$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 it’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. What’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, Friday’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 🙂

~George

$7.4 Billion In One Day! - Paula Mahfouz

Dow 22,000 In Sight…

The Dow Jones Industrial Average (chart) closed the month of July at a record high and came within 70 points of the 22,000 mark. Just a few short months ago that the Dow surpassed the 21,000 milestone. What an incredible run in such a short period of time! Not only is the Dow Jones Industrial Average (chart) notching new record highs almost daily, the Nasdaq (chart) last Thursday posted a new record at 6460, as did the S&P 500 (chart) setting a new record of 2484. Last but not least, the small-cap Russell 2000 (chart) also set a new record last week of 1452. However, both the Nasdaq (chart) and the small-cap Russell 2000 (chart) have reversed their upward trajectory over the last few trading sessions in a noticeable manner. Let’s keep an eye on this development.

I think it is safe to say that Q2 earnings reporting season has helped fuel the Dow Jones to new record highs as well as the S&P 500. Tech stocks have been reporting a mixed bag so far this earnings reporting season which is why that index has started to abate a bit. All eyes today are on Apple (NasdaqGS: AAPL) which report their earnings results after the close. This could be the one stock that either reverses the latest mini-downward trend in the Nasdaq or for that matter, accelerate it. As I look to the technical shape of the the aforementioned indexes, only the Dow Jones Industrial Average (chart) is on overbought territory, while the S&P 500 (chart), Nasdaq (chart) and the small-cap Russell 2000 (chart) have begun their reversion to the mean and are all approaching the 50 value level of the relative strength index.

Game plan for August? Personally, I think it is time to reduce long exposure to equities due in part to this startling run stocks have had all year long. This coupled with the month of August being an historically weak month for equities could create the perfect set up for the much anticipated market correction that the bears have been waiting on. That said, I have to remind myself that there has been no such thing as typical in these markets for we have been in unchartered territory for a long period of time. One final note, it is always recommended to consult with a certified financial planner before making any adjustments to your portfolio.

Good luck to all 🙂

~George

 

Record Setting Week!

A three-week stock market winning streak has propelled the Dow Jones Industrial Average (chart) and the S&P 500 (chart) to close at record highs. In one of the most dramatic turn of events from the shocking Brexit vote to today, these key indices were breaking records all week long. The Nasdaq (see chart below) and the small-cap Russell 2000 (see chart below) also posted a strong week of gains.

I stand corrected! In my previous blog I referred to the fact that the S&P 500 (chart) had been stuck in a trading range and that upcoming earnings reporting season should act as the catalyst to break stocks out of this range. Furthermore, my view was that corporate earnings most likely would underperform hence a breakdown out of this trading would be more probable. Well here we are today at record highs and we haven’t even gotten into the bulk of earnings reporting season. The largest U.S. bank J.P. Morgan (NYSE: JPM) did however report their results this past week posting a profit of $6.2B. J.P. Morgan’s results came in stronger than expected which also helped fuel this week’s rally, especially in the banking sector.

As much as we were oversold leading up to and just after the Brexit vote, the markets now find themselves approaching overbought territory. Now the question becomes what to do next? As mentioned above, we are full steam ahead into the bulk of earnings reporting season which can come with plenty of surprises. From a technical standpoint I find it hard to commit any new capital into a market at record highs and do so with most of corporate America yet to report their results. I will be paying attention to the top-line growth of companies to get more of an accurate read how their business is fairing compared to their bottom line which can be adjusted in many ways that may not tell the whole story. My concern now is how can record highs continue if top-line growth is not there in a meaningful way? Let’s look to next week to see if the record setting trend continues, or a pause and reversal comes forward.

Good luck to all 🙂

~George

George Mahfouz Jr. Russell 2000 chart

george mahfouz jr Nasdaq chart

Record Closing High For The S&P 500!

Despite choppy trading for most of the week and weak economic data being released, the S&P 500 (chart) closed the week out at a record closing high of 2122.73. The Dow Jones Industrial Average (chart) is now only a mere 16 points away from its all-time high of 18,288.63, the Nasdaq (chart) appears to be closing in on its record high of 5119.83 and the small-cap Russell 2000 (chart) is attempting to claw its way back to record territory.

I thought you were supposed to “sell in May” and go away? Apparently not! However, I will say this, these records that are occurring are happening on lighter volume than I would want to see to validate the most recent price action. Nonetheless, you cannot deny the incessant strength that the markets are showing. Not less than two weeks ago it appeared that we might of been en route to the 10% correction or so that had been chattered up by the pundits. In early May, the S&P 500 (chart) had breached its 50-day moving average only to snap back and set a new record closing high yesterday.

Speaking of the moving averages, the aforementioned key indices are now comfortably trading above their 50-day moving averages with the exception of the small-cap Russell 2000 (chart). The Russell yesterday did closed right at its 50-day. We will see next week if this index can join the other major averages and reclaim its 50-day moving average and close in on its record high. Now let’s take a look at the Relative Strength Index which another favorite technical indicator of mine. The RSI is a technical indictor that demonstrates whether or not a index or stock is oversold or overbought, click here for the complete definition of the RSI. Even though we are at record highs, none of the major averages are in overbought territory according to the RSI. Add to the mix that next week will lead up to Memorial Day weekend and volumes should begin to decrease, I do not see any major catalyst that would interfere with the most recent upward trend of the market.

