Relative Strength Index

Risk On Remains On!

Posted on by George Mahfouz

Risk on in the markets remains on as we approach the second half of the year! It’s truly remarkable to me how stocks, crypto, real estate and other asset classes are still trading at or near all time highs. I do get that the ongoing accommodative policies provided by our Federal Reserve and from central banks across the globe is the main reason why asset prices continue their bullish ways.

That said, I do think it is time to start considering how things could look once the Federal Reserve in our country starts backing away from its accommodative monetary policies and as interest rates begin to normalize. This is not a question of if, it’s a question of when. Tell tale signs of inflation are now seemingly everywhere which is what the Federal Reserve is paying close attention to and could be the catalyst for the Fed to act. It is at this point our markets could be adjusting to align with real interest rates and normalized price to earning multiples. To that end, we have and continue to witness the most unique market conditions ever seen. So I am not calling a top here and I do respect the power of the Federal Reserve, however, I am just suggesting that we may see a healthy and overdue adjustment in asset prices which may not be such a bad thing. There are many investors that are on the sidelines and would be more than happy to step in should we see asset prices adjust to a lower entry point.

Let’s take a quick look at the technical shape of the major averages. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the Small Cap Russell 2000 (see chart below) all are trading above their 20, 100 and 200 day moving averages. This alone is a strong technical backdrop and what’s more is none of the aforementioned indexes are currently overbought according to the relative strength index aka the RSI. So technically speaking things look pretty good right now.

Good luck to all 🙂

~George

Risk On Remains On - Paula Mahfouz

 

Big Tech Blowout!

Posted on by George Mahfouz

Big tech absolutely blew out their earnings in their most recent quarter. Let’s start with Apple; Apple (NasdaqGS:AAPL) experienced growth in each of its product categories. What’s truly unbelievable is Apple generated about a $billion dollars a day in revenue. Yes, no typo folks, a billion a day in revs in their most recent quarter. Facebook (NasdaqGS: FB) also crushed their quarter generating over $26 billion in revenues easily beating analysts expectations of $23 billion and Facebook’s earnings per share exceeded analysts’ expectations by 40%. Alphabet’s (NasdaqGS: GOOGL) quarter was also quite stellar posting revenues of $55 billion which is up over 30% from the same period a year ago and last but not least Microsoft (NasdaqGS: MSFT) posted revenue of over $41 Billion up almost 20% over for the same period last year. To me this is breathtaking on how these mega-cap companies continue to grow at such a high clip completely ignoring the “law of large numbers” .

So off to the races for the aforementioned stocks right? Not so fast. Despite popping after releasing their earnings, these stocks have started to trade lower. This could be a sign that these earnings reports were already baked into the price already. Of course, it is not uncommon for stocks to become a bit exhausted especially after the tear that the markets have been on so far this year. Let’s see how next week fares in whether or not the lack of follow through to the upside now that earnings are out.

As I look at the overall technical shape of the markets the Nasdaq Composite (see chart here), the Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here) and the small-cap Russell 2000 (see chart here) are not currently overbought according to the relative strength index. What’s more is these indexes also remain comfortably above their respective 100 and 200 day moving averages and are finding current support at their 20-day MA.

Good luck to all 🙂

~George

 

2021 Is Here…

Posted on by George Mahfouz

2021 is here and it could not of come fast enough. Happy New Year and I think we can all use a fresh start! The year 2020 was one of the most challenging years our country and the world has faced. One of the only exceptions that did not face many challenges is the stock market. Despite the global pandemic we remain in and the non-stop chaos out of Washington DC, the major averages set record highs throughout the year. Who would of thought that stocks and market speculation would be at such a fever pitch considering the backdrop of 2020. During this latest bull market surge one thing that stands out to me is how margin debt has hit all time highs. Investors have borrowed over $700 billion dollars against their portfolios which is also a new record. This is somewhat alarming because when the market experiences a correction, margin debt can accelerate any meaningful selloff. Some investors could be forced to sell if their margin debt becomes disproportionate to their overall account value. That said, when record highs continue to be set the risk of margin debt tends to be overlooked.

