Big Tech Blowout!

Big tech steals the show with blowout earnings results. Apple (NasdaqGS: AAPL), Amazon (NasdaqGS: AMZN) and Facebook (NasdaqGS: FB) all took the street by surprise with their upside earnings reports. For Apple, in addition to their blowout earnings, the company announced a 4-1stock split. This was more than enough for Apple to close up over 10% yesterday at an all time high of $425.04. Apple’s earnings came in over $2.00 per share on revenues just shy of $60 billion. Stunning numbers considering the backdrop that our country is currently in. When I look at what Amazon did, I am equally if not more impressed especially with how they grew their revenues. It’s hard to believe a company of this size grew their revenues 40% to almost $90 billion on the quarter. Without question Amazon has benefited more than any other company due to the pandemic. Consumers have flocked to online shopping more now than ever. Last but not least, let’s look at what Facebook did. Despite experiencing ad boycotts by some of the biggest brands in the world, Facebook managed to grow ad revenues by over 10% and grew earnings by almost 100%. I don’t think anyone expected these type of quarterly results from this group with all things considered.

Let’s take a gander at the major averages and how they are looking from a technical standpoint. The Dow Jones Industrial Average (see chart here) closed the week at 26428.32. When I look at the chart of the Dow, this index is not overbought according to the (RSI) and the Dow closed right around its 20-day and 200-day moving averages. The S&P 500 (see chart here) closed at 3271.12 and this index bounced off of its 20-day moving average with perfection. The Nasdaq Composite (see chart here) has been the big winner so far this year and technically speaking this index could potentially keep running. Heck, i’d be ok if it paused and consolidated a bit because of the run its been on. The other index that I keep an eye on is the small-cap Russell 2000 (see chart below). Speaking of consolidation, that is what appears to be happening with the Russell 2000. This index has been trading sideways for the past week or so and is trading consistently above its 20 and 200-day moving averages during this consolidation period. So all in all the aforementioned indexes appear to be on solid ground from a technical analysis standpoint.

In closing, despite the current shape of the market, the month of August historically tends to be a volatile month. Couple this with the upcoming Presidential election and we could be in for a wild ride between now and election day.

Good luck to all šŸ™‚

~George

Big Tech Blowout - Paula Mahfouz

A Breakout Or A Fake-out?

The major averages seemingly are on the verge of a breakout, or could it be a fake-out? The Dow Jones Industrial Average (see chart here) has recaptured the 25000 level. The S&P 500 (see chart here) has recaptured the 3000 level. The Nasdaq Composite (see chart here) believe it or not is in striking distance of its all-time high and the small-cap Russell 2000 (see chart below) is also setting up for a breakout on its own. It is beyond impressive how the markets have come roaring back since late February. There are certain pundits out there that believe that this is a classic bear market rally however to me it feels like more than that. I have to believe that one of the main reasons why stocks have come roaring back in such a short period of time is the $ trillions of dollars in liquidity that the Federal Reserve and our government has injected into the markets and the economy. In fact, the Federal Reserve has quietly indicated that it is possible that they themselves would buy stocks if needed. Talk about establishing a floor in the stock market!

Another key development in the markets is how strong the technicals look right now. Without a doubt the leadership group of this recent rally is the Nasdaq Composite (see chart here). Tech stocks have benefited the most due to the lockdown. There are more people online than ever before, hence more sales accordingly. Since mid-April, not only has the Nasdaq cleared its 200-day moving average, it also has cleared its 50, 100 and 20-day moving averages. So now the Nasdaq is trading above all of its key moving averages which is bullish. Furthermore, the Dow Jones Industrial Average (see chart here) the S&P 500 (see chart here) and the small-cap Russell 2000 have also broken above some key technical resistance levels. Another technical indicator I look at the relative strength index also known as the RSI. At this point in time the aforementioned indexes are not in overbought territory. The RSI is a momentum indicator and when the value level of the RSI goes above 70 stocks or indexes begin to become overbought. This is currently not the case.

