A Week To Forget…

Certainly, a week to forget! Not since the depths of the 2008 financial crisis have we seen volatility so high (see chart here) as stocks and indexes react to the spread of the coronavirus. Last week, the Dow Jones Industrial Average (see chart here) saw multi-thousand point swings. The S&P 500 (see chart here) was not spared from the highest volatility in a decade. The Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) both experienced eye-popping swings as well. However, on Friday the President declared a national emergency and he announced a $50B relief package to combat the coronavirus. Stocks took that cue and had one of their best day’s ever with the Dow Jones Industrial Average (chart) soaring almost 2000 points, the S&P 500 (chart), the Nasdaq Composite (chart) and the Russell 2000 (chart) all gaining almost 10% on the day.

Now we find ourselves in a highly volatile environment that in my opinion won’t abate until more metrics come forward pertaining to the spread here in the U.S. and the plans to contain it. The administration took a huge step yesterday by declaring a national emergency and to promise the full resources of the government to combat and control this virus. Furthermore, the government is waiving interest rates on student loans and committed to buying oil from U.S. companies to “fill up our strategic reserves”. It’s no wonder stocks had one of their best days in history.

I always like to conclude my blogs with a take on the technical shape of the key indexes. Needless to say there was a lot of technical damage done last week pertaining to technical makeup over the markets and in particular the moving averages. All of the major indices broke their respective 20-day, 100 and 200-day moving averages. These are all significant support zones that have been broken through. The one bright spot in this dynamic is the selling was so severe that after the dust settles strong rallies can and do typically occur as we witnessed on Friday. We are also now way below the key moving averages that often times the markets go back to retest those averages. If this does occur the set-up is very promising for bargain hunters. That said, I am not suggesting that the markets will rip roar back anytime soon, but historically strong rallies do occur after panic selloffs.

Good luck to all ๐Ÿ™‚

~George

Fear Of A Global Pandemic Grips Markets!

Stocks went into a tailspin as fear of a global pandemic grips the markets! New outbreak clusters of the highly contagious coronavirus are beginning to surface which is pressuring leaders from around the world to act and act more aggressively. Stocks have also entered correction territory as companies and analysts begin to ratchet down their revenue and earning forecasts. Over the past week or so the Dow Jones Industrial Average (see chart here) has lost over 10% in the past week alone, the S&P 500 (see chart here) has also entered into correction mode, the Nasdaq Composite (see chart here) has been hit hard and the small-cap Russell 2000 (see chart here) is also witnessing a sharp sell-off.

Personally I believe a correction was needed because of how robotic the markets have acted. Stocks no matter what risks were out there behaved in a way never before seen. We have been in the strongest bull market ever and nothing over the past 12 years could slow this bull market down. Now I am not happy that it is a global health risk that’s the catalyst to put stocks in correction mode, but nonetheless this is where we find ourselves. Of course when fear is rampant in any market this is where opportunity can be found. I am not suggesting to jump in here because as we all know fear and/or greed can be excessive and markets tend to over do it when emotions take the lead over rational thinking. So when we get overextended to the upside or downside the first thing I look at is how the technicals look during extreme market moves.

When I now look at the technical shape of the markets at least at it pertains to the moving averages things do not look so good. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here) and the Russell 2000 (see chart here) have all breached their 20-day, 100-day and 200-day moving averages which are all seen as major support zones especially the 200-day. The Nasdaq Composite (see chart here) is the only major index that has yet to close below its 200-day. That said, all of the aforementioned indexes are oversold according to the relative strength index (RSI) which when we see the 20 value level hit on any stock or index, snap back rallies can and do occur. This type of market is great for traders if you are experienced enough to trade off of technicals, however for investors that have a long term view these type of market environments requires a lot of patience and keeping the emotions at bay. Let’s all hope that the spread of the coronavirus abates and that a vaccine becomes available as quickly as possible.

