Stocks

A Respite From The Sell-Off!

Posted on by George Mahfouz

Stocks snapped back sharply on Friday after a week of relentless selling pressure. On Friday the Dow Jones Industrial Average (chart), surged 313.66 points, the Nasdaq (chart) popped 70.67 points, the S&P 500 (chart) notched a gain of 35.70 points and the small-cap Russell 2000 (chart) closed Friday out up 18.27 points. For most of last week the markets were under tremendous pressure as oil continued to plummet along with bank stocks. On Thursday U.S. crude oil closed at a 13-year low only to snap back on Friday gaining over 12%. One of the reasons why oil has bounced off of multi-year lows is a rumor was floating around that the Organization of Petroleum Exporting Countries aka O.P.E.C. was prepared to cut production. We will see if this becomes the case. Furthermore, the European banks have been sold off ruthlessly all year long which has indeed carried over to our banks here at home. So when you have both oil and banks selling off the way that they have, it’s no wonder why there has been a global sell-off sending markets into correction territory.

As the global sell-off continues and as the chatter of doomsday gets louder and louder, I think it is important to remember that we have been in one of the strongest and longest bull markets of all time. Let’s not forget it is not only normal but quite healthy that stocks, bonds and commodities correct and balance out. It amazes me that when sell-offs occur that lead to corrections in the marketplace how the pundits come out of the woodwork and speak to how the world is coming to an end. My friends, what hasn’t been normal is for over six years how we have not had a market correction of over 10% that has stuck. Well here we are today and this is where we find ourselves.

Yes, equities can go lower and yes it can get more painful. But once valuations become attractive again and this is what market corrections provide, you better believe at some point in time buyers will resurface and take advantage of the what goes on sale. The markets are closed on Monday due to Presidents’ Day. Both Paula and I wish everyone a very safe and happy holiday 🙂

~George

 

Despite A Month End Rally, Stocks Took It On The Chin!

Posted on by George Mahfouz

January proved to be one of the toughest months for stocks in years. The Dow Jones Industrial Average (chart) closed the month down 5.5%, the Nasdaq (chart) closed down 8%, the S&P 500 (chart) fell 5.1% and the small-cap Russell 2000 (chart) finished the month out down almost 9%. If it wasn’t for the strong month end rally, both the Nasdaq (chart) and the small-cap Russell 2000 (chart) would of closed out in correction territory. Clearly China and Oil continue to grab the headlines and continue to make investors very nervous. However, on Friday the Bank of Japan in a surprise move implemented negative interest rates for the first time ever in an attempt to aggressively stimulate their struggling economy. So once again a central bank acts and the markets respond. Even our own Federal Reserve stated last Wednesday that they are on high alert pertaining to the global markets and the affects that are being felt here at home. In other words, there may be a pause in raising interest rates here in the U.S.?

That said, what never ceases to amaze me is how technically disciplined the markets can be. If you look at the major averages over the past two weeks you will see that all of these key indices held their August 2015 lows. Especially the Dow (chart) and the Nasdaq (chart) which traded down almost to the nickel to their respective August lows. In my previous blog I cited the Federal Reserve and their policy shift to raising interest rates and the fact that now markets and equities can be assessed on their own merits versus what the central banks may or may not do. Well Friday’s Bank of Japan’s move is a reminder that central banks around the world are ready and capable of intervening at any point in time. Which brings me back to this, how in the world can you confidently have a short thesis in these markets? In my opinion, this model is simply too risky when you have monetary policies that can turn on a dime.

So what’s an investor or trader to do? One thing that stands out to me is throughout all of the noise and chatter is that the technicals continue to perform with the utmost efficiency. Whether markets or equities are overbought or oversold vis-à-vis the relative strength index (RSI) , or support lines are met and hold. No one can deny how disciplined and efficient technical analysis can be.

Good luck to all 🙂

~George

Happy New Year!

Posted on by George Mahfouz

2015 essentially proved to be a flat to down year for stocks taking some investors and traders by surprise. The Dow Jones Industrial Average (chart) closed the year down 2.2%, the S&P 500 (chart) minus dividends closed down just under 1%, the Nasdaq (chart) closed up 5.73% and the small-cap Russell 2000 (chart) closed the year down 5.71%. What’s more is how crude oil (chart) fared in 2015 declining more than 30% which also had weighed heavily on the aforementioned indices.

