S&P 500

Red Week For Stocks, Technicals In Play…

Posted on by George Mahfouz

Stocks had a tough week pressured by the prospects of rising interest rates and political turmoil out of Washington D.C. On the week, the Dow Jones Industrial Average (see chart below) closed lower by 1.5%, the S&P 500 (chart) closed the week down 1.2%, the Nasdaq Composite (chart) finished lower by 1% and the small-cap Russell 2000 (chart) ended the week down around 1% as well. Despite a choppy and red trading week, all of the aforementioned indexes are still up on the year.

As we celebrate St. Patrick’s Day we find ourselves in a period of no real short term catalysts to steer the market in either direction other than the FOMC meeting next week. I don’t expect the Federal Reserve to surprise the markets with a larger than expected interest rate hike or change their view on interest rate policy this year. The inflation data continues to remain tame although the labor market is heating up. So what is going to drive stocks between now and Q1 earnings reporting season in April?

When we find ourselves in a period such as the one we are in, I focus in on the technical shape of the markets. And as you can see in the charts of the major averages, all of them are at their moving averages support. Whether it’s the 9 day, 20 day, 50 day, 100 or 200 day moving average, stocks and indexes typically respect and is supported by moving average support lines with the 200 day moving average being the most reliable out of all of them. This doesn’t mean that this favorite technical indicator of most market technicians is infallible, but it sure has a history of being an effective tool when navigating the markets. All things considered, including the seasonality of the markets, I do expect that these support levels should hold at least until Q1 earnings reporting season. If the moving averages don’t hold, then I would not be surprised if we revisit the early February market correction lows. Good luck to all and Paula and I wish everyone a safe and Happy St. Patricks Day 🙂

~George

Dow Jones Industrial Average - Paula Mahfouz

Stocks In Whipsaw Action!

Posted on by George Mahfouz

Volatility makes a comeback as stocks get whipsawed to end the month. The Dow Jones Industrial Average (chart) closed out the month of February with a 380 point loss, the S&P 500 (chart) retraced 30 points, the Nasdaq Composite (chart) dropped 57 points and the small-cap Russell 2000 (chart) closed the last day of February down 24 points. This two-day pull back comes off the heals of a sharp V shape bounce from the market correction that occurred in early February. During the bounce off of the most recent bottom it sure started to feel like the good ole days of lower vol and melt up mode. Not this time and at least not yet. What was abnormal was how volatility was virtually non existent over the past few years. Seemingly passive investing was the only place to be and in hindsight that was indeed the only place to be. During the multi-year melt-up we watched hedge funds underperform and in some instances close shop. There was simply no volatility for hedge funds hedge. It was a one way ticket up.

So what has changed you may ask? I think it is safe to say that the shift in the Federal Reserve’s policy albeit a delicate one is as far as you have to look. Since the financial crisis of 2008, the Federal Reserve has provided its entire war chest of financial accommodation to get the economy and banking system not only of its feet, but thriving again. So now that all systems are a go the Fed is unwinding its balance sheet and raising interest rates. Yes that sounds like a pretty simple answer but it’s also pretty clear to see. With that being said, I do not expect the Federal Reserve to act too quickly unless inflation abruptly takes off. In the meantime I believe volatility will be remain prominent in the marketplace which is putting a smile on traders faces and creating opportunity both long and short. 🙂 Good luck to all!

~George

Finally A Tradable Market!

Posted on by George Mahfouz

After years of essentially low to no volatility, traders finally get what they have been wishing for and that is a tradable market! In 2017 the markets witnessed the longest stretch of low vol in recent memory. In fact the VIX (see chart below) which is the ticker symbol for the Chicago Board Options Exchange volatility index traded in the 10 zone for most of 2017. The 10 level on the VIX (chart) is beyond abnormally low especially lasting for the better part of a year. Fast forward to today and the VIX is hovering around 20 after spiking to over 50 over the past two weeks. We haven’t seen the VIX (chart) at the 50 level in years. Call it long overdue, call it the market needed to correct, call it higher interest rates, call it what you want but finally we seemingly have more of a normal market environment. Not to say it wasn’t gut wrenching watching 1000 point Dow Jones Industrial Average (chart) intra-day swings over the past couple of weeks compared to the slow melt-up investors have enjoyed for years. Traders on the other hand have underperformed the markets during the melt-up because there simply was not enough or no volatility to be able to trade.

