It Just Keeps Rolling!

The stock market that is! Stocks just keep rolling along as we are now in the new trading year. The beginning of 2020 mirrors the record setting ways of 2019. The S&P 500 (see chart here) broke the 3,300 mark for the first time ever today. The Dow Jones Industrial Average (see chart here) is trading above 29,000, the Nasdaq Composite (see chart below) appears to be on its way to 10,000 and the small-cap Russell 2000 (see chart here) is approaching its all time record high.

As I have eluded to in my blog over the past years, this market tear is something no one has really witnessed. Actually all of this started since the crash of 2008. Who could of ever imagined back then that the Dow Jones Industrial Average would flirt with the 30,000 level? In fact, markets around the world were on the verge of collapse and banks were bracing for a bank run. My goodness how times have changed. This breath taking run started with the Federal Reserve dropping rates to record lows and buying up debt. To this day the Federal Reserve is still playing a critical role in this record setting stock market which is a big reason why the markets just keep rolling.

Now it is up to corporate America to show their chops. Earnings reporting season is kicking off and if the report cards are anything like what Morgan Stanley reported today, the bulls will continue to eat caviar. Morgan Stanley (NYSE: MS) had revenues of over $10B exceeding all expectations. In fact, earnings reporting season is off to a strong start with the majority of companies who have reported so far have exceeded street estimates. Now in fairness earnings expectations have been ratcheted down by analysts but still it is undeniable that corporate earnings are still showing strength. This is just the beginning of reporting season so let’s see how the coming weeks look as we continue to set record highs. Good luck to all 🙂

~George

It Just Keeps Rolling George Mahfouz

Now Mexico Too?

If it wasn’t enough to hit China harder, now Mexico too? Look by no means am I an expert on trade, tariffs or politics, but one thing I do know the stock market doesn’t like what has been going on with all three! The stock market also dislikes uncertainty and curve balls and this administration is certainly throwing a lot of both out there lately. Stocks have taken it on the chin with yet another wave of selling this week. For the first time since January the Dow Jones Industrial Average (see chart here) has fallen below the 25,000 mark. The S&P 500 (see chart here) closed in the 2,750 zone, the Nasdaq Composite (see chart here) closed near the 7,450 level and the small-cap Russell 2000 (see chart below) closed at 1,465.

What’s more eye catching to me is that all of the major averages have now fallen below their respective 200-day moving averages. Let’s do take a look at the technical shape of the market to see how much damage has been done. Now that the 200-day moving averages have been breached lets look at the RSI of each index. The relative strength index is a technical indicator that expresses whether or not a stock or index is overbought or oversold (click here for RSI). The Dow Jones Industrials (chart), the S&P 500 (chart), the Nasdaq Composite (chart) and the small-cap Russell 2000 (chart) all are racing toward the oversold level of 30. In fact, the Dow Jones breached the 30 level of the RSI yesterday.

Historically when stocks or indexes break their key support levels and head down towards the 30 level of the RSI, there is usually a continuation through that metric as well. That said, history does not always repeat itself but I would also not be surprised to see more selling pressure in the near future. Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz

 

Historically A Strong Month For Stocks…

December is historically a strong month for the stock market. Many factors play into the last month of the year being a positive one including holiday bonuses, the general overall feeling of optimism and typically lighter volumes due to the holiday season. How we finish out this year will largely hinge on the results of this weekend’s G20 summit. Early indications are that the trade talks and other collaborative measures are going well. As the major averages enter into the last month of the year, The Dow Jones Industrial Average (click here for chart) finds itself at 25,538, the S&P 500 (chart) closed out the month of November at the 2,760 level, the Nasdaq Composite (chart) finished at 7,330 and the small-cap Russell 2000 (chart) finished November at 1,533. On the year, the major averages are barely in the green with the small-cap Russell 2000 actually a tad in the red.

Stocks this past week did get a boost from Federal Reserve Chairman Jerome Powell when Chairman Powell spoke at the Economic Club of New York. Chairman Powell stated that the Fed’s benchmark interest rate was now “just below” the neutral level. This sent the Dow Jones Industrial Average (see chart below) soaring over 600 points on Wednesday. Chairman Powell’s comments are being viewed by the street that the Federal Reserve just might be done raising interest rates for the foreseeable future. Now if we can get some concrete positive news and developments out of the G20 summit which is being held in Buenos Aires, then indeed we could be setting up for a year-end rally.

Let’s take a look at the moving averages technical set-up of the aforementioned key indexes starting with the Dow Jones Industrial Average (chart). At Friday’s close, the Dow is trading above its 200-day moving average by about 400 points while the S&P 500 (chart) closed right at its 200-day. Both the Nasdaq Composite (chart) and the small-cap Russell 2000 (chart) are trading below their respective 200-day moving averages but they have recently cleared and are trading above their 20-day moving averages. So technically speaking things do not look too shabby. Let’s see if we can have a rally into year-end.