Looking ahead to this year, stocks find themselves in a place where they haven’t been in quite sometime and that is a rising interest rate environment. Historically speaking, equities tend to be under pressure at the beginning of and throughout a rate hike cycle with the exception of cyclical stocks and certain commodities. However this time may be different. In the past when the Federal Reserve begins to raise interest rates it is usually to fend off inflation and/or to cool off the economy when it becomes too hot. From my view and from the data flow, this is not the environment we find ourselves in today. So I do not expect that the Federal Reserve would raise rates aggressively or too quickly. With that said, the markets might not trade the way they would if we were in an inflationary environment with rising interest rates. Nonetheless, I do think that more volatility will come into stocks in 2016 and it will become more of a stock pickers market.

Furthermore, the technical shape of the market appears to be setting up for more downward movement as the key indexes have breached or are about to breach their respective 200-day moving averages. However, it would take days of trading below their 200-day to set off an alarm at least from a technical perspective. Let’s see how the first week of trading in the new year plays out before making any sort of definitive technical opinion.

Both Paula and I sincerely wish everyone the healthiest, happiest, safest and most prosperus New Year yet 🙂

~George

Is It A Looming Rate Hike, Or Something Else?

Posted on by George Mahfouz

After posting blistering gains in the month of October, stocks took it on the chin last week and it’s technically looking like more short-term downside could be in the cards. For the week, the Dow Jones Industrial Average (chart) lost 665 points, the Nasdaq (chart) retraced 219 points or 4.3%, the S&P 500 (chart) -76 points and the small-cap Russell 2000 (chart) closed lower on the week by 53 points or 4.4%.

Seemingly, the start of the selling pressure accelerated when the October labor report came out surprisingly strong. This report was released on November 6th. One could say that this is the main reason stocks have been under pressure. Pundits are now calling with almost certainty that the Federal Reserve has the green light to raise interest rates at their next meeting in December. Couple this will commodity prices continuing to fall, in particular oil, which is down recently almost 10% and you can understand why the markets would be under pressure. Or could it be the simple fact that October saw almost 10% gains across the board and the key indices were overdue for a pullback. I’d like to add to the mix that the latest round of economic numbers could also be weighing in on investor sentiment. This is evidenced by a weaker than expected retail sales number and weak retail earnings reports issued last week along with a very weak Producer Price Index. Sum all of this up and it’s no wonder the aforementioned indexes closed lower by almost five percent last week. From a technical perspective the key indexes have now breached their respective 200-day moving averages and if you are bullish, you would want to see the markets recapture this key technical support line and return to the uptrend that was intact throughout the month of October.

As the Thanksgiving Day holiday fast approaches, both Paula and I wish everyone a very safe, healthy and Happy Thanksgiving 🙂

~George

Staying True To Form…

Posted on by George Mahfouz

In late September stocks appeared to be heading to new 52 week and multi-year lows. But as this market has demonstrated its resilience during this six year bull run, the four major averages found support near its previous lows in late August and have bounced nearly 10%. This most recent market action have yet again muzzled the bear pundits and revived the bulls hopes for a possible year-end rally. For the week the Dow Jones Industrial Average (chart) closed modestly higher up 131.48 points, the Nasdaq (chart) had a weekly gain of 56.22 points, the S&P 500 (chart) finished up 18.22 points and the small-cap Russell 2000 (chart) bucked the uptrend falling slightly by 3.05 points.

So could there be a year-end rally in the cards? I think the answer to that question will come forward as we are now kicking into high gear with Q3 earnings reporting season. Already this past week we heard from the likes of JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C), Goldman Sachs (NYSE: GS) and international conglomerate General Electric (NYSE: GE) who all provided results investors could cheer about. Each one of these companies notched impressive gains on the week not only helping the key indices, but also instilling confidence with investors. However, and as we all know, earnings reporting season can be volatile and we are at just at the starting gate.

Next week we will get quarterly results from technology giant Broadcom (NasdaqGS:BRCM), oil and gas equipment services behemoth Halliburton (NYSE: HAL), Bank of New York Mellon (NYSE: BK), Chipotle Mexican Grill (NYSE: CMG), Yahoo (NasdaqGS: YHOO), biotech giant Biogen (NasdaqGS: BIIB), Coca-Cola Co. (NYSE: KO), General Motors (NYSE: GM), Las Vegas Sands Corp. (NYSE: LVS), Amazon.com Inc. (NasdaqGS: AMZN), E*Trade Financial Corp. (NasdaqGS: ETFC), basic materials giant Freeport-McMoRan Inc. (NYSE: FCX), Microsoft (NasdaqGS: MSFT) and American Airlines Group Inc. (NasdaqGS: AAL) just to name a few.

These are only a handful of companies scheduled to report next week with hundreds more to follow in the coming weeks. That said, both Paula and I will continue to remain patient and wait until after earnings reporting season before we consider any new market strategies.