Good luck to all šŸ™‚

~George

A Breakout Or A Fake-out - Paula Mahfouz

 

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 šŸ™‚

~George

S&P 500 - George Mahfouz Jr

 

 

 

Trading Between The Lines…

Trading between the lines is how this August is playing out so far. In what is supposed to be a seasonal volatile period, August seemingly has been playing right to the tune of this almost decade long bull market. The Dow Jones Industrial Average (chart), the S&P 500 (chart), the Nasdaq Composite (see chart) and the small-cap Russell 2000 (see chart below) to my surprise have all traded in a tight range this month. Furthermore, the 20-day moving average and even more so the 50-day moving average have played a major role in supporting the indexes whenever any selling does come in. Now we have had a couple days here in August where it looked like these support lines would be breached and in fact in some instances they were. However, whenever these support lines were touched or breached, buying came right in and placed a floor beneath the selling pressure.

I am not sure how the rest of the month will play out but August at least from a seasonality perspective still has the potential to demonstrate volatility and experience meaningful selling pressure. I really do believe that the bear camp expected to see August as their month, but from the looks of things the bears may have to wait until September or beyond. Corporate earnings for the most part have been topping expectations, the economy is seemingly firing on all cylinders and rising interest rates are not that big of a factor yet to be weighing heavily on stocks.

My plan for the rest of the month is simple. Pay attention to the support and resistance zones of the aforementioned indexes and for that matter any stock that I am considering to trade. Secondly, I need to see the trading volume pick up before any definitive trend can be trusted. The market volume just has not been here this month which is also typical of the dog days of summer. Patience is the keyword between now and month end. That said, I expect after the labor day holiday we will be having a much different conversation. Good luck to all šŸ™‚

~George

Russell 2000 - Paula Mahfouz

Strong Earnings Results Buoy Stocks!

Q1 strong earnings results buoy stocks! Corporate profits for this past quarter have exceeded expectations. On average corporate earnings growth surpassed 20 percent for the quarter however, it appears that the markets have priced in this impressive growth. For the most part stocks have had a muted response to their earnings results so far this year. The S&P 500 (chart) is barely up on the year. The Dow Jones Industrial Average (chart) finds itself essentially flat with the Nasdaq Composite modestly upĀ (chart), however, the small-cap Russell 2000 (chart) quietly hit an all time high today. Interestingly enough when small-cap stocks are outperforming the other bellwether indexes, it’s usually a good sign for a rest of the market. We will have to see if history repeats itself here.

Yes the markets as a whole may not be up that much this year, but I am impressed with how the overall landscape has held up. The pending trade war with China, the on again and off again tensions with North Korea and rising interest rates have yet to really take hold of these markets in a negative manner. Yes we did experience a 10% sell-off in February but only to be met with support and a resumption of the upward bias towards stocks. That said, I do feel the markets are teetering on the potential of another pullback. Let’s take a look at the technical shape of the aforementioned indexes.

The Dow Jones Industrial Average (chart) closed just under its 100-day moving average at 24714, S&P 500 (chart) is on the other side of that coin closing just above its 100-day moving average at 2720, the Nasdaq Composite (chart) closed at 7382 and as previously mentioned, the small-cap Russell 2000 (chart) notched an all time high today breaking out of a triple top closing at 1625. So technically speaking these key indexes are not in any type of extreme condition either overbought or oversold and we will have to see how the balance of earnings reporting season plays out and whether or not we break out to the upside or have another retracement. Good luck to all šŸ™‚

~George

Volatility Wakes Up!

After weeks of tepid volatility (chart)Ā Ā investors and markets appear a bit jittery with volatility waking up. For the week, the Dow Jones Industrial Average (chart) closed down 1.3%, the tech-focused Nasdaq (chart) closed off 2.7%, the S&P 500 (chart) closed lower by 1.3% and the small-cap Russell 2000 (chart) finished lower on the week by 1.4%. As first quarter earnings reporting season begins to wind down with overall results coming in mixed, we now enter a time of year where weakness in stocks can occur with volatility even more prevalent. The old adage “sell in May and go away” could come into play.