Good luck to all 🙂

~George

Dow Jones Industrial Average - George Mahfouz Jr

The Trump Rally Continues…

Caught off guard! I think this phrase wraps it up. After Donald Trump won the presidential election both voters and markets were caught off guard. The polls all but had Hillary as a shoe in for the oval office. Instead the exact opposite occurred not only with the election but how wrong the markets had it if Donald Trump pulled it off. Not only did the markets not crater, (although last Tuesday evening when the voting results were coming in the futures were tanking) stocks are back to setting records. Since the election, the Dow Jones Industrial Average (chart) hit an all-time high of 18,934, the S&P 500 (chart) is within striking distance of its all-time high, the small-cap Russell 2000 (chart) also hit an all-time high, however, the tech focused Nasdaq (chart) is lagging a bit due to the uncertainty of the new Trump administration policies on trade and how this could affect the technology space.

It has been quite a while since the markets have responded in such a bullish manner. Today marks the 7 straight day of gains for the Dow Jones Industrial Average (chart) led by industrials and banks. The banking index has exploded due to the hope that the Trump administration will relax or reverse the Dodd-Frank act which places overbearing regulations on the financial industry as a whole. Check out one of the most widely held bank exchange traded funds Symbol: XLF (chart). This ETF has moved up over 10% in the past week alone, simply unheard of. Other benefactors to the Trump presidency is anything and everything in infrastructure and materials. Trump pledges to spend over $1 trillion dollars rebuilding America’s infrastructure to include highways, roads, bridges, airports etc. It’s no wonder the markets are setting records once again.

Now what? Without question Trump winning the election is seemingly good the for the economy and so far for the stock market. However, as with any rally or sell-off for that matter, “reversion to the mean” typically occurs. I would be very careful chasing this rally or deploying any new capital. My preference is to wait until the inevitable pullbacks occur and look at the aforementioned sectors to consider any new positions. Of course it is always prudent to consult with a certified financial planner(s) before making any investment decisions. Good luck to all 🙂

~George

Stocks Go On A Bumpy Ride…

The stock market ended the week eking out slight gains. For the week, the Dow Jones Industrial Average (chart) closed higher by 0.6%, the Nasdaq (chart) barely closed in the green on the week, the S&P 500 (chart) closed up 0.7% and the small-cap Russell 2000 (chart) finished the week up one half of one percent. I guess this could be viewed as a big win for the key indices considering how light crude oil (chart) has plummeted recently which directly correlates to the energy industry as a whole. Energy stocks have also gotten crushed along with oil which is why I think it’s rather impressive that aforementioned indexes were able to end the week in positive territory. However, volatility (chart) is continuing to spike and the 200-day moving average on the S&P 500 (chart) continues to get challenged. Some pundits believe that it’s only a matter of time that the 200-day on the S&P (chart) will not hold much longer, however, if you look back, no one can deny how this technical metric has been a pillar of support for this most watched index.

So what does an investor or trader do in this historically weak month for stocks and with volatility spiking now weekly? For me personally, I am not as active in the markets due the volatility spikes and typically lower volumes associated with the summer month of August. I prefer to spend my time in research identifying opportunities in the marketplace. For instance, watching the oil markets unravel the way that they have, without question opportunities are forthcoming in this space. The majority of individual energy stocks do indeed trade with the price of oil (chart) and to predict when the price of oil will stabilize is almost impossible. However, at some point in time oil will indeed stabilize and a plethora of opportunity will surface. If you do not want to take the risk on individual names, you can always consider the most popular ETF that tracks the energy space (symbol: XLE). This equity energy fund has an approximate $11.69 billion in net assets with holdings in some of the largest and most respected energy companies in the world. Of course and as I always recommend, it is always best practice to consult with a certified financial planner(s) that you feel comfortable and confident with before making any investment decisions. Good luck to all 🙂

~George

It’s All About Greece…

The Greece Crisis is at the forefront of the markets yet again. Greece closed its banks and stock market on Monday in an attempt to avoid on run on their financial institutions. The heightened state of Greece sent our markets into a tailspin on Monday, however the U.S. stock market did find it’s footing yesterday managing to eek out a small gain. For the month of June, the Dow Jones Industrial Average (chart) closed down 391.18 points at 17,691.51, the Nasdaq (chart) finished the month lower by 83.16 points at 4987.00, the S&P 500 (chart) -44.29 points at 2063.11 and the small-cap Russell 2000 (chart) was one of the only major averages that finished the month of June positive closing up 7.42 points on the month at 1253.95.