Good luck to all 🙂

~George

Rough Quarter For Stocks…

Posted on by George Mahfouz

Although the markets rallied yesterday, the major averages in Q3 closed lower for the second straight month. In fact, year to date the Dow Jones Industrial Average (chart) is down 8.6%, the Nasdaq (chart) is off by 2.5%, the S&P 500 (chart) is lower by 6.8% and the small-cap Russell 2000 (chart) year to date is down 8.6%. So the bulls are asking what gives? My question is more of what has taken so long? The U.S. markets have not seen any kind of meaningful or long lasting correction in six years. This is not a surprise and if anything should be embraced. Stocks have been driven by the Federal Reserve policies ever since the introduction of the first quantitative easing mandate. How easy has this market been? All any investor or fund manager really had to do over the past 6 years is buy and hold with no need for concern. I think it’s safe to say the landscape is changing and rightfully so. There are many investors out there that missed this stunning bull run we have been on simply because it was hard to agree with the valuations that most of the market has enjoyed during the Federal Reserve buyback program and low interest rate stance. Top-line growth has really not been the catalyst that has driven stocks during this incessant bull market. However, when you are in a low to negative interest rate environment there really isn’t any other option to place funds. The question now is are we heading towards or already in a normalized market environment? Meaning will equities now begin to trade on their own merits? To me it certainly feels like the markets are setting up this way.

We won’t have to wait very long because third quarter earnings reporting season is just ahead. Without question I expect this upcoming earnings reporting season will be scrutinized like no other in recent memory. I believe gone are the days that investors will give any company a pass should their results come in under street estimates or even in-line with the street. For me personally there is too much volatility in the marketplace right now and my preference is to go to the sidelines until after Q3 earnings reporting season is over. I will then evaluate the landscape from a fundamental and technical point of view. Speaking of the technical shape of the market, this too of a concern of mine. All of the key indices are in a significant down trend trading well below their respective 200-day moving averages. Yes theses indexes are finding a bit of support right here, but if earnings reporting season doesn’t add up, new 52 week or even multi-year lows could be in the cards? My point here is that with the way the markets look and feel, it is probably best to be a bit more conservative until after we see the health and growth rate of corporate America. Good luck to all 🙂

~George

Stocks Skittish Before The Fed Meeting…

Posted on by George Mahfouz

Stocks have become hesitant as to which direction to head into with all eyes now on whether the Federal Reserve will raise interest rates this week for the first time in almost a decade. The Dow Jones Industrial Average (chart) started the week down 62.13, the Nasdaq Composite (chart) closed Monday’s session out down 16.58, the S&P 500 (chart) fell 8 points and the small-cap Russell 2000 (chart) closed modest lower by 4.3 points.

As investors and traders await the decision from the Federal Reserve as to whether or not a rate increase will occur, I think the markets are putting too much emphasis on the initial hike, regardless if it’s announced after the conclusion of their two-day meeting this week. To me what’s more is how will the Federal Reserve respond over the coming months and quarters ahead? Shouldn’t we be more attuned to their behavior pattern after the first hike? Or whether or not they will raise rates at an accelerated rate? To me this is the bigger question. Of course a quarter point rate hike or even a 50 basis point hike is in the cards and is inevitable at some point in time, whether it’s this week or at the Federal Reserve’s future meetings. My focus and attention will be on how they treat the interest rate environment after the first rate hike actually occurs. Based on the temperament and demeanor of Janet Yellen, I would expect a continuing cautious protocol from our Fed Chair and I would think that neither she or the Fed would not be inclined to raise rates too fast. I would think the economic data would dictate the velocity of future rate hikes and even if the data becomes robust, the Federal Reserve would want to see multiple quarters of meaningful expansion before we get back to normalized rates.

That said, I do think that the markets and investors are going to need to get used to increased volatility and market swings similar to what we have been experiencing over the past few months. I believe gone are the days of low vol and indeed investors are going to need to pay attention now more than ever to the true growth rates of companies, especially on the top-line. You see in a rising interest rate environment companies can no longer grow their bottom line alone while maintaining high valuations. Real growth needs to come forward in the form actual sales expansion in addition to productivity in order for companies to maintain elevated P/E multiples. Bottom line, you better know the companies you choose to invest in because the free lunch so to speak that the markets, investors and traders have enjoyed over the past several years may come to a close in the near future…

Good luck to all 🙂

~George

Nasdaq Closes At A Record High!

Posted on by George Mahfouz

Tech stocks have taken off this week due to their strong earnings results. Companies such as Netflix (NasdaqGS: NFLX) soared 18% today after the company reported better than expected subscriber growth. Also today and just after the close, Google (NasdaqGS: GOOGL)  too reported better than expected results with revenue coming in at $14.35 billion compared to $14.26 billion the street was expecting. In after hours trading Google is up over 10% or well over $70.00 per share. Thanks to Google’s earnings results, most other tech companies are also trading up in the after-hours session so it appears that the rally on the Nasdaq (chart) will continue at least through tomorrow.

