$7.4 Billion In One Day!

The consumer is alive and well which is evidenced by a record $7.4 billion in online sales in one day. Black Friday set a United States record for online sales and between Thanksgiving Day and Black Friday over $11 billion in online sales rang the register. Well itโ€™s not that hard to believe when all that the stock market has done this year is set record after record. As we enter the last month of the year, the Dow Jones Industrial Average (see chart here) is trading above 28000, the S&P 500 (see chart here) starts December near an all-time high, the Nasdaq Composite (see chart below) is also near an all-time high and the small-cap Russell 2000 (see chart here) also has hit its stride breaking out above a triple top that has formed over the past few months.

I have been writing my blog for almost 10 years and I thought years one through five of the recovery from the depths of the 2008 financial crises was impressive. Whatโ€™s even more impressive to me is that over the past year or so we keep setting record after record despite having one of the most unstable governments in our history. Who would have thought that with a pending impeachment, a trade war with China and tape bomb after tape bomb hitting the tape we would still be at or near record highs? Simply incredible! With that said, the Federal Reserve has done its part this year by reducing interest rates which is probably one of the main reasons the markets still remain at or near record highs.

The technical shape of the stock market appears to still be intact. Despite reaching overbought conditions last week, Fridayโ€™s pullback brought the RSI level of the aforementioned indexes back below the 70-value level. The relative strength index is a technical indicator that expresses overbought and/or oversold conditions. The 70-value level of the RSI is considered overbought while the 30-value level is considered oversold. The major indexes all traded above the 70-value level until the most recent pullback. Even if we see a meaningful pullback here in December, there are plenty of support levels that will come into play with the 20-day, 50-day, 100 and 200 day moving averages which are all below where we are trading at today and historically acts as support in sell-offs.

Good luck to all ๐Ÿ™‚

~George

$7.4 Billion In One Day! - Paula Mahfouz

Upward Trend Remains Intact!

Record highs continue as the upward trend in the stock market remains intact! Despite the impeachment proceedings now going public and despite the China trade deal seemingly pausing we are still setting records. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) all hit record highs this week. The small-cap Russell 2000 (see chart below) is holding its own in the overall upward trend, however, this index remains below its all-time high by 150 points or so.

The good news today coming out of the White House is that we are getting closer to a deal with China. This news was enough to send the Dow Jones Industrial Average (chart), the S&P 500 (chart) and the Nasdaq Composite (chart) to all time highs yet again. It is incredible that just a blurb out of the White House regarding a potential deal sends stocks rip roaring ahead. One of the concerns I have about actually seeing a deal get done by year-end is that next week it is possible a tweet from our President may read the exact opposite. If you look back and think about it how many times have we seen a tweet or an announcement that a deal is getting closer only to have the next statement speak to the exactย  opposite. Hopefully today’s announcement (click here) sticks and that we actually see a trade deal get done by year-end. No more talk!

If indeed a trade deal gets done there no question this will be good for business here in the U.S. Although it may feel that stocks and the key indexes are overbought, if a deal gets done then it is very possible that we continue to notch records between now and year-end.

Good luck to all ๐Ÿ™‚

~George

The Uptrend Remains Intact - George Mahfouz

Third Rate Cut Of The Year…

The Federal Reserve provided its third rate cut of the year on Wednesday. Although this was very much expected, until it happens you don’t know. Without question the Fed’s actions this year has helped the markets hit new highs throughout the year. This week has been no different. Despite pulling back a bit yesterday the Dow Jones Industrial Average (see chart here) remains above 27000, the S&P 500 (see chart here) hit a fresh all-time high on Wednesday, the Nasdaq Composite (see chart here) is within 50 points of its all time high and the small-cap Russell 2000 (see chart below) is trading above its 20, 50, 100 and 200-day moving averages. A technically healthy sign.

What has allowed the Federal Reserve to be proactive in cutting rates is the fact that inflation is pretty much non-existent. If inflation was present in a meaningful way I am not sure the Fed would be cutting rates at all. A huge side effect to lower rates is a strong stock market. So it’s no wonder we continue to trade at new highs and at the very bare minimum hold strong near the upper bands of the trading range. A couple of other factors that are supporting the markets are the latest round of corporate earnings reports which are coming in a bit better than expected along with some positive news flow out of the China trade negotiations.