The currents risks to the market as I see it is the market itself as valuations are historically high with the S&P 500 price to earnings ratio trading in the 20’s. Another risk to stocks is theĀ possibility of the Fed raising rates in June. Ā These catalysts alone couldĀ be all that it takes for equities to not only pause but to continue to experience increased volatility as we head into the summer months. So now let’s look at the technical shape of the aforementioned indexes. After trading near or in overbought territory for the past month or so the Dow Jones Industrial Average (chart) broke through its 20-day moving average, the S&P 500 (chart) also broke through its 20-day moving average, however, a bit more troublesome is the Nasdaq (chart) Ā as it hasĀ broke through its 200-day moving average this past week, a moving average that is more closely watched. Finally,Ā the small-cap Russell 2000 (chart) is now sitting right at its 20-day and 200-day moving averages. So the technical shape of the markets at least according to moving averages support lines appear to beĀ breaking down a bit.

So as we head into a typically softer time for equities that is May and June, and considering the current technical shape of the markets, both Paula and I feel it would be best to move toĀ the sidelines and see if the current increase in volatility continues or if this is just a pause in the sharp rally we have seen since the middle of February.

Good luck to all šŸ™‚

~George

Fears Of A Greek Default Rattles Stocks…

The International Monetary Fund (IMF) which is owed a payment of $1.6 billion euros walked out on Thursday’s meeting when both sides were attempting to negotiate a pact to save Greece from defaulting onĀ its debts and prevent the country from heading into bankruptcy. This stalemate was enough to send global markets lower as well as our own. The Dow Jones Industrial Average (chart) closed Friday’s session down 140 points, the Nasdaq (chart) finished lower by 31 points, the S&P 500 (chart) lost almost 15 points and the small-cap Russell 2000 (chart) closed lower by almost 4 points. This type of uncertainty is never good for the markets especiallyĀ when markets are essentially at all time highs. People are already a bit nervous that stocks may be overheated and should default chatter increase, thisĀ could set the wheels in motion for the “sell-off” certain pundits have been calling for.

This upcoming week the Fed will also hold its two day meeting as market participants will be watching closing to see if any of the Fed’s language will change pertaining to the state of the economy and interest rates. I do not think anyone is expecting too much from the FOMC at this meeting. If market volatility increases, I am quite sure it would be Greece related rather than what the Federal Reserve may or may not say out of their policy meeting.

Friday’s selling pressure did send both the Dow Jones Industrial Average (chart) and the S&P (chart) 500 below their respective 50-day moving averages which is where they also closed. For the past few weeks all of the aforementioned key indices have been flirting with their 50-day moving average and each time they crossed this key support line buyers came in taking the indexes back through this well defined metric. I think it’s too early to tell if what’s happening in the global macro picture will continue to effect our markets or if this is just another pause in our incessant bull market. Have a great week and good luck to all šŸ™‚

~George

Record Close! Sure Doesn’t Feel Like It…

The Dow Jones Industrial Average (chart) ended the month of April at a closing record finishing at 16,580.84. The Nasdaq (chart) closed the month out down 2%, the S&P 500 (chart) finished the month slightly up and the small-cap Russell 2000 (chart) lagged the markets closing down 4% at 1,126.85. Stocks have see-sawed all year long which is why for me, it does not feel like a record close. Another reason why we don’t feel like we are in record territory is we are seeing a lot of momentum stocks begin to lose their mojo, in particular Amazon (NasdaqGS: AMZN), Netflix (NasdaqGS: NFLX) and biotech momentum favorite Biogen Idec (NasdaqGS: BIIB) just to name a few.