Speaking of Memorial Day, both Paula and I wish everyone an upcoming safe Memorial Day holiday weekend and let’s not ever forget all who had bravely served our country.

~George

A Fresh Record High For The S&P 500!

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

The Melt Up Continues…

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

Back To Setting Records!

After a tumultuous and volatile month, stocks are back to their old habits. The Dow Jones Industrial Average (chart) and the S&P (chart) 500 both closed at record highs. The month of October also saw the Nasdaq (chart) finish up over 3% and the small-cap Russell 2000 (chart) closed the month out up an eye-popping 6.5%. So as far as the long awaited correction goes, lets take a look. The Dow (chart) from it’s previous all-time high corrected 8.61%, while the S&P 500 (chart) retraced 9.83% by mid-October. Not quite the text book healthy 10% correction most investors were looking for, but close enough. The question I have is, will this snap-back rally to new all-time highs hold? Earnings for the most part have been coming in pretty good, however I have not seen the robust top-line growth you would expect in order to keep setting new records. Nonetheless, easy global monetary policies continue to keep not only a floor under these markets, but provide enough juice to lift the markets to new highs. Just yesterday the Bank of Japan unexpectedly raised its bond buying program from JPY 70 trillion to 80 trillion and it also tripled its ETF buying to JPY 3 trillion. So as long as the federal reserves from around the world continue to increase their balance sheets, the bulls should have the upper hand.

The concern I have with the most recent market correction is that it didn’t last very long. It’s true that over the past five years most modest pullbacks immediately snapped back, just like this latest quasi-correction did. Personally, I would of liked the correction to last a little longer and go a little deeper for it feel like a meaningful correction. Because of the markets most recent snap back rally, all of the major averages are now fast approaching overbought conditions according the the Relative Strength Index (RSI). I truly think early next week will be the tell. If we continue to lift, then we will certainly breach the 70 value level of the RSI and enter into overbought territory and possibly remain overbought for the rest of the year. However, if the rally stalls, we could easily reverse and then who knows? Add the wildcard of mid-term elections this upcoming week into the mix, and most likely volatility comes back into the forefront. For me I am going to the sidelines until after the mid-term elections are over, and also to see if we stall here at record levels. Good luck to all and have a great weekend 🙂

~George

 

Where are they now?

Just a mere 2 weeks ago the pundits came out in full force declaring the end of the bull market or at the very least a 10-20% correction for stocks. Fast forward to today and we find ourselves yet again in record breaking territory. For the month of May, the Dow Jones Industrial Average (chart) closed up 0.82% at a new record closing high of 16,717.17, the Nasdaq (chart) closed the month up 3.11% at 4242.61, the S&P 500 (chart) closed at an all time record high of 1923.57 and the small-cap Russell 2000 (chart) closed out May up 0.68% at 1134.50.

In my previous blog I wrote about certain experts calling for an imminent correction in which I thought was a bit pre-mature considering how the Federal Reserve continues to accommodate the economy and the markets. I understand where the bear camp is coming from, as soon as the Fed begins to hike interest rates, we should indeed see the markets react accordingly. The problem with the sell-side thesis is this just isn’t happening now. Policymakers continue to reiterate their stance on interest rates which are to remain low for the foreseeable future as the bond tapering program continues and ultimately exhausts itself, which could be by year-end. Then I think bear growl may have a lot more punch to it.

So how do we continue to make money in an environment that continues to make record highs seemingly with no end in sight? In addition to honoring the power of the Fed, I will continue to refer to the technical shape of the key indices to spot opportunities as we wait for the second quarter to wind down. With the incessant “melt-up” of the markets, one may think that stocks maybe overbought a bit. This most certainly is the case with select individual stocks, however, as I look at the closely followed Dow (chart), Nasdaq (chart), S&P 500 (chart) and the Russell 2000 (chart), none of these indexes are in overbought territory at least according to their respective Relative Strength Indexes. Remember, the Relative Strength Index (RSI) is a technical indicator which signifies whether or not a stock or index is overbought or oversold, with the 70 plus value level indicating an overbought condition, and the 30 minus level indicating an oversold condition. Click here for the expanded definition of the RSI. In addition, all of the moving averages are intact for the aforementioned indexes. Click here for the moving averages definition.

So as we enter the month of June, I am expecting the continuation of the “melt up” that has occurred so far this year with modest pullbacks. Of course as we witnessed in mid-May, sentiment can change quickly and the pundits and press for that matter can spread fear like wild fire, and should this be the case, I will prepare myself to add to certain long positions to take advantage of any potential weakness. As always, it is best practice to consult with a trusted financial advisor(s) before making any investment decisions. Good luck to all 🙂

~George