With this latest rate cut I would not be surprised to see a continuation of the current upward trend and also potentially see new all-time highs before year-end. As I look at the technical shape of the aforementioned indexes pertaining to the relative strength index and the moving averages, I don’t see any issues there either. The Dow Jones Industrial Average (chart), the S&P 500 (chart), the Nasdaq Composite (chart) and the Russell 2000 (chart) are all above their respective moving averages which historically provides support on pullbacks and none of these indexes are in overbought territoryย  according to the relative strength index (RSI) principles.

Good luck to all ๐Ÿ™‚

~George

Third Rate Cut Of The Year - Paula Mahfouz

 

Better Than Expected…

Q3 earnings reporting season has just begun and early on earnings are coming in better than expected. Almost 15% of the S&P 500 have reported their latest quarterly earnings and over 80% of that group have beat expectations. Included in this group that have already reported are Netflix (Nasdaq: NFLX), Bank of America (NYSE: BAC), JP Morgan Chase (NYSE: JPM), and Morgan Stanley (NYSE: MS) just to name a few. A look ahead to next week and hundreds of companies are set to report including but not limited to Halliburton (NYSE: HAL), TD Ameritrade (Nasdaq: AMTD), Biogen (Nasdaq:BIIB), Discover Financial Services (NYSE: DFS), Harley-Davidson (NYSE: HOG), McDonald’s Corp (NYSE: MCD), Proctor and Gamble (NYSE: PG), United Parcel Service (NYSE: UPS), Boeing Co (NYSE: BA), Caterpillar (NYSE: CAT). eBay (Nasdaq: EBAY), Ford Motor Co. (NYSE: F), Las Vegas Sands Corp (NYSE: LVS), Microsoft (Nasdaq:MSFT), O’Reilly Automotive (Nasdaq:ORLY), Paypal Holdings (Nasdaq:PYPL), Spirit Airlines (NYSE: SAVE), Tesla (Nasdaq: TSLA), Xilinx (Nasdaq: XLNX), 3M Co (NYSE: MMM), Aflac Inc (NYSE: AFL), American Airlines Group (Nasdaq: AAL), Capital One Financial Corp (NYSE: COF), Citrix Systems (Nasdaq: CTXS), Deckers Outdoor Corp (NYSE: DECK), First Solar (Nasdaq: FSLR), Gilead Sciences (Nasdaq: GILD), Southwest Airlines (NYSE: LUV), T-Mobile (Nasdaq: TMUS), Twitter (NYSE: TWTR), Visa Inc (NYSE: V), Goodyear Tire & Rubber (NYSE: GT), Phillips 66 (NYSE: PSX), and Royal Caribbean Cruises (NYSE: RCL). Hundreds more companies are set to report but you get the picture.

So with earning reporting season kicking into high gear, let’s see how investors continue to respond. On the week the Dow Jones Industrial Average (chart) closed at 26770, the S&P 500 (chart) closed just under the 3000 mark, the Nasdaq Composite (chart) closed at 8089 and the small-cap Russell 2000 (chart) closed the week at 1535. With the exception of today’s pullback the aforementioned indexes have all been in a recent uptrend. I think it is safe to say that next week’s earnings results will play a role in the markets direction.

Good luck to all ๐Ÿ™‚

~George

An Absolutely Incredible Stock Market!

It is absolutely incredible that this stock market is weathering the threat of impeachment! We have witnessed the strongest bull market in history! Not even the threat of impeachment can rattle this market. I do not want to get too political here but if half of this is true the markets just don’t care. Then throw into the mix the constant flip flopping that is going on with the China trade war and we are still near all-time highs? This makes me believe more now than ever that passive investing has almost got a total grip on stocks. Seemingly NOTHING can shake these markets. It’s almost like close your eyes and hang on for the ride. This worries me a bit. Why? Well for starters stocks used to be valued by their proprietary nature, growth potential, earnings power and ultimate dividend yields. We have witnessed a melt up in the stock market for more than a decade despite the shocks that have come and gone. What’s more is the geopolitical risks that are here and present and now our own President is going through an impeachment process and we still are near all time highs? Simply an absolutely incredible stock market we find ourselves in!