Speaking of record highs, both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) set new records on the last trading day of the year. The Nasdaq Composite (see chart here) and the Russell 2000 (see chart below) also set records earlier in the week. Although stocks and indexes feel overbought, we are not seeing extreme overbought conditions according the the relative strength index also know as the RSI. There is also support in place at the 20-day, 50-day, 100 and 200-day moving averages. So technically speaking the key indices appear to be in good shape. This set-up bodes well for the continuation of the market rally that we are in.

Of course there are risks out there that could temper the record setting enthusiasm. One risk in particular is the upcoming runoff election in Georgia next week. If the democrats take control of the Senate, this could be viewed as a negative for stocks. The markets historically have liked when there is a split majority between the House and Senate. Pundits argue that a Democratic President and a Democrat controlled Congress could affect income and capital gains taxes that would negatively impact stocks. I am not sure if this will play out but nonetheless as we continue down this bull market path we should not be lullabied to sleep with the risks out there. Good luck to all 🙂

~George

2021 Is Here - Paula Mahfouz

A Breakout Or A Fake-out?

Posted on by George Mahfouz

The major averages seemingly are on the verge of a breakout, or could it be a fake-out? The Dow Jones Industrial Average (see chart here) has recaptured the 25000 level. The S&P 500 (see chart here) has recaptured the 3000 level. The Nasdaq Composite (see chart here) believe it or not is in striking distance of its all-time high and the small-cap Russell 2000 (see chart below) is also setting up for a breakout on its own. It is beyond impressive how the markets have come roaring back since late February. There are certain pundits out there that believe that this is a classic bear market rally however to me it feels like more than that. I have to believe that one of the main reasons why stocks have come roaring back in such a short period of time is the $ trillions of dollars in liquidity that the Federal Reserve and our government has injected into the markets and the economy. In fact, the Federal Reserve has quietly indicated that it is possible that they themselves would buy stocks if needed. Talk about establishing a floor in the stock market!

Another key development in the markets is how strong the technicals look right now. Without a doubt the leadership group of this recent rally is the Nasdaq Composite (see chart here). Tech stocks have benefited the most due to the lockdown. There are more people online than ever before, hence more sales accordingly. Since mid-April, not only has the Nasdaq cleared its 200-day moving average, it also has cleared its 50, 100 and 20-day moving averages. So now the Nasdaq is trading above all of its key moving averages which is bullish. Furthermore, the Dow Jones Industrial Average (see chart here) the S&P 500 (see chart here) and the small-cap Russell 2000 have also broken above some key technical resistance levels. Another technical indicator I look at the relative strength index also known as the RSI. At this point in time the aforementioned indexes are not in overbought territory. The RSI is a momentum indicator and when the value level of the RSI goes above 70 stocks or indexes begin to become overbought. This is currently not the case.

Good luck to all 🙂

~George

A Breakout Or A Fake-out - Paula Mahfouz

 

Fear Of A Global Pandemic Grips Markets!

Posted on by George Mahfouz

Stocks went into a tailspin as fear of a global pandemic grips the markets! New outbreak clusters of the highly contagious coronavirus are beginning to surface which is pressuring leaders from around the world to act and act more aggressively. Stocks have also entered correction territory as companies and analysts begin to ratchet down their revenue and earning forecasts. Over the past week or so the Dow Jones Industrial Average (see chart here) has lost over 10% in the past week alone, the S&P 500 (see chart here) has also entered into correction mode, the Nasdaq Composite (see chart here) has been hit hard and the small-cap Russell 2000 (see chart here) is also witnessing a sharp sell-off.

Personally I believe a correction was needed because of how robotic the markets have acted. Stocks no matter what risks were out there behaved in a way never before seen. We have been in the strongest bull market ever and nothing over the past 12 years could slow this bull market down. Now I am not happy that it is a global health risk that’s the catalyst to put stocks in correction mode, but nonetheless this is where we find ourselves. Of course when fear is rampant in any market this is where opportunity can be found. I am not suggesting to jump in here because as we all know fear and/or greed can be excessive and markets tend to over do it when emotions take the lead over rational thinking. So when we get overextended to the upside or downside the first thing I look at is how the technicals look during extreme market moves.

