Nasdaq

Back on track…

Posted on by George Mahfouz

Despite some market jitters and a pullback in June, stocks are right back in bull mode with the Dow and S&P closing at new highs. For the week, the Dow Jones Industrial Average (chart) closed up 2.17%, the S&P 500 (chart) +2.96%, the Nasdaq (chart) +3.47% and the small-cap Russell 2000 (chart) closed the week out up 3.10% also closing at an all time high. These impressive weekly gains were spurred on by Ben Bernanke’s reassurance that the fed’s easy monetary policies will continue for the foreseeable future.

Once again the mettle of the market will be tested this week with Q2 earnings reporting season kicking into high gear. Here are some of the companies that will report their second quarter results: Citigroup (NYSE: C), Coca-Cola (NYSE: KO), Goldman Sachs (NYSE: GS), Johnson & Johnson (NYSE: JNJ), The Charles Schwab Corporation (NYSE: SCHW), Yahoo (NasdaqGS: YHOO), Bank of America (NYSE: BAC), American Express (NYSE: AXP) and Ebay (NasdaqGS: EBAY), International Business Machines, (NYSE: IBM), Intel (NasdaqGS: INTC), United Health (NYSE: UNH), Google (NasdaqGS: GOOG) Blackrock (NYSE: BLK), Microsoft (NasdaqGS: MSFT) and Morgan Stanley (NYSE: MS).

So as you can see, next week’s earnings reports will take center stage and should guide our markets as we continue to go through the summer months. I look for volatility to increase which is typical with earnings reporting season. Good luck to all.

Have a great week 🙂

~George

Despite a modest pullback in June, the major averages continue to post double digit gains on the year…

Posted on by George Mahfouz

In month of June, the key indices witnessed a spike in volatility and their first monthly drop in 2013, however, stocks in the second quarter once again posted impressive gains. In Q2, the Dow Jones Industrial Average (chart) finished up 2.27%, the Nasdaq (chart) +4.15%, the S&P 500 (chart) +2.36% and the small-cap Russell 2000 (chart) closed the quarter up 2.73%. So far this year these averages are up an eye-popping 13.78%, 12.71%, 12.63% and 15.09% respectively.

As I look back over the past month or so volatility kicked into high gear as the Fed continued to signal that its bond purchases would relent as early as the fourth quarter of this year. Couple that with Japan’s Nikkei index dramatically declining over 20% in less than a month from its recent high, and the gold market (chart) getting taken out to the woodshed with gold having its worst quarter on record, losing over 24% on the quarter. It’s no wonder the key indices retraced in June. In fact, I am surprised that our averages did not decline any further considering all of the facts.

So what now you may ask? How does the second half of the year portend to be? Here is the catch-22. As economic numbers continue to improve, this will give the Fed more reason to begin to lighten up on their bond purchases, hence more market volatility. However, if the economy continue to grow anemically, this will give the Fed the green light to keep stimulating. What’s wrong with this picture though? In my opinion, at some point in time our economy will have to stand on its own two feet and the top line of corporate America will have to show meaningful growth in order for this bull market to continue. We won’t have to wait very long to understand the health and growth prospects of corporate America as Q2 earnings reporting season kicks into gear here in July. That said, as a trader you relish in the opportunities that earnings season provides both on the long and short side. However, make sure to abide by your trading plans, disciplines and always consider using protective stops as part of your plan. Earnings reporting season typically adds to volatility and larger than expected price movements. I bid you good luck.

All the best 🙂

~George

Technically speaking…

Posted on by George Mahfouz

Stocks finished lower for the week as volatility continued to rise. For the week, the  Dow Jones Industrial Average (chart) closed down 1.17%, the Nasdaq (chart) -1.32%, the S&P 500 (chart) -1.01% and the small-cap Russell 2000 (chart) closed the week lower by 0.63%. Is this bull market beginning to show signs of fatigue or is this just a typical pre-summer pullback? Let’s take a look at the technical picture of these key indices and see what’s going on there.

Market technicians use a multitude of indicators to discern potential support or resistance levels. My preference has always been to keep things as simple as possible when analyzing charts of stocks or indices. The two indicators I pay the closet attention to is the Relative Strength Index also know as the RSI and the moving averages. Out of dozens of technical indicators that are available, you may ask why do I prefer these particular indicators? The answer simply is that high profile market technicians,  computerized trading models and certain institutional investors utilize them.  Time and time again when I see that Relative Strength Index (RSI) is indicating an overbought or oversold condition, the majority of the time the asset or index reverts to the mean. Same rings true with the 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.