Well there is an old saying on Wall Street and that is the “trend is your friend!” My friends there is no denying this over the past decade. Let’s also keep in mind that the market is a lot smarter than we think. Meaning, there is no panic with this latest tape bomb of impeachment. Well one can say there is no way this President will get impeached because the Senate will not roll over. This very well may be the case. One thing we can do is pay attention to how corporate America continues to perform or not perform. At some point in time one would think that valuations will matter and that the markets will begin to pay attention to the normal risks that are inherent with any market.

Good luck to all ๐Ÿ™‚

~George

 

 

New Week, New Record Highs?

New week, new record highs? The Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) are fast approaching all-time highs. Both of these major indexes have been on a tear of late and could see new record highs this upcoming week. However, breaking news came out yesterday that Saudi Arabia has shut down half of its oil production after drones attacked the world’s largest oil processing facility. This attack will impact 5 million barrels of daily oil production. One sector that will certainly be affected is the energy space. The price of oil is now expected to skyrocket at least here in the short term. I am not sure if the markets will shrug this dynamic off, but I do expect energy stocks to outperform.

As I take a look at the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) both of these indexes appear to be ready to breakout and join the Dow Jones Industrials and the S&P 500 most recent performances. If the news out of the middle east has a negative impact on stocks, there are plenty of technical support levels that would come into play. All of the aforementioned key indexes are trading comfortably above their 20-day, 100-day and 200 day moving averages. During the month of August the 200-day moving average provided major support multiple times. As I look at the relative strength index to see how close we are to overbought conditions, there is still plenty of real estate before we see the 70 level of the RSI. So technically speaking the indexes appear to be in relatively good shape.

Without question the oil markets and the energy sector will be the focus this week. I am also curious to see how the overall markets react to this latest development out of the middle east. Good luck to all ๐Ÿ™‚

~George

 

 

Is More Volatility Ahead?

The month of August proved to be one of the more volatile months so far this year. The question now is will this volatility continue here in September? As long as the turbulent tweets continue out of Washington, I bet the vol we witnessed in August will indeed continue this month. Markets hate uncertainty and as long as our President continues to flip flop seemingly daily and then tweet about it, we could very well be in for more vol. It’s not rocket science, when the tweets are positive and have consistency, stocks go green. Then when the flip flopping occurs they go red. It is amazing to me how stocks react to every single tweet or flip out of Washington. Sure there are algorithms that are programmed to react to headlines, but because of the constant noise out of Washington it’s no wonder we have been whipsawing around.

I always try to tune out the noise and focus on the fundamentals and technical shape of the markets. Let’s take a look at the current price to earnings ratio (click here) of the S&P 500. The S&P 500 (see chart here) price to earnings ratio continues to trade above historic norms. Despite all of the current uncertainties especially with the trade war, stocks on average are still trading above the 20 PE ratio level. The historic price to earnings average for the S&P 500 is somewhere in the mid-teens. So from a fundamental valuation standpoint the markets remain at the upper end of the channel. There are many other valuation metrics and government policies that play into the valuation analysis mix, but purely from a price to earnings ratio, one can ascertain that we remain a bit overpriced.

That said, companies can certainly grow into their current valuations but we definitely need to get the trade war with China resolved so that companies know where they stand. Both Paula and I wish everyone a very happy and safe Labor Day weekend ๐Ÿ™‚

~George

 

The 200-Day Moving Average Holds!

The 200-day moving average held its ground despite the constant tape bombs and tweets that continues to come out of Washington. It is no secret that stocks have been on a wild ride over the past few weeks from making all-time highs to rip roaring selloffs. The continuation of tariff threats out of Washington has been a huge catalyst for the increase in volatility in stocks. That said, with all of the madness that is swirling around the Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) have all managed to stay above their respective 200-day moving averages. This key technical support line has held true to form during these market selloffs. The small-cap Russell 2000 (see chart here) has not been as fortunate and could not hold its 200-day.