Good luck to all ๐Ÿ™‚

~ George

Tesla Follows SpaceX…

Tesla follows SpaceX right into space! Tesla’s stock that is! (Nasdaq:TSLA). I am not sure if even Elon Musk thought that Tesla’s stock price would almost hit $1000 per share (see chart below) before its fundamentals warrant it. That’s right folks on February 4th Tesla hit an all-time high of $968.99 with an astounding parabolic move. This kind of stock behavior reminds me of the dot-com days where companies were trading in nose bleed territory without the fundamental backdrop to support the valuation. That said, without question the extremely large short position that has been put on Tesla has played a major role in the stock price spike. Tesla has long been one of the most shorted stocks on the Nasdaq which when stocks breakout of a trading range such as what happened to Tesla, and also having a significant short interest against it, then it’s the perfect set up for a major parabolic move.

With the stock still trading north of $800 per share, the company is not missing out on their next financing. To close the week out, Telsa took advantage of their recent stock price surge to price a $2 Billion secondary offering at $767 per share. I mean brilliant move for a company that continues to experience sporadic growth and still demands cash in order to hit their objectives. The potential problem I see is how can the Tesla a stock hold up at this crazy valuation? No question the short sellers covering their positions was a big part of this recent parabolic move. So the question now is who and what will drive the price higher? What’s more is who and what is going to support a $150 Billion dollar valuation? There are some analysts that are on their soapboxes with new buy recommendations and new target prices in the $1,000’s. So just maybe this will be enough to keep the stock up until the company catches up to its current valuation.

Good luck to all ๐Ÿ™‚

~George

Tesla Follows SpaceX - Paula Mahfouz

 

Coronavirus Hits Stocks!

The coronavirus hit stocks and major indexes this week as fear grips investors. The Dow Jones Industrial Average (see chart here) fell over 600 points yesterday, the S&P 500 (see chart here) closed lower by 58 points, the Nasdaq Composite (see chart here) fell 148 points and the small-cap Russell 2000 (see chart here) closed yesterday down 34 points. Now if you have been following me for a while you know I am a big fan of pullbacks in the market. However, I don’t like seeing the cause of this latest sell-off. I would much rather prefer to see the market retrace in a healthy manner versus a health crisis.

Some of the fear the market is experiencing is warranted. Companies are suspending business to and with China which clearly will have an impact on their businesses.ย  For example airline stocks have taken it on the chin recently. Most major airlines have suspended service to China and in some instances for months. Entertainment companies such as Disney (DIS:NYSE), Carnival Cruises (CCL:NYSE) and Royal Caribbean (RCL:NYSE) are also feeling the pressure due to closures and suspension of services. These companies and companies alike are doing the responsible thing here until the World Health Organization establishes the proper plan to contain the spread of this fast moving virus.

To that end, yes the coronavirus is a global threat for now. Past viruses such as the coronavirus are serious health risks and this one is no different. However, for market participants past events like this have ended up being opportunities in the marketplace. Of course the highest priority here is to not only stop the spread of the virus, but to find a swift treatment for it. Until then I do expect continuing volatility in the markets.

In the short term my plan is to be patient and not to act in haste. Historically when situations like this occur and then move to a respite, markets begin to settle in. Good luck to all ๐Ÿ™‚

~George

It Just Keeps Rolling!

The stock market that is! Stocks just keep rolling along as we are now in the new trading year. The beginning of 2020 mirrors the record setting ways of 2019. The S&P 500 (see chart here) broke the 3,300 mark for the first time ever today. The Dow Jones Industrial Average (see chart here) is trading above 29,000, the Nasdaq Composite (see chart below) appears to be on its way to 10,000 and the small-cap Russell 2000 (see chart here) is approaching its all time record high.

As I have eluded to in my blog over the past years, this market tear is something no one has really witnessed. Actually all of this started since the crash of 2008. Who could of ever imagined back then that the Dow Jones Industrial Average would flirt with the 30,000 level? In fact, markets around the world were on the verge of collapse and banks were bracing for a bank run. My goodness how times have changed. This breath taking run started with the Federal Reserve dropping rates to record lows and buying up debt. To this day the Federal Reserve is still playing a critical role in this record setting stock market which is a big reason why the markets just keep rolling.