Let’s break this down in more detail. Pertaining to the (RSI), 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. 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 the moving averages these indices remain above their 50-day moving average and as you can see with the Dow Jones Industrial Average (chart) and S&P 500 (chart), these indexes have bounced off their 50-day moving averages/support lines three times over the past week or so which clearly demonstrates the potential of the power and precision of this particular technical indicator.

So technically speaking, I see nothing that would indicate an extreme condition of these indexes and as long as their are no major surprises out of the FOMC meeting next week, we should see smooth sailing heading into the summer. Good luck to all.

Have a great weekend 🙂

~George

Is risk back off?

Posted on by George Mahfouz

On the last trading day of May, the Dow Jones Industrial Average (chart) sold off by 208.96 points, the Nasdaq (chart) -35.38, the S&P 500 (chart) -23.67 and the small-cap Russell 2000 (chart) finished the day lower by 10.28 points. Is this a possible prelude for the month of June? After the six-month+ run that stocks have been on, one has to wonder if these markets are poised to correct?

As I wrote in mid-May, I expected volatility to begin to increase, and sure enough the VIX (chart) also known as the fear gauge spiked 27.5% over the past two weeks. Ever since the Fed began mapping out an exit strategy, the market chatter has steadily increased as to how stocks and bonds would react. Furthermore, since its May policy meeting, the Fed has had a difficult time communicating its position as to how it will move forward. I know that some type of jaw boning needs to occur in order to prepare the markets for the beginning of monetary easing. However, a policy statement at the beginning of May indicated that the Fed’s next move could either be up or down? Confusing isn’t it? So it’s no wonder some sort of fear has begun to creep into these markets.

That said, this has become such an unprecedented market environment, I don’t know what to think right now. Isn’t the job market, corporate earnings, and top-line growth supposed to drive stocks? What I and many on the street are concerned with is the day the Fed decides to begin its wind down, how will equities react? Next week I will be paying close attention to the plethora of economic reports that will be issued which includes the PMI and ISM manufacturing indexes, the Beige Book and of course the all important Jobs report which will be issued on Friday before the market open, just to name a few. If the economy can begin to demonstrate meaningful strength, then any type of pullback or correction will most likely be met with wide support. However, if economic numbers stay weak, then we could very well be in for a lot more volatility this summer. Good luck to all.

Have a great weekend 🙂

~George

En route to 20%? Wait a minute…

Posted on by George Mahfouz

As stocks and key indices continue to break records, the four major averages are now approaching 20% gains year to date. So far this year, the Dow Jones Industrial Average (chart) is up a whopping 15.37%, the Nasdaq (chart) +13.81%, the S&P 500 (chart) +14.55% and the small-cap Russell 2000 (chart) is up year-to-date 14.81%. But hold the phone! A report issued after the close on Friday just might be what the bears have been looking for and what could be a catalyst to a pause or pullback to these red hot markets.

On Friday after the close, an article came out in the Wall Street Journal citing that the Federal Reserve has begun to map out a strategy for winding down its $85 billion-a-month bond buying program. This super aggressive part of the ongoing stimulus program has played an enormous role in the lift in equities and the economy over the past year or so. Although the article cited a variety of options that the Fed is outlining, there are some Fed officials calling for the wind-down to begin as early as this summer. I will be very interested to see how the markets react to the report this upcoming trading week. I do not think anyone expects that the Fed will be overly aggressive with any adjustment it makes, but nonetheless, stocks have been a huge beneficiary of this extraordinary component of the stimulus program. I wouldn’t be surprised if the markets will take this latest cue and begin to exhibit an increase in volatiltiy. Besides, and as everybody knows, equities have been long overdue for a pause at the very least, and even more so a healthy pullback.