So in addition to the Washington D.C. threats of additional tariffs, the markets also had to deal with the dreaded 10-year and 2-year yield curve inverting. Whenever longer term interest rates fall below shorter term interest rates in the bond market that historically is a signal that a recession might be looming. Now there is a meaningful lag here whenever we see the yield curve inverting, so as long as the curve flattens out and returns to a normalized dynamic, we should escape the threat. However, if the yield curve remains inverted for an extended period of time then we could be in for something else.

Let’s get back to the technical shape of the markets. As mentioned, three of the four major averages held above their respective 200-day moving average support line which is a good thing technically. What also helped is during these meaningful selloffs is that the markets did go into oversold territory and technically bounced. Let’s see how the next couple of weeks shape up as we wind down the dog days of summer.

Good luck to all ๐Ÿ™‚

~George

First Rate Cut In Over A Decade!

Yesterday the Federal Reserve conducted its first rate cut in over a decade! Although widely expected, the markets were disappointed as to how Fed Chairman Jerome Powell signaled that this is does not necessarily mean more rate cuts are forthcoming. Chairman Powell’s statement sent stocks down sharply. The Dow Jones Industrial Average (see chart here) closed down over 330 points, the S&P 500 (see chart here) closed lower by 32.80, the Nasdaq Composite (see chart here) finished down almost 100 points and the small-cap Russell 2000 (see chart below) finished the day down 11 points. The markets were hoping that Mr. Powell would remain dovish and it was clear he was the opposite. That said, a rate cut is a rate cut and the intention is to keep the economy moving. Despite the rate cut move, The White House came out and complained about how Chairman Powell handled his statement and it is no secret that administration wants further rate cuts. I do think additional rate cuts may not be needed due to how Q2 earnings reporting season is going so far. The street was expecting an “earnings recession” at least in the last quarter. But as we are now half way through earnings reporting season, so far so good. There are not many earnings surprises to the downside and future guidance is not too shabby so far.

Let’s take a look at the current technical shape of the markets. The indexes have been going sideways as of late with the exception of yesterday’s selloff. That said, yesterday’s selloff did break the 20-day moving averages of the Dow Jones Industrials, the S&P 500 and the Nasdaq Composite, however, the small-cap Russell 2000 closed above its 20 day and actually demonstrated more relative strength than the other averages. A one day selloff does not necessarily mean the beginning of a new downward trend so let’s wait and see how the rest of earning reporting season goes and then we can assess how the back half of the year shapes up.

Good luck to all ๐Ÿ™‚

~George

Russell 2000 - Paula Mahfouz

 

 

Dow, Nasdaq And S&P All At Record Highs!

The Dow Jones Industrial Average (see chart here), the Nasdaq Composite (see chart here) and the S&P 500 (see chart here) are all at record highs. Stocks continue to be on a tear with 3 of the 4 major indexes closing at all time highs on Friday. What’s more the S&P 500 (see chart here) closed above the 3000 mark for the first time ever. The one index that still has work to do before making a new high is the small-cap Russell 2000 (see chart below). I am not exactly sure why the Russell is lagging behind the big boys but if the Russell 2000 gets going then who knows how many more records will fall.

That said, for the first time in a while the Dow Jones and the S&P 500 have both entered into overbought territory which is above the 70 value level of relative strength index also know as the RSI. The Nasdaq Composite is fast approaching overbought conditions as well. The Russell 2000 is no where near overbought. I do expect a bit of a pullback in the coming weeks which would be rather healthy for stocks after such a strong performance. I have never been a fan of buying into record highs although momentum traders would disagree. Another factor to consider is we are heading right into second quarter earnings reporting season. Earnings reporting season could be a catalyst to pause the summer rally especially with the percentage of companies issuing warnings so far (click here)

The tariffs that our administration have imposed is expected to have a negative effect on the top and bottom lines of many U.S. companies. What I will be looking for is how much of an affect these tariffs are having on corporate America. The other side of the coin is if tariffs weigh heavier than what is anticipated, this could be yet another reason for the Federal Reserve to move to cutting interest rates which is the real reason I think we are hitting all time highs. Good luck to all ๐Ÿ™‚

~George

Russell 2000 - Paula Mahfouz