Now it is up to corporate America to show their chops. Earnings reporting season is kicking off and if the report cards are anything like what Morgan Stanley reported today, the bulls will continue to eat caviar. Morgan Stanley (NYSE: MS) had revenues of over $10B exceeding all expectations. In fact, earnings reporting season is off to a strong start with the majority of companies who have reported so far have exceeded street estimates. Now in fairness earnings expectations have been ratcheted down by analysts but still it is undeniable that corporate earnings are still showing strength. This is just the beginning of reporting season so let’s see how the coming weeks look as we continue to set record highs. Good luck to all ๐Ÿ™‚

~George

It Just Keeps Rolling George Mahfouz

Happy New Year And New Decade!

Happy New Year and New Decade! However, I am not so sure investors want to say goodbye to 2019. What a year for stocks and the major averages. In 2019 the Dow Jones Industrial Average (see chart here) gained 22%, the S&P 500 (see chart here) soared almost 30% on the year, the Nasdaq Composite (see chart here) was the best performing major average up 35% and the small-cap Russell 2000 (see chart here) closed 2019 up almost 24%. This is the best annual performance for these key indexes in years. As far as the decade goes, the major averages also soared gaining almost 300%. Not a typo folks the markets almost tripled in value over the past decade.

So as we enter the new year the question now becomes what now? Well it is hard to imagine that we will see a similar result in 2020. Not that I am bearish at all but I do expect some higher than normal volatility throughout 2020. Geopolitic tensions have started to ramp up a bit and in Washington the focus and attention will be on the Senate impeachment trial. As much as the Republicans control the Senate, there is no guarantee that bombshells won’t come out of the trial. This especially rings true if the House Democrats gets witnesses to the stand. We cannot predict what may come out of this trial and I got to believe at times it won’t be pretty. Also, the month of January can be volatile just from the standpoint of how much the markets gained in 2019. I am pretty confident that we will see some institutional and other managed funds book gains here in January.

One other consideration is how the markets as a whole became overbought as 2019 came to an end. All of the aforementioned indexes went into overbought conditions in December according to the relative strength index (RSI). Although there was a brief retreat from the overbought 80 value levels of the RSI, we still remain near the upper end of the charts and I would not be surprised to see some selling pressure here in the month of January.

Good luck to all ๐Ÿ™‚

~George

It’s A Broken Record!

It’s a broken record indeed! That is the continuing record breaking run on Wall Street. On Friday the Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) set new all time highs. Seemingly, there is no stopping this record setting run that the markets have been on, at least for now. The latest catalyst was news out of Washington that the U.S. and China are close to coming to a “Phase 1” agreement on a trade deal. As I eluded to in my November 15th blog, new record highs could come into play by year-end if we see a trade deal happen. The caveat here is the deal is being titled as a “Phase 1” agreement and there is much more to agree upon to finish the deal out. That said, this is a definite step in the right direction and the markets seem to agree. I do want to keep my enthusiasm in check because of the volatility that continues to come out of Washington on this subject. We have all seen over the past several months tweets and statements out of Washington that we are close to a deal with China to only then wake up the next day to get the opposite statement either out of Washington or China. Phase 1 is a great step, but I am looking forward to the complete deal getting done and most likely that will yield to the first quarter of 2020.

In the meantime, investors are continuing to enjoy record highs and there doesn’t seem too much ahead between now and year-end that will change the course. The technical shape of the bellwether indexes remain intact. The Dow Jones Industrial Average (see chart below), the S&P 500 (chart) and the Nasdaq Composite (chart) are all trading below the 70 value level of the relative strength index (RSI). Also, each of these indexes are trading healthily above their 20, 50, 100 and 200 day moving averages.ย ย 

Paula and I wish everyone a very safe and happy holiday season.

~George

It's A Broken Record! - Paula Mahfouz

 

$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