As I look to the internals of the market, this unprecedented run stocks have had so far this year has been on lighter volume, but this also has been the case since the bull market began back in 2009. Whatever the case is, without question these markets have been and are over extended to say the least. Let’s see if the Fed’s latest statement shakes the trees out a bit. I am considering initiating a short bias theme in certain indexes but will have the utmost discipline in protecting any positions by have very tight stops. Seemingly, almost everyone who has attempted a short strategy this year most likely endured a great amount of grief, however, at some point and time the bears should have their day in the sun. I am not suggesting that anyone should short this market or any market for that matter, short selling markets of any kind involves a significant degree of risk and is not for the feint of heart. That said, and as always, make sure to consult with a certified financial advisor of your choice when considering any investment strategy. Have a great week 🙂

~George

Unconditional support continues…

Posted on by George Mahfouz

The Federal Reserve’s incessant support of asset prices continues to propel stocks to all time highs. The S&P 500 (chart) closed out the month of April at a record high of 1597.57. For the month, the Dow Jones Industrial Average (chart) closed up 1.79%, the Nasdaq (chart) +1.88% and the small-cap Russell 2000 (chart) finished the month gaining about 1%. Records are being broken despite the lackluster job growth in our country, a weaker than expected GDP report issued last Friday, and a mixed bag of Q1 corporate earnings reports.

Not to sound like a broken record, but as long as the economy stays stuck in neutral, QE3 should remain in full effect, which is what I expect to hear when the Federal Reserve concludes their two day meeting this afternoon. This mantra should also continue to be bullish for stocks and act as a catalyst for support should we get the pullback or market correction that the bears have been chatting up all year long. To add even more fuel to the fire, you now have central banks from around the world opening up their balance sheets in further support of their own economies. I am not so sure that the old adage of “sell in May and go away” will apply this year just from the mere power and seemingly collaborative efforts of the world wide central bankers. Logically, this cannot continue to be the case, but for now it is super charging the markets.

Technically speaking and from a relative strength perspective, the four key indices are below the 70 value level of the RSI which is considered overbought territory, and therefore could very well be consolidating for the next leg up. Of course, the market is way overdue for some type of pullback. I have been expecting this for months now and whenever there is any type of selling pressure, it has been met with undeniable support. Best of luck in the month of May and remember it is typically a good idea to use protective stops in any position you enter into especially with the amazing double digit run stocks have had so far this year.

Have a great May 🙂

~George

 

 

Q1 in the books, and what a quarter it was!

Posted on by George Mahfouz

Stocks posted one of their largest percentage quarterly gains in years. In the first three months of 2013, the Dow Jones Industrial Average (chart) soared 11.3%, the Nasdaq (chart) gained 8.2%, the S&P 500 (chart) posted a record close to end the Q, and the small-cap Russell 2000 (chart) produced a staggering 12% gain. Who would have thought that the major averages would have such a stellar performance to start the year? Especially when considering the sequester ramifications, the Cypress crisis and the mixed signals that the economy here has been sending.

Now that Q1 is over, will there be an encore performance in Q2? Well we won’t have to look very far but to the much anticipated earnings reporting season which begins next week. In my humble opinion, this Q1 earnings reporting season will be scrutinized like no other. If companies do not demonstrate meaningful top-line growth, this rally could indeed be challenged. At least, this is what logic would say. If you are a perma-bull, I suppose you could surmise that if earnings season turns out as a disappointment, this would give the Fed even more reason to continue its easy monetary policies. Let’s not forget that these policies are why we are breaking records seemingly everyday. There is no denying this bull market has been mainly fed by the stimulus programs the Fed (no pun intended) has implemented over the past four years or so. Sure, a lot of companies were forced to become more efficient during our own economic crisis but at some point in time, the top-line must grow and these markets must be able to stand own their own two feet. The real challenge that the Fed will ultimately face is how to begin to wind down its $85 billion a month bond buying program without rattling the markets. To me, if not handled properly and delicately, this would be the most powerful catalyst to stop this bull market right in its tracks.

Technically speaking, all of the key indices remain extended and near the 70 value level of the Relative Strength Index (RSI). I will remain extremely cautious in the near term when deploying any new capital into the markets especially on the long side. I do, however, expect volitlilty to increase due to the upcoming earnings reporting season. Good luck to all and have a very profitable month.