When I now look at the technical shape of the markets at least at it pertains to the moving averages things do not look so good. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here) and the Russell 2000 (see chart here) have all breached their 20-day, 100-day and 200-day moving averages which are all seen as major support zones especially the 200-day. The Nasdaq Composite (see chart here) is the only major index that has yet to close below its 200-day. That said, all of the aforementioned indexes are oversold according to the relative strength index (RSI) which when we see the 20 value level hit on any stock or index, snap back rallies can and do occur. This type of market is great for traders if you are experienced enough to trade off of technicals, however for investors that have a long term view these type of market environments requires a lot of patience and keeping the emotions at bay. Let’s all hope that the spread of the coronavirus abates and that a vaccine becomes available as quickly as possible.

Good luck to all 🙂

~ George

It’s A Broken Record!

Posted on by George Mahfouz

It’s a broken record indeed! That is the continuing record breaking run on Wall Street. On Friday the Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) set new all time highs. Seemingly, there is no stopping this record setting run that the markets have been on, at least for now. The latest catalyst was news out of Washington that the U.S. and China are close to coming to a “Phase 1” agreement on a trade deal. As I eluded to in my November 15th blog, new record highs could come into play by year-end if we see a trade deal happen. The caveat here is the deal is being titled as a “Phase 1” agreement and there is much more to agree upon to finish the deal out. That said, this is a definite step in the right direction and the markets seem to agree. I do want to keep my enthusiasm in check because of the volatility that continues to come out of Washington on this subject. We have all seen over the past several months tweets and statements out of Washington that we are close to a deal with China to only then wake up the next day to get the opposite statement either out of Washington or China. Phase 1 is a great step, but I am looking forward to the complete deal getting done and most likely that will yield to the first quarter of 2020.

In the meantime, investors are continuing to enjoy record highs and there doesn’t seem too much ahead between now and year-end that will change the course. The technical shape of the bellwether indexes remain intact. The Dow Jones Industrial Average (see chart below), the S&P 500 (chart) and the Nasdaq Composite (chart) are all trading below the 70 value level of the relative strength index (RSI). Also, each of these indexes are trading healthily above their 20, 50, 100 and 200 day moving averages.  

Paula and I wish everyone a very safe and happy holiday season.

~George

It's A Broken Record! - Paula Mahfouz

 

Third Rate Cut Of The Year…

Posted on by George Mahfouz

The Federal Reserve provided its third rate cut of the year on Wednesday. Although this was very much expected, until it happens you don’t know. Without question the Fed’s actions this year has helped the markets hit new highs throughout the year. This week has been no different. Despite pulling back a bit yesterday the Dow Jones Industrial Average (see chart here) remains above 27000, the S&P 500 (see chart here) hit a fresh all-time high on Wednesday, the Nasdaq Composite (see chart here) is within 50 points of its all time high and the small-cap Russell 2000 (see chart below) is trading above its 20, 50, 100 and 200-day moving averages. A technically healthy sign.

What has allowed the Federal Reserve to be proactive in cutting rates is the fact that inflation is pretty much non-existent. If inflation was present in a meaningful way I am not sure the Fed would be cutting rates at all. A huge side effect to lower rates is a strong stock market. So it’s no wonder we continue to trade at new highs and at the very bare minimum hold strong near the upper bands of the trading range. A couple of other factors that are supporting the markets are the latest round of corporate earnings reports which are coming in a bit better than expected along with some positive news flow out of the China trade negotiations.

With this latest rate cut I would not be surprised to see a continuation of the current upward trend and also potentially see new all-time highs before year-end. As I look at the technical shape of the aforementioned indexes pertaining to the relative strength index and the moving averages, I don’t see any issues there either. The Dow Jones Industrial Average (chart), the S&P 500 (chart), the Nasdaq Composite (chart) and the Russell 2000 (chart) are all above their respective moving averages which historically provides support on pullbacks and none of these indexes are in overbought territory  according to the relative strength index (RSI) principles.

Good luck to all 🙂

~George

Third Rate Cut Of The Year - Paula Mahfouz

 

New Week, New Record Highs?

Posted on by George Mahfouz

New week, new record highs? The Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) are fast approaching all-time highs. Both of these major indexes have been on a tear of late and could see new record highs this upcoming week. However, breaking news came out yesterday that Saudi Arabia has shut down half of its oil production after drones attacked the world’s largest oil processing facility. This attack will impact 5 million barrels of daily oil production. One sector that will certainly be affected is the energy space. The price of oil is now expected to skyrocket at least here in the short term. I am not sure if the markets will shrug this dynamic off, but I do expect energy stocks to outperform.