On a technical note, I want to point to your attention how two of the most influential major averages held their respective 200-day moving averages recently. A little over a week ago the markets were roiled in the Greece debt drama as well as how China’s stock market was falling off a cliff. There was enormous uncertainty as to how Greece and even more so how China’s stock market would play out. This fear and uncertainty sent the Dow Jones Industrial Average (chart) and the S&P 500 (chart)  tumbling down toward and below their 200-day moving averages. It really only took a day for this key support metric to kick in and demonstrate its technical support influence. Since this brief but noticeable selloff occurred, both indices have snapped back and we now find the S&P 500 (chart) within 10 points of its all-time high. Some pundits did indeed expect that Q2 earning reporting season could be the catalyst to lift the markets out of the fears of Greece and China. And seemingly their expectations have been met. That said, there are many more companies set to report their earnings results over the next couple of weeks, with all eyes now focusing on how Apple (NasdaqGS: AAPL) will fare as they are set to report their quarterly report next Tuesday July 21st after the close. As with most earnings reporting seasons over the past few years, stocks have overall fared well and this time it appears well enough to break key index records.

Good luck to all 🙂

~George

A Weak Week For Stocks…

Posted on by George Mahfouz

Stocks closed out the final week of May on a softer note with the Dow Jones Industrial Average (chart) falling 221.34 points, the Nasdaq (chart) lost 19.33 points, the S&P 500 (chart) -18.67 points and the small-cap Russell 2000 (chart) closed the week lower by 5.69 points. Considering the record closing highs that have been set over the past month or so, its no surprise that equities took a bit of a breather.

Now that we are in the month of June, let’s see if this seemingly temporary pause turns into something more meaningful. The month of June historically is a unfavorable month for stocks and this year may be no different. In fact, in this trading week headline risks are abound. Internationally speaking, without a doubt Greece’s debt talks will continue to grab the attention of investors this week as well as the ECB’s central bank meeting. Here in the states, traders will continue to pay attention to the continuing strength of our dollar as well as May’s jobs report at the end of the week. As you can see there are plenty of catalysts that could become market moving events.

Technically speaking, the aforementioned indexes are finding support at their respective 50-day moving averages and none of these indices are in overbought or oversold territory according to the relative strength index (RSI). One technical point I do want to make is when stocks were setting records earlier in May, the volumes associated with those records were on the lighter side. As mentioned in my previous blog, my preference would of been to see these records being set with much stronger volume.

Have a great week and good luck in the month of June 🙂

~George

Late April Sell-Off Wakes Up The Bears…

Posted on by George Mahfouz

Stocks sold off sharply on the last trading day of April. The Dow Jones Industrial Average (chart) fell 195 points, the Nasdaq (chart) closed down 82.22 points, the S&P 500 (chart) lost 21.34 points and the small-cap Russell 2000 (chart) finished lower by 26.83 points. The biotech sector has lead the charge in this most recent selloff with the most popular biotech ETF (Symbol: IBB) (chart) losing over 10 percent of its value since mid-March. Another factor in this sell-off is the sloppy earnings reporting season we find ourselves in. Just this week both Twitter (NYSE: TWTR) and Linkedin (NYSE: LNKD) surprised the street with their weak quarterly results and even weaker forward guidance. So the selling pressure is not just in the biotech space, it has now spilt over to the technology sector as a whole. That said, this morning there may be a bit of a respite with the futures market pointing up sharply.

Let’s take a look at the technical shape of the markets as we now enter into May. One troubling sign is the four major averages mentioned above have all breached their 50-day moving average line, with the small-cap Russell 2000 falling prominently below it. Let’s see if these key indices remain below this popular technical indicator for more than a few days. A one day breach does not necessarily mean a total technical breakdown however, another slight concern of mine is that these averages are not oversold yet according to the relative strength index or the RSI. Click here for the definition of the RSI. Now take a look at the charts of the Dow (chart), Nasdaq (chart), S&P 500 (chart) and the Russell 2000 (chart) and you will see at the very top of the chart the plot of the relative strength index and you will further see that these indexes have more room to go to reach the 30 value level of the RSI, which is the level that qualifies an oversold condition. Now throw into the mix that May is historically a weak month for equities and we indeed be in for some additional selling pressure.

In closing, I will re-visit the technical make-up of the markets in mid-May and see where there could be some buying opportunities. Good luck to all 🙂

~George