All the best 🙂

~George

Dow record in sight…

Posted on by George Mahfouz

Stocks continue to head north this week with the Dow Jones Industrial Average (chart) flirting with an all time high. For the week, the Dow (chart) closed up 0.64%  just 74 points away from notching a record, the Nasdaq (chart) finished the week up 0.25%, the S&P 500 (chart) +0.17% and the small-cap Russell 2000 (chart) closed the week out basically flat. Looking at the year to date performances of these key indices and you will see eye-popping gains of 7.52%, 4.98%, 6.45% and 7.70% respectively.

This wasn’t the case on Monday when the markets nerves were tested with fears of instability out of Italy and the ongoing sequester uncertainty here at home. This sent stocks spiraling with the Dow shredding over 200 points. However, true to its form, stocks regained their footing on Tuesday and throughout the rest of the week once again demonstrating how resilient equities are in this Fed friendly environment. Even Gold bounced off of its recent lows to close at $1572.30 a troy ounce, although still trending downward.

Looking ahead to next week, I am cautiously optimistic that we could see a record on the Dow with the caveat of headline risks out of Washington. If the sequester issue does not get some type of formidable resolution out of Congress, we will most likely see consumer confidence rattled and market confidence challenged. Chances are neither side of the aisle wants to be held responsible for the looming automatic spending cuts which in turn would be a serious blow to our fragile economy. Nonetheless, it would be wise to tread these markets carefully and make sure to always consider using protective stops in your portfolio. Good luck to all.

Have a great weekend and profitable March 🙂

~George

Flat week…

Posted on by George Mahfouz

The four key indices finished the week basically unchanged, however, after the run stocks have had so far this year, the bulls will take it. For the week, the Dow Jones Industrial Average (chart) finished lower by 0.08%, the Nasdaq (chart) by -0.06%, the S&P 500 (chart) and the Russell 2000 (chart) actually ticked up on the week by 0.12% and 1.04% respectively.

The bears must be scratching their heads and asking; “Where is the pullback or 5-10% correction?” Without question the market has been churning and consolidating for the past several trading sessions and if  you have been short, or have been putting on new short positions, there may be a need for concern. My expectations have been calling for some type of pullback which in fact would be healthy for stocks. However, one thing I have learned over the years is you cannot fight the tape or for that matter, the fed. As long as you have the Federal Reserve commiting and deploying an exorbitant amount of resources and liquidity to the markets, you will most likely have a bid underneath most equities.

Technically speaking, the major indexes remain in overbought territory and when there is a pullback or correction in the averages, I would expect it will be met with willing and able buyers. Good luck to all.

The markets are closed on Monday for President’s Day so enjoy the extended holiday weekend 🙂

~George Mahfouz

A bull stampede!

Posted on by George Mahfouz

Stocks are on a rampage with the Dow Jones Industrial Average (chart) surpassing and closing above the 14,000 mark for the first time in over five years. For the week, the Dow Jones Industrial Average (chart) finished up 0.89% the Nasdaq (chart) +0.93%, the S&P 500 (chart) +0.68% and the small-cap the Russell 2000 (chart) closed the week up 0.66%. For the month of January both the Dow Jones Industrial Average and the S&P 500 had its best showing in decades.

So why so much bullishness? Well for starters, before the market opened today the non-farm payroll number came out and 157,000 new jobs were added to the economy. Good, right? Not so fast. The unemployment rate actually ticked up to 7.9% in January and furthermore, the economy needs to add at least 250,000 new jobs per month in order to make a meaningful dent in the unemployment rate . So you ask, “how can this be good for stocks?” Here is the oxymoron. As long as the economic numbers remain tepid, the federal reserve will continue its stimulus program(s) which in turn bodes very well for stocks. A zero to a quarter percent interest rate environment forces money off of the sidelines that is seeking a respectable yield. This especially rings true for fund managers and institutional money managers who really must produce higher than average returns to appease their investors.

For me personally this type of market environment is very difficult to navigate. On one hand you have the fed ready to expand their balance sheet which in turn fuels stocks, and on the other hand you have a weak economy which should translate to lower equity prices. Instead, this market is making multi-year highs across the board. Without question stocks are way overbought and are due for a healthy pullback. If you dare to short this market in attempt to call a short term top, make sure you have explicit protective stops in place. The same discipline should also be honored if you open any new long positions. Going forward, I am expecting some type of pullback which would probably be met with noticeable support at least in the short term. Good luck to all.

Have a great weekend 🙂

~George