Ninth

Fears Of A Greek Default Rattles Stocks…

Posted on by George Mahfouz

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 on 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 especially when markets are essentially at all time highs. People are already a bit nervous that stocks may be overheated and should default chatter increase, this 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 🙂

~George

A Weak Week For Stocks…

Posted on by George Mahfouz

Stocks closed out the final week of May on a softer note with the Dow Jones Industrial Average (chart) falling 221.34 points, the Nasdaq (chart) lost 19.33 points, the S&P 500 (chart) -18.67 points and the small-cap Russell 2000 (chart) closed the week lower by 5.69 points. Considering the record closing highs that have been set over the past month or so, its no surprise that equities took a bit of a breather.

Now that we are in the month of June, let’s see if this seemingly temporary pause turns into something more meaningful. The month of June historically is a unfavorable month for stocks and this year may be no different. In fact, in this trading week headline risks are abound. Internationally speaking, without a doubt Greece’s debt talks will continue to grab the attention of investors this week as well as the ECB’s central bank meeting. Here in the states, traders will continue to pay attention to the continuing strength of our dollar as well as May’s jobs report at the end of the week. As you can see there are plenty of catalysts that could become market moving events.

Technically speaking, the aforementioned indexes are finding support at their respective 50-day moving averages and none of these indices are in overbought or oversold territory according to the relative strength index (RSI). One technical point I do want to make is when stocks were setting records earlier in May, the volumes associated with those records were on the lighter side. As mentioned in my previous blog, my preference would of been to see these records being set with much stronger volume.

Have a great week and good luck in the month of June 🙂

~George

Late April Sell-Off Wakes Up The Bears…

Posted on by George Mahfouz

Stocks sold off sharply on the last trading day of April. The Dow Jones Industrial Average (chart) fell 195 points, the Nasdaq (chart) closed down 82.22 points, the S&P 500 (chart) lost 21.34 points and the small-cap Russell 2000 (chart) finished lower by 26.83 points. The biotech sector has lead the charge in this most recent selloff with the most popular biotech ETF (Symbol: IBB) (chart) losing over 10 percent of its value since mid-March. Another factor in this sell-off is the sloppy earnings reporting season we find ourselves in. Just this week both Twitter (NYSE: TWTR) and Linkedin (NYSE: LNKD) surprised the street with their weak quarterly results and even weaker forward guidance. So the selling pressure is not just in the biotech space, it has now spilt over to the technology sector as a whole. That said, this morning there may be a bit of a respite with the futures market pointing up sharply.

Let’s take a look at the technical shape of the markets as we now enter into May. One troubling sign is the four major averages mentioned above have all breached their 50-day moving average line, with the small-cap Russell 2000 falling prominently below it. Let’s see if these key indices remain below this popular technical indicator for more than a few days. A one day breach does not necessarily mean a total technical breakdown however, another slight concern of mine is that these averages are not oversold yet according to the relative strength index or the RSI. Click here for the definition of the RSI. Now take a look at the charts of the Dow (chart), Nasdaq (chart), S&P 500 (chart) and the Russell 2000 (chart) and you will see at the very top of the chart the plot of the relative strength index and you will further see that these indexes have more room to go to reach the 30 value level of the RSI, which is the level that qualifies an oversold condition. Now throw into the mix that May is historically a weak month for equities and we indeed be in for some additional selling pressure.

In closing, I will re-visit the technical make-up of the markets in mid-May and see where there could be some buying opportunities. Good luck to all 🙂

~George

Tough Day For Stocks…

Posted on by George Mahfouz

Stocks took it on the chin today with most of the major averages closing in the red. On the day, the Dow Jones Industrial Average (chart) closed down 279.47 points, the Nasdaq (chart) closed lower by 75.97 points, the S&P 500 (chart) closed the day off by 23.81 points and the small-cap Russell 2000 (chart) lost 21.04 points. Fears from Asia to Europe are spilling over in to U.S. Equities. Securities regulators in China are banning certain types of equities financing which will have an effect on margin trading. Furthermore, across the pond in Europe, investors are becoming more worried about Greece and whether or not that country will be able to make payments on debts that are coming due and whether or not Greece will even stay in the eurozone.

Despite today’s selloff, Q1 earnings have not been too shabby so far, especially out of the banking sector. Earlier this week, JP Morgan (NYSE: JPM) reported a $5.91 billion dollar profit or $1.45 per share surpassing most analysts expectations and Citigroup (NYSE: C) also exceeded analysts expectations by posting a $1.51 per share in earnings compared to the $1.39 per share the street expected. The stock that caught everyones attention this week was Netflix (NasdaqGS: NFLX). Netflix (chart) reported in their earnings release that almost 5 million subscribers came online compared to the 4 million analysts anticipated. This metric alone gave Netflix’s stock a boost of almost $90 dollar a share yesterday.

Fast forward to next week and we will get earnings results out of Morgan Stanley (NYSE: MS), Verizon (NYSE:V), United Technologies Corp (NYSE: UTX), Yahoo (NasdaqGS: YHOO), Boeing (NYSE: BA), eBay (NasdaqGS: EBAY), Facebook (NasdaqGS: FB), Qualcomm (NasdaqGS: QCOM), The Coca-Cola Co (NYSE: KO), Tractor Supply Co. (NasdaqGS: TSCO), 3M Co (NYSE: MMM), Amazon (NasdaqGS: AMZN), Eli Lilly & Co. (NYSE: LLY), General Motors (NYSE: GM), Google (NasdaqGS: GOOGL), Microsoft (NasdaqGS: MSFT), Newmont Mining (NYSE: NEM), Southwest Airlines (NYSE: LUV), Starbucks Corp (NasdaqGS: SBUX) and Biogen (NasdaqGS: BIIB) just to name a few. I think it’s safe to say we will get a very broad look as to how corporate America is faring after all of these earnings results come forward.

Have a great weekend and good luck next week 🙂

~George

Interest Rate Hike Fears Spook Stocks…

Posted on by George Mahfouz

Since the release of the February labor market report, which was much stronger than the street expected, stocks have been on a wild ride. Triple digits gains and losses have occurred this past week with the Dow Jones Industrial Average (chart) In addition, the S&P 500 (chart), the Nasdaq (chart) and the small-cap Russell 2000 (chart) have all pulled back noticeably since the February jobs report was issued. So wait a minute, a strong labor market is good for the economy, hence, good for stocks too right? Logically speaking yes, but as it pertains to the Federal Reserve, a stronger labor market and a stronger economy gives them the green light to begin to raise interest rates.

This is what is now permeating through the stock market. The concern is that the Federal Reserve has enough data to begin to change their stance on their multi-year accommodative financial policies, policies that have benefited equities since 2009. We may not have to wait too much longer to gauge the Fed’s stance as it prepares for next week’s Federal Open Market Committee meeting. I think the anxiety we are witnessing may be a little exaggerated. It’s normal to have emotions play out and even take control over investors, however, people seem to forget that the Fed has been extremely cautious as to even eking out the wrong language in their official policy statements. I would not expect the Fed to shock the markets by raising rates too early or too aggressively. That said, I do expect volatility to continue and for markets to get “emotionally” charged. We could very well be in the midst of yet another dip back to the 200-day moving averages of the aforementioned key indices and should that occur, I would expect that buyers would come in bargain hunting. Over the past few years, the 200-day moving average has acted as significant support for these key indexes. The only difference and question now would be, is if the Federal Reserve indeed changes their position on interest rates, how well would this favorite technical indicator fare? Good luck to all and have a great week 🙂

~George

 

As Expected, New Market Highs Continue…

Posted on by George Mahfouz

In my previous blog, I eluded to the notion that the bulls would remain in charge for the foreseeable future and sure enough, in charge they are. Last week, the Dow Jones Industrial Average (chart), the S&P 500 (chart), and the small-cap Russell 2000 (chart) all hit record highs while the Nasdaq (chart) continues to gravitate toward the 5000 level. This market has no quit. With the majority of the S&P 500 companies reporting their Q1 earnings, overall earnings growth was relatively good, topping expectations. Meanwhile, Fed Chair Janet Yellen stated at her biannual meeting with the Senate Banking Committee that the Fed will be patient before any change in interest rate policies and that guidance would be given prior to any such action. This, along with the no real surprises coming out of earnings reporting season and the U.S. labor market showing a continuation of job growth, without question has played a role in the continuing strength of the U.S. stock market.  

Okay, all clear right? Well, we all know there is always the other side to the story and markets do not go up in a straight line forever. Without many upcoming catalysts in March, or in any given time period where catalysts are few, I always refer to the technical shape up of the markets to see if overbought or oversold conditions exist. As you all know by now, one of my favorite technical indicators to gauge whether or not the markets are in extreme conditions, is the Relative Strength Index. If you go back historically and look at the RSI indicator of any given stock or index, you too can see the reliability of this particular indicator when it reaches overbought or oversold conditions. Click on this link to get the definition of the RSI. Now I am not saying to completely base trading or investment decisions off of this technical indicator or any other technical indicator for that matter. However, for me personally this has proven to be a trusted guide and I do include this analysis when viewing the current market environment. That said, we are beginning to look a little overbought and I am going to look for pullbacks before I entertain any new positions in equities. Good luck to all and I wish all a very prosperous month 🙂

~George

A Fresh Record High For The S&P 500!

Posted on by George Mahfouz

It took a bit over a month since its last record closing high, but the S&P 500 (chart) on Friday indeed finished the week at a new record close of 2096.99. The Dow Jones Industrial Average (chart) closed above 18000 for the first time since the end of December as well. The tech-heavy Nasdaq (chart) now seems to be poised to go back through the 5000 mark, a level not seen since early 2000, and the small-cap Russell 2000 (chart) also closed at a record high at 1223.13.

Furthermore, both the S&P 500 (chart) and the Russell 2000 (chart) have technically broken out and could continue to notch further gains. This analysis is supported in part because both of these key indices have not yet reached overbought territory according to the Relative Strength Index/RSI. Remember, the RSI indicator signifies the 70 value level as an overbought condition for any given equity or index. The Relative Strength Index of the S&P (chart) and Russell (chart) are currently sitting around the 60 value level. So technically speaking and at least according the RSI, overbought conditions are not yet present.

With records being posted and breakouts occurring, is the economy or corporate profits really that good? Or is this a continuation of easy monetary policies worldwide? If I was a betting man, I would bet the latter. That said, how in the world can you go against the central bankers from around the world? I think the bulls will remain in charge for the foreseeable future, unless some unforseen catastrophic geopolitical event occurs.

Happy Presidents’ Day to all 🙂

~George

Are You Kidding Apple?

Posted on by George Mahfouz

A $74.6 billion dollar quarter! Simply breathtaking! Apple also generated a record net profit of $18 billion, the highest quarterly net profit ever, for any company. Earnings reporting season is in high gear and no one so far have remotely come close to such an impressive performance. Congratulations Apple! That said, the overall market in the month of January did not fare as well. For the month, the Dow Jones Industrial Average (chart) lost 3.7%, the Nasdaq (chart) pulled back 2.1%, the S&P 500 (chart) retraced 3.1% and the small-cap Russell 2000 (chart) closed the month of January off 3.3%. Note that the majority of the monthly losses occurred in the past trading week. January also experienced a spike in volatility with the CBOE Market Volatility Index also known as the VIX (chart) closing just a tad under 21. The VIX is referred to as the “fear gauge” which shows the market’s expectation of upcoming volatility by calculating implied volatilities of both calls and puts of S&P 500 index options.

Technically speaking, the above key indices are fast approaching their respective 200-day moving averages, especially the Dow Jones Industrials (chart). Remember, the moving averages is amongst the most favorite technical indicator utilized by market technicians, computerized trading models and institutional investors alike. Furthermore, the relative strength index  of the aforementioned key indices are not in oversold conditions. The RSI is another favorite technical indicator of certain market technicians . So should the markets continue to experience an increase in volatility, the 200-day moving average should provide meaningful support as long as earnings reporting season closes out on a high note. I will monitor the technicals of the markets closely and wait to see how the balance of Q4 earnings reporting season plays out. If we test the 200-day moving averages and hold that level, and if earnings continue to come in positively, I would be then be inclined to become more bullish on equities. However, if we breakdown technically and if corporate America begins to show signs of slower growth, we will then be having a different discussion. Good luck to all!

Paula and I wish everyone a Happy Super Bowl Sunday 🙂

~George

Stocks Go On A Wild Ride!

Posted on by George Mahfouz

As the new year begins to unfold, volatility has taken command! Yesterday, the Dow Jones Industrial Average (chart) had a 424 point intraday swing, an intraday move not seen in quite sometime. Volatility continued to surge this morning as stocks opened down sharply by weaker than expected retail sales for the month of December, and JP Morgan (NYSE: JPM) announcing weaker than expected quarterly results. So is this the new norm? Investors and especially traders have been waiting a long time to see volatility come back into the market and they may have just gotten what they have been expecting. For years, stocks have been in a low vol environment thanks in part to the Federal Reserve’s easy monetary policies. Now that those policies have and are winding down, it’s no surprise to me that volatility has picked up. Furthermore, now that we are have entered into Q4 earnings reporting season, I expect that volatility will remain elevated and possibly increase.

Companies that are scheduled to report their earnings results are over the next week are; Citigroup (NYSE: C), Intel (NasdaqGS: INTC), Goldman Sachs (NYSE: GS), Delta Airlines (NYSE: DAL), International Business Machines (NYSE: IBM), Morgan Stanley (NYSE: MS), Netflix (NasdaqGS: NFLX), American Express (NYSE: AXP), eBay Inc. (NasdaqGS: EBAY), Starbucks (NasdaqGS: SBUX), Verizon Communications (NYSE: VZ), General Electric (NYSE: GE), Honeywell International ( NYSE: HON) and McDonald’s Corp (NYSE: MCD) just to name a few.

More now than ever I will be focusing on “top-line” growth of corporate America to see if this most recent sell-off poses a buying opportunity. If the top-line of companies do not begin to grow in a meaningful way, I would expect the selling pressure to continue. Good luck to all 🙂

~George

Happy New Year!

Posted on by George Mahfouz

The bull run continues for the stock market which posted yet another year of gains in 2014. However, not quite the eye-popping 30% performance that the major averages experienced in 2013. Nonetheless, in 2014 the Dow Jones Industrial Average (chart) gained 7.52%, the Nasdaq (chart) advanced 13.4%, the S&P 500 (chart) gained 11.39% and the small-cap Russell 2000 (chart) finished the year up a modest 3.52%.

Looking ahead to 2015, simply put, if the Federal Reserve stands pat and does not raise interest rates, stocks here in the U.S. should continue to head north. Of course should the U.S. economy continue to expand and the job market continue to improve, we should begin to see rates inch up, which could possibly slow this six-year bull market down. I think the velocity of any rate increases will be the main factor as to how the markets would react. A slow and steady course should not disrupt stocks too much, however, if the fed surprises the street by raising rates too aggressively, then we could be in for a very volatile year. Whatever the case is, I also believe in 2015 the street will be looking more closely to the top-line growth of corporate America in order to justify the lofty average P/E ratio of S&P 500 companies. The current P/E ratio of the S&P is around 18 compared to the historic average of around 15.

Let’s now take a look at the current technical set-up of the aforementioned indices. The Dow Jones Industrial Average (chart), the Nasdaq (chart), the S&P 500 (chart) and the small-cap Russell 2000 (chart) all remain below the 70 value level of the relative strength index (RSI) The 70 value level of the RSI is considered overbought territory. In addition, these indexes are also trading above their 20, 50 and 200-day moving averages which is considered support zones of this particular technical indicator, especially the 200-day moving average. So technically speaking, stocks appear to be on solid footing heading into 2015. That said, Paula and I wish everyone a very safe, prosperous and Happy New Year 🙂

Sincerely,

~George