing its incredible resilience finishing the week out near an all-time high.

The chop action that we are seeing in the markets along with the unpredictably of our government gives me more reason now to focus in on the technical trading patterns of stocks and indices. Whether it is support or resistance levels vis à vis moving averages (click here) i.e. the 20-day, 50-day, 100-day, 200-day or outright overbought or oversold conditions using the Relative Strength Index (click here) or the Bollinger Bands (click here) which can also provide a technical look into extreme conditions. With Q1 earnings reporting season essentially wrapped up, there is no real apparent catalyst to move the markets in a meaningful way. Which is why I will be paying much closer attention to the technical make up of the markets to identify opportunities.

One of my favorites are the moving averages (click here) especially the 200-day moving average. For example, just take a look at the Dow Jones Industrial Average (chart) and the S&P 500 (chart). You’ll see over the past few months each time these indexes gravitated to their respective 200-day MA, they found support and proceeded higher. There is no guarantee that moving averages will always hold and provide support, but in many instances it indeed acts as a short term floor to selling pressure. There are many resources on how technical analysis can work and I would recommend studying the dynamics of TA before including it in your investment or trading strategies. Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz