President’s Day

A Respite From The Sell-Off!

Posted on by George Mahfouz

Stocks snapped back sharply on Friday after a week of relentless selling pressure. On Friday the Dow Jones Industrial Average (chart), surged 313.66 points, the Nasdaq (chart) popped 70.67 points, the S&P 500 (chart) notched a gain of 35.70 points and the small-cap Russell 2000 (chart) closed Friday out up 18.27 points. For most of last week the markets were under tremendous pressure as oil continued to plummet along with bank stocks. On Thursday U.S. crude oil closed at a 13-year low only to snap back on Friday gaining over 12%. One of the reasons why oil has bounced off of multi-year lows is a rumor was floating around that the Organization of Petroleum Exporting Countries aka O.P.E.C. was prepared to cut production. We will see if this becomes the case. Furthermore, the European banks have been sold off ruthlessly all year long which has indeed carried over to our banks here at home. So when you have both oil and banks selling off the way that they have, it’s no wonder why there has been a global sell-off sending markets into correction territory.

As the global sell-off continues and as the chatter of doomsday gets louder and louder, I think it is important to remember that we have been in one of the strongest and longest bull markets of all time. Let’s not forget it is not only normal but quite healthy that stocks, bonds and commodities correct and balance out. It amazes me that when sell-offs occur that lead to corrections in the marketplace how the pundits come out of the woodwork and speak to how the world is coming to an end. My friends, what hasn’t been normal is for over six years how we have not had a market correction of over 10% that has stuck. Well here we are today and this is where we find ourselves.

Yes, equities can go lower and yes it can get more painful. But once valuations become attractive again and this is what market corrections provide, you better believe at some point in time buyers will resurface and take advantage of the what goes on sale. The markets are closed on Monday due to Presidents’ Day. Both Paula and I wish everyone a very safe and happy holiday 🙂

~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

Now That’s What I Call A Bounce!

Posted on by George Mahfouz

After such a torrid bull run in 2013, where the the four major averages gained over 25%, to no great surprise, these same indexes experienced more than a 5% pullback in January and early February. However, over the past couple of weeks and true to form, these indexes not only bounced off of key technical support zones, but they also took back their 50-day moving averages. For the week, the Dow Jones Industrial Average (chart) finished up 2.28%, the Nasdaq (chart) had a gain of 2.86%, the S&P 500 (chart) +2.32% and the small-cap Russell 2000 (chart) closed the week up 2.92%. The markets responded with a roar as the new Fed chairwomen Janet Yellen, in her first public appearance at the helm of the Fed, reiterated her commitment to model after the Bernanke era monetary policies. Stocks were already recovering from the January correction but accelerated their gains as she spoke to Congress this past Tuesday. All expectations now are that stocks will remain buoyed by the continuing asset backed purchases despite the modest tapering that is now in effect.

In my previous blog I expressed concern over the technical breakdown of the markets and that the 50-day moving averages of the key indices had been breached. Furthermore, I thought there was a possibility of the 200-day being the next stop. However, I did also indicate that if the markets were able to rebound and take back their 50-day and remain above that mark, that would be a positive. This is where we find ourselves now. All of the aforementioned key indexes have traded and closed above this key technical metric. The question now becomes whether or not this slingshot bounce and break above the 50-day is sustainable? Q4 earnings reporting season really didn’t say too much about the growth of corporate America, which overall was a mixed bag at best for the majority of the sectors. Couple this with economic signs of weakness as retail sales growth still remains flatlined, and I think we will continue to experience choppy waters for stocks, and I would be surprised if we began making new high after new high like last year. That said, liquidity for stocks is seemingly plentiful and we are still in a strong seasonality period for equities, so I also wouldn’t be surprised if we stabilized above the 50-day and consolidated for an extended period of time. Unless of course there is an unexpected negative geopolitical or global macro event that creeps back into the mix, then all bets are off. I will continue to track the technicals to gauge entry and exit points while using protective stops along the way. Good luck to all and both Paula and I wish everyone a very safe and happy Presidents’ Day holiday. Please note the markets are closed on Monday in recognition of Presidents’ Day.

Have a great weekend 🙂

~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