Stocks have indeed bounced sharply from the early February market correction. The Dow Jones Industrial Average (chart) closed the day up 307 points, the tech focused Nasdaq Composite (chart) closed up on the day 113 points, the S&P 500 (chart) closed up 32.5 points and the small-cap Russell 2000 (chart) finished the trading session up 15 points. Going forward I am certainly going to respect the technical make up of the aforementioned indexes and select stocks. Moving averages such as the 20-day, 50-day and 200-day tend to provide reliable support and resistance marks and now that we are out of the no vol environment, these moving averages tend to be more accurate and can be used to determined entries and exits in positions you hold and or trade. As I write this blog the key indexes have now rebounded to their 50-day moving averages so we will see if this technical indicator will act as resistance or if the markets can hold, breakthrough and proceed higher. Of course there is much more to consider when entering or exiting any position or strategy but when volatility comes back into the markets, most professional traders key in on the moving averages. Good luck to all 🙂

~George

VIX - Paula Mahfouz

An Earnings Bonanza!

Posted on by George Mahfouz

Earnings reporting season is now in full swing and so far the numbers are not too shabby. A couple of earnings standouts so far are Netflix (NasdaqGS: NFLX) and Boeing (NYSE: BA). Netflix saw subscriber and revenue growth both exceed analyst’s expectations and their stock has skyrocketed since their earnings release last week. Boeing which reported before the bell yesterday also knocked the cover off the ball as the company nearly doubled its net income from the prior period a year ago. A company doubling its net income may not sound like a lot, but when you go from $1.63B in net income to $3.13B that is clearly moving the needle in a fascinating way. Boeing shareholders were also rewarded yesterday as the stock traded north of $350.00 per share hitting all-time highs. I am just highlighting a couple of standouts so far with hundreds of companies set to report over the coming days and throughout the next few weeks.

After a 2 day mini sell-off to start the week the key indexes did bounce back yesterday and resumed its  uptrend. The Dow Jones Industrial Average (chart) closed the month of January above 26,000, the S&P 500 (chart) closed out the month at 2823.81, the Nasdaq Composite (chart) closed at 7411.48 and the small-cap Russell 2000 (chart) closed at 1575. Even with the first noticeable sell-off earlier in the week the aforementioned indexes did have a stellar performance in January gaining more than 5% on the month.

I will say this, earlier in the week and for the first time in almost 2 years the market did feel vulnerable and the sell-off felt a bit different than recent pullbacks. Pundits are suggesting that interest rates may be playing a role in the volatility for the first time in years. I have been tracking the yield on the U.S. 10 year Treasury Note (Symbol: TNX) and for the first time in a long time the yield exceeded 2.7%. A break above 3% for an extended period of time could cause volatility to continue in stocks and may be the very first catalyst to put the brakes on this almost decade long bull run. Let’s see how the rest of earnings reporting season plays out and how interest rates fare in February before we can draw any type of conclusion. Good luck to all 🙂

~George

1000 Points In 7 Trading Days?

Posted on by George Mahfouz

I am not even sure what to say here, almost 1000 points in 7 trading days? After closing above the 25,000 mark for the first time ever on January 4th, the Dow Jones Industrial Average (see chart below) is now closing in on the 26,000 mark in a matter of days. I simply do not understand how this bellwether index can notch 1000 point gains in such a short period of time. In fact most of the major averages are continuing to set records almost daily. How long can this go on? Without question we are on the brink of the strongest bull market in recorded history. The Dow Jones Industrial Average (chart) closed the week at a record 25,803.19, the S&P 500 (chart) closed at a record 2,786.24, the Nasdaq Composite (chart) closed at a record high of 7,261 and the small-cap Russell 2000 (chart) closed the record setting week at 1,591.90. The market was boosted on Friday in part by the strong quarterly earnings results of JP Morgan Chase.

Speaking of earnings reporting season, this week truly is the start of earnings reporting season in which most analysts expect strong top and bottom line growth from corporate America. Over the past few years the markets did witness strong bottom line growth in which a lot of that growth was due to improved efficiencies and reductions of the workforce. Now the opposite is occurring. The economy is expanding as is the job market. This should bode well for not only company earnings but for the continuation of the bull market. That said, I would think that a pullback of any kind is in the cards and I would also expect that investors and traders would be there in support of a retracement.

