Paula Mahfouz

Q1 Ends With A Bang!

Posted on by George Mahfouz

Stocks closed out the first quarter of the year down impressively. The Dow Jones Industrial Average (chart) closed down 200.19 points, the Nasdaq (chart) -46.55, the S&P 500 (chart) -18.35 and the small-cap Russell 2000 (chart) finished the day down 5.03 points. The Dow Jones Industrials (chart) also finished the quarter slightly in the red, while the other aforementioned indices eked out modest gains.

Looking ahead to Q2, I suspect that we will be in for a very volatile and choppy market. As the first quarter was winding down we were experiencing triple digit swings on the Dow, as well as spikes in volatility across the board. Now I am beginning to think we will even see more volatility come into the market. April historically is a strong month for stocks, but we find ourselves entering into Q1 earnings reporting season in which I think corporate America may see widespread earnings declines. This is due in large part to how strong the U.S. dollar (chart) has been and how this will affect a wide array of multi-national companies who generate meaningful revenues overseas. A strong dollar does not bode well for U.S. companies with this type of earnings profile. Of course not all U.S. companies rely on overseas revenue and I would also think that certain technology and healthcare companies will do just fine.

The one sector I will be paying the closest attention to this upcoming earnings reporting season is the energy sector. Oil (chart) has been taken out to the woodshed since last fall as well as the majority of oil related stocks. So with the price of oil plunging as it has, earnings out of this sector should be horrific. However, these are the times when rare opportunities can and do present themselves. I will look for “washout” moments with certain oil related stocks after they report their earnings to step in and start building positions. I would expect most of the bad news in this sector is about to be released, hence, a set-up for the right buying opportunity. Of course, I will be looking for companies with pristine balances sheets, with minimal to no debt and have those companies at the top of my list. That said, before you make any investments in any sectors, make sure that you consult with a trusted and certified financial advisor(s) to understand the risks associated with stocks, commodities and the like. Also note, this is a holiday shortened trading week due to Good Friday and both Paula and I wish everyone a very safe and happy holiday weekend 🙂

~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

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

 

Yet Again, The Fed Saves The Day…

Posted on by George Mahfouz

U.S. stocks and global markets fell sharply at the beginning of the week as the Russian ruble collapsed. This meltdown spread fears of contagion throughout the world while sending our markets down over 5% within a one week span. Then like clockwork, in a statement after the conclusion of the latest Federal Reserve meeting, the central bank reiterated that it is in no hurry to raise interest rates. This was enough to send the Dow Jones Industrial Average (chart) soaring 4.15% over the past two trading sessions, the Nasdaq (chart) gained an eye-popping 4.41%, the S&P 500 (chart) jumped 4.48% and the small-cap Russell 2000 (chart) over the past two trading sessions posted a staggering 4.63% gain. Yes folks, these two-day gains are not a typo.

Seemingly, time and time again, whenever there is a U.S. stock market correction in the making, the Fed steps in and calms the nerves of investors. The question I have is when will the musical chairs stop? What a tough climate to invest in especially when you really can’t gauge the fundamentals as the markets are heavily reliant on what the Federal Reserve does or does not do. When the markets were selling off, technicals broke down, moving averages were violated and the bears were beginning to growl. However, as we have witnessed over the past 5 years or so, it has been painful to be bearish on equities and any sell-off has been short lived. It may indeed take rising interest rates to slow down this bull market? Until then, it’s great to be a bull. That said, I am going to sidelines between now and year-end for a much needed break, and to see how things settle out.

Both Paula and I wish everyone a very safe and happy holiday season 🙂

~George

The Melt Up Continues…

Posted on by George Mahfouz

Stocks continued their march north this past week as once again both the Dow Jones Industrial Average (chart) and the S&P 500 (chart) hit record highs on Thursday. Joining in on the action was the Nasdaq composite (chart) which hit a 52-week high on Thursday as well, while the small-cap Russell 2000 (chart) essentially closed flat on the week. We will talk more about this index in a bit.

With the mid-term elections in the rear view mirror and as the Thanksgiving holiday approaches, I do not see any reason as to why stocks in general won’t continue to post gains. Third quarter earnings reporting season for the most part has ended, and the scorecard was okay. You might look at the technical’s in the marketplace and see that we are at or heading into overbought territory. But when you have volatility coming in, the Thanksgiving holiday fast approaching and with no other real catalyst in the near term, it’s a perfect set-up for the status quo to remain in place. Here is the one exception; the small-cap Russell 2000 (chart). As the aforementioned key indexes have made all time highs, the Russell 2000 is lagging. Yes, this index too has rallied over 10% since the selloff in October, however, the Russell is running into significant resistance at the 1200 level, and actually has reversed course over the past two trading sessions (chart). It’s a bit early to call it a true reversal or a tell, but I will be keeping a close eye on how this key barometer pertaining to overall market sentiment will perform between now and year-end.

As far as the overbought conditions we find ourselves in according to the relative strength index, also known as the RSI, this is a prototypical environment where volatility is coming down and with not too many catalysts in the near term, I would not be surprised if we remain overbought through the end of the year. Good luck to all and both Paula and I wish everyone a Happy Thanksgiving holiday.

Have a great week 🙂

~George

Stocks Go On A Wild Ride!

Posted on by George Mahfouz

Stocks have been on a torrid sell-off over the past week or so capitulating today with the Dow Jones Industrial Average (chart) dropping over 460 points intraday, then rebounding to close down 173.45 points. At least I think this could of been a capitulation day, maybe not? That said, this is the steepest intraday drop for the industrials in over three years. Same rings true for the Nasdaq (chart), this technology based index was down over 100 points intraday only to rebound closing down a modest 12 points. Also, the S&P 500 (chart) finished the day lower by 15 points and the small-cap Russell 2000 (chart) after being down sharply most of the day actually closed in the green by 10.85 points.

In my previous blog, I eluded to the fact that volatility is back and that Q3 earnings reporting was about to begin, so not only is volatility back, I believe it is here to stay for an extended period of time. And as far as earnings is concerned, now I am not so sure if this earnings reporting season will have a positive effect on the markets. Just take a look at bank stocks which began to report their results this week and even after their impressive quarterly results, their stocks got pulled down with the rest of the market. What’s more, for companies that miss their numbers in this type of environment, look out below. Perfect example here is Netflix (NasdaqGS: NFLX). After the bell, the company reported their quarterly results which missed analysts expectations and Netflix also guided lower for the upcoming quarter. The net result for their stock is a blood bath in after-hours trading. Netflix is down over $110 points, trading now in the $330 range. This is not a typo. It goes back to stocks that miss on their numbers or guide lower, these assets will be taken out to the woodshed first, and asked questions later. I believe this is the environment we now find ourselves in.

It has been years since we have seen this type of market environment and I certainly will not forget the steep market sell-offs of the past. Furthermore, most every financial pundit out there has been calling for a market correction and now you have got it. So I would expect once the dust settles here we should find a base of support at some point and begin to see stabilization in the marketplace. However, and as I mentioned above, I do expect volatility to be back to normalized levels and be around for a while, so if you choose to take any new positions on, most likely they will go lower before they go higher, so a scale in and small incremental approach might be best. Finally and especially now, it’s usually a good idea to consult with a trusted certified financial planner(s) before composing any investment strategy. Good luck to all, and Paula and I wish everyone a safe and Happy Halloween 🙂

~George

 

Not Even The Dog Days Of Summer Can Slow Down This Bull!

Posted on by George Mahfouz

Stocks once again defied logic setting records in the month of August, which is typically a soft month for equities. For the month, the Dow Jones Industrial Average (chart) finished up 3.2%, the tech-heavy Nasdaq (chart) closed the month up 4.8%, the S&P 500 (chart) gained 3.8% and the small-cap Russell 2000 (chart) closed the month up 4.85%. Now granted these gains came on relatively low volume, but nonetheless a very impressive performance considering the macro environment we are in especially with the geopolitical concerns in the middle-east and Ukraine. I suppose the U.S. economic numbers that have come out recently is part of the reason why stocks continue to march north. Last Thursday the Commerce Department revised the second quarter U.S. gross domestic product (G.D.P.) number to 4.2% which is quite a healthy expansion of our economy and what’s more, the sources of growth were broad based.

Looking ahead to this month, when traders and investors come back from their summer vacations, they will see all time highs for the S&P 500 (chart), the Dow Jones Industrial Average (chart) and don’t look now, even the Nasdaq (chart) is slowly approaching the 5000 mark, a mark that has not been seen since the tech-bubble of 2000. If you have been bearish or short this market, I do not know what to say other than I feel your pain. We have not had a 10% correction in equities in years now and just the slightest of pullbacks have been met with incessant support. I do not know what is going to break this trend and you know what they say, “the trend is your friend”. Enough of that, seriously, I too have been expecting at least a 5-10% correction, which if you are bullish, you should welcome it. Not only would this be healthy for the markets, in my view it’s getting to the point to where it’s almost required. I am beginning to become a little concerned that should a “black-swan” event occur, and history says “they happen when you least expect it” we could see such a sharp correction, that could trigger margin selling, which would lead to more selling pressure etc., we have all seen this movie before. I am not saying that this will take place, but if it does, and we if don’t have healthy corrections along the way, which we haven’t, this could magnify matters and we would be having a much different discussion.

With all that said, I will continue to monitor the economic numbers this month as well as the technical make-up of the aforementioned indices. Technically speaking, we are now approaching overbought territory according to the relative strength index (RSI). Paula and I wish everyone a very safe and Happy Labor Day 🙂

~George

First Half Of The Year In The Books, And The Bull Keeps Running…

Posted on by George Mahfouz

After gaining 30% or so in 2013, the markets continue to be on one of the most impressive bull runs in modern history. Here is how the four key indices closed out the first half of 2014: The Dow Jones Industrial Average (chart) finished up 1.5%, the Nasdaq (chart) gained 5.5%, the S&P 500 (chart) advanced 6.1% and the small-cap Russell 2000 (chart) closed out the first half of 2014 up 2.6%. Looking back to the market lows of early 2009, these aforementioned indices have tripled or better in price, which is simply stunning.

I think now is as good a time than any to begin to take a look at how the major averages can continue to rise in spite of almost tripling over the past 5 1/2 years. What could be the catalyst(s) going forward? It’s no secret that the Federal Reserve is scaling back its asset purchases and are scheduled to be finished by year-end, so no surprise there. This in fact is where the bear camp is growling that the end of the Fed stimulus program could be the catalyst to end this historic bull run. What about corporate earnings? In my humble opinion, herein lies the single most important catalyst that will either add fuel to this incessant bull run or put the brakes on it. If it’s the latter, this could also create the first real correction in stocks, something that hasn’t occurred in years.

Investors will not have to wait too much longer for Q2 earnings reporting season is upon us. The first key earnings release that has economic implications will be Alcoa (NYSE: AA) which is due to report next Tuesday after the close. I will be very interested to see the top-line growth of Alcoa which will certainly shed some light as to the health of the global economy. Investors have been bidding up Alcoa most of the year in anticipation of an expanding global backdrop. Another economically sensitive stock at least as it pertains to the consumer is Family Dollar Stores (NSYE: FDO). Family Dollar is scheduled to report their quarterly results next Thursday before the market opens. Then by mid-July we will be in high gear to hear how corporate america fared in Q2. The week of July 14th, earnings are scheduled to come out of American Airlines (NYSE: AAL), American Express (NYSE: AXP), Blackrock ( NYSE: BLK), Citigroup (NYSE: C), Whirlpool Corp (NYSE: WHR), JPMorgan Chase (NYSE: JPM) Goldman Sachs (NYSE: GS), Johnson & Johnson (NYSE: JNJ), Intel (NasdaqGS: INTC), Yahoo (NasdaqGS: YHOO), Bank of America Corp (NYSE: BAC), Ebay (NasdaqGS: EBAY), U.S. Bancorp (NYSE: USB), Yum Brands (NYSE: YUM), Baker Hughes Inc (NYSE: BHI), UnitedHealth Group (NYSE: UNH),  Blackstone Group LP (NYSE: BX), International Business Machine (NYSE: IBM), Google (NasdaqGS: GOOGL), Bank of New York Mellon Corp (NYSE: BK) and General Electric (NYSE: GE) just to name a few. As you can see, I think it is safe to say that by the middle of July or so we will have a pretty good idea of how corporate America is faring.

Please note that in recognition of the 4th of July holiday, the markets will be closing at 1pm E.S.T. on Thursday and is closed on Friday the 4th. Both Paula and I wish everyone a very safe and happy 4th of July 🙂

~George

 

Correction Chatter Abound…

Posted on by George Mahfouz

Here come the pundits! Over the past couple of weeks the conversations of a significant market correction have spiked along with market volatility.  From billionaire investor David Tepper’s comment that “the markets appear to be dangerous” at last week’s annual SALT conference to Dennis Gartman of the renowned “Gartman Letter” stating we are in a correction as we speak. There is certainly no shortage of opinions flooding the airwaves. Now granted, recently stocks have been in somewhat of a downward trajectory especially the so called “momo” (which stands for momentum) stocks and the more riskier small-cap asset class. In fact, the small-cap Russell 2000 (chart) has been sold off more so than any other index losing around 10% from its high in early March. This while the Dow Jones Industrial Average (chart)  recently made an all time high at 16,735.51. I think it’s safe to say there has been a rotation going on, a rotation out of riskier assets into the bellwether blue chip stocks.

So what about this apparent correction that is about to happen? Some pundits are calling for as much as a 20% correction at any time. I am not so sure about that. Seemingly, when the markets do become vulnerable and volatile regardless of why, the bears begin to come out of hibernation. Yes, this bull market does appear to be a bit long in the tooth, but in my opinion one factor that still stands in the way of a severe market correction, you guessed it, the Federal Reserve. Even though the Fed has begun to taper its bond and asset purchases, they have also indicated that should the “facts on the ground shift” hence, our economy heads into a recession or should the markets experience a severe sell-off, that it would be prepared to make adjustments to its policies, in other words, another form(s) or an extended version of stimulus would most likely occur. So how can anyone bet against these markets when you continue to have the Federal Reserve as the floor to any potential significant selloff? This does not mean that volatility will not increase or that we couldn’t see pullbacks or even quasi-corrections and should this be the case, I have got to believe the bulls would step right in and deploy their capital right along with the Fed.

So if you are currently bearish on equities or you are buying into the chatter of an imminent market correction and have gone short, you may want to consider covering your positions in the event of a 5 or 10% retracement or for that matter, a breakout from the current levels. Personally, I will look to add to certain positions should we see the correction many are talking about. Of course, it is always best practice to consult a professional financial advisor(s) before developing a market strategy or making changes to your portfolio. Good luck to all.

Memorial Day weekend is coming up and the markets will be closed on Monday May 26th. Both Paula and I wish everyone a safe and healthy Memorial Day and we want to thank and are grateful to all of the veterans and their families who gave the ultimate sacrifice serving our beloved country. We also want to thank the brave men and women who are currently serving our country and protecting our freedoms.

Sincerely,

~George & Paula

Q1 Earnings Reporting Season Saves The Day, So Far…

Posted on by George Mahfouz

Last week the Dow Jones Industrial Average (chart), the Nasdaq (chart), the S&P 500 (chart) and the small-cap Russell 2000 (chart) all went into a tailspin closing lower by 2.4%, 3.1%, 2.6% and 3.6% respectively. Fast forward to this week as earnings reporting season shifted in to high gear and we have a different story. For this holiday shortened week, the Dow Jones Industrial Average (chart) finished up 2.38%, the Nasdaq (chart) closed up 2.395%, the S&P 500 (chart) gained 2.7% and the small-cap Russell 2000 (chart) closed the week up 2.38%.

So why the reversal? Simply put and for the most part, corporate earnings are coming in better than expected. At the beginning of the week Citigroup (NYSE: C) posted better than expected results on net income of $3.94 billion up from $3.81 billion in Q1 2013. This was after Wells Fargo (NYSE: WFC) posted a sharp rise in its net income in comparison to last year’s quarterly results. Also this week, Johnson and Johnson (NYSE: JNJ) reported a net income of $4.4 billion an almost 8% increase over the same period last year. The Coca-Cola Co. (NYSE: KO) reported their Q1 earnings booking 44 cents share which is what the street expected as global sales volume rose 2%. Furthermore, Intel (NasdaqGS: INTC) reported 38 cents a share in earnings which came in 1 cent above what analysts expected, this was enough to send Intel to fresh 52-week highs.  Yet another impressive earnings report came out of flash based data storage firm SanDisk (NasdaqGS: SNDK) which surprised the street and reported record Q1 results of $1.44 per share leapfrogging street estimates of $1.25 per share. This was enough to send the shares of the company up over 7% in today’s trading session.

As previously mentioned, earnings reporting season kicked into high gear this week and next week we go into overdrive. At the beginning of this upcoming week, we will here from Halliburton (NYSE: HAL), Wynn Resorts (NasdaqGS: WYNN), AK Steel (NYSE: AKS), Amgen (NasdaqGS: AMGN), Bank of New York Mellon (NYSE: BK), Cree Inc. (NasdaqGS: CREE), Discover Financial Services (NYSE: DFS), Gilead Sciences (NYSE: GILD), Juniper Networks (Nasdaq: JNPR), Intuitive Surgical (NasdaqGS: ISRG) and United Technologies Corp (NYSE: UTX). Mid-week earnings will come out of tech behemoth Apple (NasdaqGS: AAPL), Biogen Idec (NasdaqGS: BIIB), Delta Airlines (NYSE: DAL), Dow Chemical (NYSE: DOW), F5 Networks (NasdaqGS: FFIV), Facebook (NasdaqGS: FB) and Qualcomm (NasdaqGS: QCOM). Closing out the week we will hear from 3M Company (NYSE: MMM), Amazon (NasdaqGS: AMZN), American Airlines (NYSE: AAL), Chinese search engine Baudi (NasdaqGS: BIDU), Cabot Oil & Gas (NYSE: COG), Celgene Corp (NasdaqGS: CELG), Eli Lilly and Company (NYSE: LLY), General Motors (NYSE: GM), KLA-Tencor (NasdaqGS: KLAC), Microsoft (NasdaqGS: MSFT), United Parcel Service (NYSE: UPS) and Ford Motor Company (NYSE: F). Of course there are hundreds of others reporting their earnings next week so we will see if the market continues to rebound from its mini sell-off earlier in the month. Good luck to all.

The markets will be closed tomorrow in recognition of Good Friday and both Paula and I wish everyone a very safe and healthy holiday weekend 🙂

~George