So what’s in store for the month of July you may ask? One word, Volatility! Since the realization that Greece is going to miss its $1.7 billion dollar debt payment it owes to the International Monetary Fund and that Greece may no longer be a part of the European Union, volatility slammed the global markets. The $VIX (chart) which trades on the Chicago Board Options Exchange is the Volatility Index. The $VIX indicates the market’s expectation of future volatility, 30 days to be exact, spiked as high as 41% since Monday. We have not seen this type of vol for months and I don’t expect it to let up anytime soon.

Although Greece continues to grab the headlines, there are other concerns that contagion can spread to other debt ridden EU countries such as Spain and Portugal. Even Puerto Rico has it’s own debt issues that are of increasing concern. I do expect that there will be a resolution of some sort to this latest crisis, but I also do believe volatility will stick around for a bit.

Another catalyst that could create additional volatility is the upcoming Q2 earnings reporting season. U.S. companies will begin to report their results after the 4th of July holiday and in earnest the week thereafter. So you can see why I believe volatility could be increasing over the next several weeks. As a trader, this is what you have been waiting on and if you are a long term investor, you have been through this before.

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

~George

Interest Rate Hike Fears Spook Stocks…

Since the release of the February labor market report, which was much stronger than the street expected, stocks have been on a wild ride. Triple digits gains and losses have occurred this past week with the Dow Jones Industrial Average (chart) In addition, the S&P 500 (chart), the Nasdaq (chart) and the small-cap Russell 2000 (chart) have all pulled back noticeably since the February jobs report was issued. So wait a minute, a strong labor market is good for the economy, hence, good for stocks too right? Logically speaking yes, but as it pertains to the Federal Reserve, a stronger labor market and a stronger economy gives them the green light to begin to raise interest rates.

This is what is now permeating through the stock market. The concern is that the Federal Reserve has enough data to begin to change their stance on their multi-year accommodative financial policies, policies that have benefited equities since 2009. We may not have to wait too much longer to gauge the Fed’s stance as it prepares for next week’s Federal Open Market Committee meeting. I think the anxiety we are witnessing may be a little exaggerated. It’s normal to have emotions play out and even take control over investors, however, people seem to forget that the Fed has been extremely cautious as to even eking out the wrong language in their official policy statements. I would not expect the Fed to shock the markets by raising rates too early or too aggressively. That said, I do expect volatility to continue and for markets to get “emotionally” charged. We could very well be in the midst of yet another dip back to the 200-day moving averages of the aforementioned key indices and should that occur, I would expect that buyers would come in bargain hunting. Over the past few years, the 200-day moving average has acted as significant support for these key indexes. The only difference and question now would be, is if the Federal Reserve indeed changes their position on interest rates, how well would this favorite technical indicator fare? Good luck to all and have a great week 🙂

~George

 

As Expected, New Market Highs Continue…

In my previous blog, I eluded to the notion that the bulls would remain in charge for the foreseeable future and sure enough, in charge they are. Last week, the Dow Jones Industrial Average (chart), the S&P 500 (chart), and the small-cap Russell 2000 (chart) all hit record highs while the Nasdaq (chart) continues to gravitate toward the 5000 level. This market has no quit. With the majority of the S&P 500 companies reporting their Q1 earnings, overall earnings growth was relatively good, topping expectations. Meanwhile, Fed Chair Janet Yellen stated at her biannual meeting with the Senate Banking Committee that the Fed will be patient before any change in interest rate policies and that guidance would be given prior to any such action. This, along with the no real surprises coming out of earnings reporting season and the U.S. labor market showing a continuation of job growth, without question has played a role in the continuing strength of the U.S. stock market.  

Okay, all clear right? Well, we all know there is always the other side to the story and markets do not go up in a straight line forever. Without many upcoming catalysts in March, or in any given time period where catalysts are few, I always refer to the technical shape up of the markets to see if overbought or oversold conditions exist. As you all know by now, one of my favorite technical indicators to gauge whether or not the markets are in extreme conditions, is the Relative Strength Index. If you go back historically and look at the RSI indicator of any given stock or index, you too can see the reliability of this particular indicator when it reaches overbought or oversold conditions. Click on this link to get the definition of the RSI. Now I am not saying to completely base trading or investment decisions off of this technical indicator or any other technical indicator for that matter. However, for me personally this has proven to be a trusted guide and I do include this analysis when viewing the current market environment. That said, we are beginning to look a little overbought and I am going to look for pullbacks before I entertain any new positions in equities. Good luck to all and I wish all a very prosperous month 🙂

~George