As I take a look at the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) both of these indexes appear to be ready to breakout and join the Dow Jones Industrials and the S&P 500 most recent performances. If the news out of the middle east has a negative impact on stocks, there are plenty of technical support levels that would come into play. All of the aforementioned key indexes are trading comfortably above their 20-day, 100-day and 200 day moving averages. During the month of August the 200-day moving average provided major support multiple times. As I look at the relative strength index to see how close we are to overbought conditions, there is still plenty of real estate before we see the 70 level of the RSI. So technically speaking the indexes appear to be in relatively good shape.

Without question the oil markets and the energy sector will be the focus this week. I am also curious to see how the overall markets react to this latest development out of the middle east. Good luck to all 🙂

~George

 

 

Dow, Nasdaq And S&P All At Record Highs!

Posted on by George Mahfouz

The Dow Jones Industrial Average (see chart here), the Nasdaq Composite (see chart here) and the S&P 500 (see chart here) are all at record highs. Stocks continue to be on a tear with 3 of the 4 major indexes closing at all time highs on Friday. What’s more the S&P 500 (see chart here) closed above the 3000 mark for the first time ever. The one index that still has work to do before making a new high is the small-cap Russell 2000 (see chart below). I am not exactly sure why the Russell is lagging behind the big boys but if the Russell 2000 gets going then who knows how many more records will fall.

That said, for the first time in a while the Dow Jones and the S&P 500 have both entered into overbought territory which is above the 70 value level of relative strength index also know as the RSI. The Nasdaq Composite is fast approaching overbought conditions as well. The Russell 2000 is no where near overbought. I do expect a bit of a pullback in the coming weeks which would be rather healthy for stocks after such a strong performance. I have never been a fan of buying into record highs although momentum traders would disagree. Another factor to consider is we are heading right into second quarter earnings reporting season. Earnings reporting season could be a catalyst to pause the summer rally especially with the percentage of companies issuing warnings so far (click here)

The tariffs that our administration have imposed is expected to have a negative effect on the top and bottom lines of many U.S. companies. What I will be looking for is how much of an affect these tariffs are having on corporate America. The other side of the coin is if tariffs weigh heavier than what is anticipated, this could be yet another reason for the Federal Reserve to move to cutting interest rates which is the real reason I think we are hitting all time highs. Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz

 

 

One Hot June!

Posted on by George Mahfouz

One hot June indeed and I do not mean the weather folks! Stocks and commodities went on a tear in the month of June logging the best June in decades for some of the indexes and other asset classes. The Dow Jones Industrial Average (see chart here) soared over seven percent last month. The S&P 500 (see chart below) hit an all time high in the month of June while both the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) notched impressive gains as well. What’s more is both oil and gold surged right along side of the key indexes.

So why the rally? I think the answer is simply an easier monetary posture by the Federal Reserve. It is no secret that inflation is well in check and it is also becoming apparent that the U.S. job market is cooling off. Another factor for the Fed to consider is what impact would a full blown trade war with China do to the U.S. economy? This is why in my opinion we are seeing a continuing upward trend in our markets and that is a dovish Fed is usually very good for stocks. One other factor that will certainly weigh in is the upcoming earnings reporting season. Now that the second quarter of the year is in the books we will see how well corporate America did in Q2 as earnings reporting season gets underway this month. I will continue to look to monitor how “top-line” growth is faring.

Let’s take a quick look at the technical shape of the key indexes. After surging over 7% in June, the Dow Jones Industrial Average (see chart here) remains clearly above its 20-day, 100-day and 200-day moving averages as does the S&P 500 (see chart here). The Nasdaq Composite (see chart here) is in a healthy technical condition and last but not least, the small-cap Russell 2000 (see chart here) has broken above its key moving averages. This is a very good sign for stocks and furthermore none of indices are in overbought territory according to the principles of the RSI also known as the relative strength index.

Both Paula and I wish everyone a very safe and Happy 4th of July holiday 🙂

~George

S&P 500 - Paula Mahfouz