From a technical point of view equites are clearly overbought according to the relative strength index also referred to as the RSI. However, this favorite technical indicator has not provided the guidance and reliability as it usually does simply because these markets have remained overbought for one of the longest stretches I can remember. There will be a time where the RSI will become more reliable as it once was, but in my humble opinion you will need a “normal” market environment for this to be the case. Good luck to all 🙂

~George

dow jones - george mahfouz jr

New Year, New Records?

Posted on by George Mahfouz

Happy New Year! Will 2018 be a new year of new records? Nothing would surprise me. Especially as the Dow Jones Industrial Average (chart), the S&P 500 (chart), the Nasdaq (chart) and the small-cap Russell 2000 (chart) shattered record after record after record in 2017. In fact the Dow Jones Industrial Average set 70 record closing highs in 2017. That’s not a typo folks, 70 record closing highs. The other aforementioned key indices also set multiple record highs throughout last year. So could we see a repeat performance in 2018? I don’t know about another 70 record highs this year but I would not be surprised to see continuing strength in the markets in 2018. Yes the Federal Reserve is now in a rate hike mode which typically does not bode well for stocks, but this Fed and central banks from around the world understand the need to go about their new rate hike policies in a gradual manner. Raising rates too aggressively could be the exact catalyst to put the brakes on this almost decade long bull market. I don’t think this will be the case at least with our own Federal Reserve. Jerome Powell will be replacing Janet Yellen in early February as our new Federal Reserve Chairman. Mr. Powell who has been a member of the Federal Reserve’s board of governors since 2012 has voted for keeping interest rates at bay while the economy continues to recover.

Speaking of the economy, expansion continues to occur and we will soon find out how our economy is  trickling down into corporate America. Fourth quarter earnings reporting season will begin here in January and this could very well serve as a key catalyst for the continuation of the bull market. That said, I think most investors and traders are looking for the markets to pause and pullback from this historic run we continue to be on. It is truly breathtaking to witness the record pace that stocks have enjoyed for years now. Personally, I hope and some point in time we do get a meaningful pullback so we can have the opportunity to step in at lower prices. Good luck to all and Paula and I wish everyone the healthiest and happiest new year! 🙂

~George

Within Striking Distance!

Posted on by George Mahfouz

In my previous blog, I said I wouldn’t be at the very least surprised if the Dow Jones Industrial Average (see chart below) closed above 25000 by year end. Well don’t look now, we are in striking distance of that milestone. In fact, if the Dow does close above 25000 by year end, it would have taken it a month to do so. That’s right only a month! In late November the Dow closed above the 24000 mark for the very first time and now its a mere 350 points away from yet another 1000 point gain. What’s impressive about this 1000 point clip is how fast it is getting there, I mean a month? This is unprecedented for sure. Market observers are expecting this insatiable bull market to keep on truckin into the end of the year, especially if the tax bill goes live! The S&P 500 (chart) and the Nasdaq Composite (chart) also closed at records highs on Friday with the S&P 500 closing in on the 2700 mark and the Nasdaq approaching the 7000 mark. The small-cap Russell 2000 (chart) is lagging behind but on Friday the Russell did find support at its 200-day moving average to close higher on the week.

With only 2 weeks left in the trading year what can investors or traders expect? More of the same or a sell the news type event? The news being the proposed tax bill getting through and going live. I truly don’t know? However, when you add seasonality into the mix with December being one of the strongest months for stocks on the year, I would not be surprised if the Dow Jones Industrial Average does indeed eclipse the 25000 mark. We could also see the S&P 500 overtake 2700 and the Nasdaq surpass 7000. Now if there is a snag in getting the tax bill through or if it ends up being a “sell the news” type of event meaning the proposed tax bill does go through by year end, then I will have a much different take heading into the new year. Both Paula and I wish everyone the healthiest and happiest holiday season 🙂

~George

Dow Jones Industrial Average - Paula Mahfouz

Dow 24,000 – Bitcoin $10,000 – Why Not?

Posted on by George Mahfouz

Is this really happening? Stocks exploded to the upside on the last trading day of November. For the first time in its history, the Dow Jones Industrial Average (see chart below) traded, blew through and closed above the 24,000 mark. The Dow started the year just under 20,000 and no one and I mean no one in the who’s who of finance, analysis, technical analysis, hedge funds, institutional investors and the like, ever predicted this type of performance for stocks and the key indices on the year. I cannot even count the number of record highs that have occurred this year not only in the Dow Jones Industrials, but also the S&P 500 (chart), the Nasdaq composite (chart), and the small-cap Russell 2000 (chart). Let’s throw in Bitcoin and its year to date 10X performance and we are truly in party mode.