That said, as Q1 earnings reporting season continues, companies continue to produce better than expected profits for the most part, which is one of the reasons why stocks have shown impressive resilience. The vitality of corporate America is quite remarkable considering the paltry 0.1% annualized growth rate our economy experienced in the first quarter. So now that we are in May, will the old adage “sell in May and go away” apply this year? I am not so sure. Let’s not forget interest rates remain near record lows, the Fed is still buying bond assets to help stimulate the economy albeit at a slower pace, and the technicals of the market are not in bad shape.

Let’s take a gander at the current technical setup of the aforementioned key indexes.Ā The two technical indicators I pay the closet attention to is theĀ Relative Strength IndexĀ a.k.a. theĀ RSI,Ā and theĀ moving averages. Out of hundreds of technical indicators available, I have found that these particular indicators work the best for me. In technical analysis, I like to keep things simple and not place too many indicators into the mix. It also helps that certain high profile market technicians, computerized trading models and certain institutional investors utilize the RSI and moving averages as their core technical indicators in their trading models. Ā Time and time again when I see that theĀ Relative Strength IndexĀ (RSI)Ā of a given index or equity is in an overbought or oversold condition, the majority of the time the asset or index reverts back to the mean. Typically the same rings true with theĀ moving averages, whenever a stock or index bumps up against or comes down to its moving average, typically the stock or index finds support or resistance. Letā€™s break this down in more detail. Pertaining to theĀ (RSI),Ā TheĀ RSIĀ is designed to demonstrate whether or not an index or stock is overbought or oversold, depending on certain value levels. According to theĀ RSIĀ principle, the 70 value level or greater, is an overbought condition and the 30 value and below is an oversold condition. As of right now, the aforementioned indices are hovering around the 50 value level +/- which is not indicating an extreme condition either way. Looking at theĀ moving averages,Ā of these four indexes, 2 of the 4 remain above their 50-day and 200-day moving averages and as you can see with the small-cap Russell 2000 (chart), this index has recently been finding support and bouncing off of its 200-day moving average,Ā which clearly demonstrates the powerful support that moving averages can provide.

So again, I am not so sure if the “sell in May and go away” will apply this year based on how the technical set-up appears, how corporate America is coming in with their surprising earnings report cards and a continuing accommodative Fed. Good luck to all and happy trading in the month of May šŸ™‚

~George

Global Concerns Give Markets A Pause…

Stocks had a very volatile week as tensions elevated in Ukraine and now China has seemingly hit a soft patch in its economy. For the week, the Dow Jones Industrial Average (chart) fell 2..35%, the Nasdaq (chart) gave back 2.09%, the S&P 500 (chart) -1.96% and the small-cap Russell 2000 (chart) ended the week lower by 1.82%. I do not think the most recent retreat in stocks is anything beyond the current global headline risks as our own economy appears to be intact and growing, albeit modestly. Some economists believe China will maintain a 7.5% growth rate this year while other pundits believe a cooling off of China’s economy would affect our markets here. Should the latter be the case, I would assume the Chinese government would take measures to help prop up their economy by injecting enough stimulus to ensure the targeted 7.5% growth rate for 2014 would not be breached. Recently, the economic numbers across the board coming out of China has been weaker than expected, especially in the manufacturing and export sectors.

This past week also saw an escalation in the crisis in Ukraine with both sides increasing the chatter about a potential military conflict as protests have become extremely violent. Governments from around the world are now are attempting to assist in the negotiations with Russia and Ukraine to formalize some type of accord. So it’s no surprise that a “risk off” mentality has come into the markets for the time being. I do believe that once things settle down in the Ukraine and the China headlines become less frequent, we could consolidate here for a bit as the first quarter of the year winds down. Then of course as we enter into April, all eyes will be watching how corporate America fared during the first quarter as Q1 earnings reporting season will begin. Between now and the end of March, I will be paying closer attention to our own economic data which will most likely translate into companies Q1 earnings reports.

