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Uncertain Times And Near Record Highs!

Posted on by George Mahfouz

Despite the uncertain times we find ourselves in vis-à-vis the upcoming presidential election, the Deutsche Bank balance sheet and liquidity concerns and the upcoming third quarter reporting season, stocks continue to defy the odds and remain within striking distance of all-time highs. The Dow Jones Industrial Average (chart) closed the third quarter at 18308, the tech-focused Nasdaq (see chart below) closed at 5312, the broad based S&P 500 (chart) finished the quarter at 2168 and the small-cap Russell 2000 (chart) closed at 1251.

I am truly amazed how strong the markets have been all things considered. We did see volatility spike in September which was no surprise. However, what was surprising is how short lived it was especially with how much concern and risk there is out of Europe and in particular Deutsche Bank. A couple of weeks ago the U.S. Department of Justice announced they were seeking a $14 billion dollar fine to settle Deutsche Bank’s mortgage lending activities during the 2008 housing crisis. Shares of Deutsche Bank stock plummeted on the news and raised concerns about the solvency of the bank. Stocks did react to the news but have seemingly shrugged off this potential risk to the markets. Furthermore, stocks so far have also shrugged off the uncertainty due to the upcoming presidential election. Monday’s presidential debate sparked controversy as to who won it, but it is clear that the markets saw that Hillary Clinton won the first round.

As we now enter the month of October, without question the headlines and chatter will only increase as we get closer to election day which is November 8th. I am expecting volatility to not only increase but to last longer than usual due to the amount of news flow that is forthcoming which includes the launch third quarter earnings reporting season. What I do in this type of market environment is tune out the noise and stay focused on the fundamentals and technicals of select stocks and indexes. I seek out and identify market dislocations including overbought and oversold conditions. My assumption is that as we get in the thick of third quarter earnings reporting season, overbought and for that matter oversold opportunities will present themselves. Good luck to all 🙂

~George

 

nasdaq chart george mahfouz jr

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

June jobs report puts the brakes on the market…

Posted on by George Mahfouz

Once again a disappointing jobs report issued on Friday sent stocks lower. The Dow Jones Industrial Average (chart) closed down 124.20 points, the Nasdaq (chart) -38.79 points, the S&P 500 (chart) -12.90 points and the Russell 2000 (chart) -10.29 points. Markets were lower on Friday due to the lack of job growth that continues to plague the economy. For the month of June, the private sector only added 80,000 jobs compared to the 90,000 jobs economists were expecting. Even if the 90,000 mark was met, I still believe equities would of sold off. This economy needs 200,000+ jobs added monthly in order to make a meaningful dent in the unemployment rate and to have a real effect on the economy.

Next week marks the beginning of the second quarter earnings reporting season. Aluminum producer Alcoa (NYSE: AA) kicks things off with reporting their results on Monday. Two other standouts that report their earnings next week are JPMorgan Chase (NYSE: JPM) and Wells Fargo & Company (NYSE: WFC) which issue their results on Friday. I will be particularly interested in what JPMorgan has to say for their second quarter. This is the period in which their trading division experienced a multi-billion dollar trading loss.

As we enter into second quarter earnings reporting season, market expectations are so low for the quarter that I am looking for some upside surprises to occur within certain sectors. I am not sure if we are going to see much top line growth, however, over the past several quarters, companies especially in the tech sector have demonstrated exceptional productivity prowess which have certainly accentuated their bottom lines. That said, I will be extremely careful with how I navigate and trade these markets with a preference towards waiting until earnings reporting season concludes before making any considerable commitments. Good luck to all.

Have a great weekend 🙂

~George