I am not even sure what to think? This eerily feels like the irrational exuberance environment that occurred in the mid to late 90’s and before the internet bubble imploded. However the bullish pundits are quick to point out that this time is different. Back then, whoever came out with an announcement that they just launched a website saw their stock go up. Now the pundits are pointing out that it is earnings and growth that are responsible for this torrid record setting pace we have been on all year long. This is true to some degree. But what about the euphoria in Bitcoin? What is the catalyst that has propelled this so call asset to fly up over 10 times this year? This is why the other side of the camp thinks we are approaching a bubble or at the very least nose bleed territory. Without question I feel that something is going on that makes one have to pause and take a breather here. But as we have seen all year long, don’t underestimate the power of momentum, a low interest rate environment and the Trump trade. Is it possible that the Dow Jones Industrials actually could close above 25,000 by year end? As much as I want to say and think “no way”, way! Not saying the Dow will go up another 800 points by year end, but if we do, I would not be at the very least surprised.

Good luck to all 🙂

~George

Dow Jones Industrial Average - George Mahfouz Jr

Tis The Season…

Posted on by George Mahfouz

As the holiday season fast approaches stocks have a lot to be jolly for. Despite the recent pop in volatility, the major averages continue to enjoy their record setting ways. The Dow Jones Industrial Average (chart) closed the week at 23,258, the S&P 500 (chart) finished the week at 2,579, the tech focused Nasdaq composite (chart) closed at 6,783 and the small-cap Russell 2000 (see chart below) ended the week at 1,493 while recapturing its 50-day moving average.

Next week is a shortened trading week due to Thanksgiving. Historically the Thanksgiving holiday week tends to be a bullish week for equities with 75 percent of the time the markets finish higher. Add the seasonality factor into the mix and things look pretty good between now and year end. This doesn’t mean that things won’t be choppy along the way especially as the yield curve has many investors paying closer attention to it. Interest rate chatter is seemingly picking up lately despite the Federal Reserve being candid about their position and intentions. This will become further apparent when Fed chair Yellen speaks next week along with the release of the minutes from the last Federal Reserve meeting. All in all it appears that the status quo should be in place between now and year and if this is the case, new market highs should be set.

Earlier I spoke to how the small-cap Russell 2000 ( see chart below) has recaptured its 50-day moving average. This is important from the standpoint that investors and traders alike look to the Russell as a key indicator to the overall health of the broader markets. Recently the Russell has been showing some cracks in its trading patterns including noticeably breaking its 50-day only to recapture it and hold above it a few days later. If you are long this market, this is a bullish sign. That said, I do expect volatility to be present between now and year with the potential of making new highs along the way.

Paula and I wish everyone a very safe and Happy Thanksgiving 🙂

~George

Russell 2000 Paula Mahfouz

Russell 2000 – All Time High!

Posted on by George Mahfouz

So now the small-caps join in! The Russell 2000 (chart) closed the week at an all time record high of 1490. For most of the year the widely followed small-cap Russell 2000 has lagged the other major averages. Now it has broken out, see (chart). In fact, when you look at the chart of the Russell, one can say this index has gone parabolic. The Nasdaq (chart) and the S&P 500 (chart) also closed at their all time highs on Friday, while the Dow Jones Industrial Average (chart) posted yet another positive week. What’s more is the month of September is typically one of the weakest months of the year for equities losing on average of 1.5% happening 70% of the time since the 1970’s. Not this year, in fact there have been so many record-breaking closes on all of the aforementioned indices it’s hard to keep track.

Question is, now what? With the third quarter of the year now in the books, Q3 earnings reporting season is right around the corner. I have got to believe with the Federal Reserve closing the chapter on their quantitative easing policy and now taking those assets off of their books, plus interest rates scheduled to rise, investors should pay closer attention to the health and growth of corporate earnings. Do you remember the days when earnings and earnings growth actually mattered? Well those days may be back upon us. Hence, the report cards that come in from corporate America may actually move the markets in a fundamental way. This we have not seen in almost a decade. However, if the market momentum that we have experienced since the election continues, and investors ignore the fundamentals, then why couldn’t we end the year at even higher highs?

One thing for sure is October will be filled with many catalysts that should bring in some volatility and a lot of opportunity.  Between now and year end may be the time to implement a hedged strategy where one can potentially profit regardless of how the indexes or individual stocks react to what’s ahead. I’ll cover this in my next blog. Good luck to all. 🙂

~George