Technically speaking, the Dow Jones Industrial Average (chart), the Nasdaq (chart), the S&P 500 (chart) and the Russell 2000 (chart) all appear to be heading towards their respective 50-day moving averages, in fact the Dow (chart) Ā actually breached its 50-day on Friday. The 50-day moving average is a technical indicator I favor as do other certain market technicians. Historically, when stocks or indexes reach their 50-day or 200-day moving averageĀ for that matter, support is typically found and a reversal of the stock or index ensues. The moving averages are also followed by certain institutional investors and select computerized algorithmic trading models, which could also be a reason why the moving averages can act as a support mechanism. Now I am not suggesting that the moving averages are infallible, I personally utilize this indicator mainly from a technical standpoint to help me navigate current market opportunities. Good luck to all.

Have a great weekend šŸ™‚

~George

 

A Mixed Bag…

At the height of Q4 earnings reporting season, results from corporate America have been conflicted, so far. Let’s start with everyone’s favorite, Apple (NasdaqGM: AAPL). Despite sales of its iPhone hitting records during the holiday season, those sales were shy of what the street was expecting by three million units. Furthermore, during the conference call after its earnings release on Monday, management projected a softer outlook for the upcoming quarter amid growing competition in the smartphone and tablet marketplace. This was enough to send Apple’s shares lower by over 10% this past week. In fact, the majority of the retailers have reported very disappointing results this earnings reporting season with the widely followed and traded retail SPDR S&P Retail ETF (NYSE Arca: XRT) (chart) down almost 10% for the month of January.

Now let’s take a look at the results of the four key indices so far this year. For the month of January, the Dow Jones Industrial Average (chart) is down 5.3%, the tech-heavy Nasdaq (chart) is off by 1.7%, the S&P 500 (chart) is lower by 3.6% and the small-cap Russell 2000 (chart) finished the month down by 2.8%. In my January 1st blog, I eluded to expecting a 5%, 10% or even a 15% correction in 2014, and we could very well be in this corrective phase as we speak. The question now to investors and traders alike is how steep could this current pullback become? Let’s not forget we are coming off of a year in which these key indexes individually gained well over 25%, with the Nasdaq leading the way gaining a whopping 38% in 2013. What I try to do is tune out all of the noise that comes out of the financial cable channels and media and focus on seasonal patterns and the technicals of the market. Technically speaking, the markets are not yet in an extreme oversold condition according to the RSI principles. Remember the Relative Strength Index a.k.a. the RSI is one of my favorite technical indicators where overbought and oversold conditions are exhibited depending on certain value levels. In this case and according to the RSI principle, the 30 value level and below is considered oversold and anything below 20 is considered extremely oversold. We are just not there yet. However, one thing I do want to highlight is for the first time in months the aforementioned key indices have all fallen and closed below their 50-day moving averages. Something that has not occurred since early October of last year and something we want to keep an eye on. If the markets cannot rise back and remain above their 50-day in the near future, the 200-day support line could be the next real support for these markets. I am not suggesting that we will test the 200-day moving average, but if this is the case, the selling pressure would most likely continue and may actually increase. Let’s see how next week’s earnings reports come in before we draw any further conclusions.

Looking ahead to next week, we will here earnings results from petroleum producer Anadarko (NYSE: APC), real estate investment trust Annaly Capital Management (NYSE: NLY), Yum Brands (NYSE: YUM), Boston Scientific Corp Ā (NYSE: BSX), retailer Michael Kors (NYSE: KORS), Cognizant Technology Solutions Corp (NasdaqGS: CTSH), Green Mountain Coffee Roasters (NasdaqGS: GMCR), Pandora Media (NYSE: P), AOL Inc. (NYSE: AOL), Expedia (NasdaqGS: EXPE), General Motors (NYSE: GM), Verisign Inc. (NasdaqGS: VRSN), Apollo Global Management (NYSE: APO), Flir Systems (NasdaqGS: FLIR) and Moody’s Corp (NYSE: MCO) just to name a few. So as earnings reporting season continues, so do the markets. Good luck to all.

Have a great weekend šŸ™‚

~George