The 200-Day Moving Average Holds!

The 200-day moving average held its ground despite the constant tape bombs and tweets that continues to come out of Washington. It is no secret that stocks have been on a wild ride over the past few weeks from making all-time highs to rip roaring selloffs. The continuation of tariff threats out of Washington has been a huge catalyst for the increase in volatility in stocks. That said, with all of the madness that is swirling around the Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) have all managed to stay above their respective 200-day moving averages. This key technical support line has held true to form during these market selloffs. The small-cap Russell 2000 (see chart here) has not been as fortunate and could not hold its 200-day.

So in addition to the Washington D.C. threats of additional tariffs, the markets also had to deal with the dreaded 10-year and 2-year yield curve inverting. Whenever longer term interest rates fall below shorter term interest rates in the bond market that historically is a signal that a recession might be looming. Now there is a meaningful lag here whenever we see the yield curve inverting, so as long as the curve flattens out and returns to a normalized dynamic, we should escape the threat. However, if the yield curve remains inverted for an extended period of time then we could be in for something else.

Let’s get back to the technical shape of the markets. As mentioned, three of the four major averages held above their respective 200-day moving average support line which is a good thing technically. What also helped is during these meaningful selloffs is that the markets did go into oversold territory and technically bounced. Let’s see how the next couple of weeks shape up as we wind down the dog days of summer.

Good luck to all ūüôā

~George

Trade War Back On!

Here we go again, the trade war is back on! Donald Trump yesterday once again fired up the trade war this time including the EU, Mexico and Canada. How is an investor supposed to confidently invest when the message and policies of our government change almost daily. Stocks all week have been whipsawed around which is great for the trader, but no so much for the investor. Now we have countries from around the world retaliating with their own tariffs on our goods. The Dow Jones Industrial Average (chart) finished the week at 24635, the S&P 500 (chart) closed the week out at 2734, the Nasdaq Composite (chart) closed at 7554 and the small-cap Russell 2000 (see chart below) showing its incredible resilience finishing the week out near an all-time high.

The chop action that we are seeing in the markets along with the unpredictably of our government gives me more reason now to focus in on the technical trading patterns of stocks and indices. Whether it is support or resistance levels vis à vis moving averages (click here) i.e. the 20-day, 50-day, 100-day, 200-day or outright overbought or oversold conditions using the Relative Strength Index (click here) or the Bollinger Bands (click here) which can also provide a technical look into extreme conditions. With Q1 earnings reporting season essentially wrapped up, there is no real apparent catalyst to move the markets in a meaningful way. Which is why I will be paying much closer attention to the technical make up of the markets to identify opportunities.

One of my favorites are the moving averages (click here) especially the 200-day moving average. For example, just take a look at the Dow Jones Industrial Average (chart) and the S&P 500 (chart). You’ll see over the past few months each time these indexes gravitated to their respective 200-day MA, they found support and proceeded higher. There is no guarantee that moving averages will always hold and provide support, but in many instances it indeed acts as a short term floor to selling pressure. There are many resources on how technical analysis can work and I would recommend studying the dynamics of TA before including it in your investment or trading strategies. Good luck to all ūüôā

~George

Russell 2000 - Paula Mahfouz

 

 

A Spooky Time For Stocks?

As Halloween fast approaches is this also a spooky time for stocks? Without question volatility has picked back up which to me is no surprise at all. Factor in all of the headlines out of Europe, earnings reporting season here at home and last but not least, the daily Hillary Clinton and Donald Trump show. It’s no¬†wonder stocks are bouncing around all over the place. For the week, the Dow Jones Industrial Average (chart) closed lower by one half of one percent, the Nasdaq (chart) closed off by 1.5%, the S&P 500 (chart) -1.0% and the small-cap Russell 2000 (chart) lead the pack and finished the week lower by 2%. With all of the headlines and headwinds for that matter, I still remain quite impressed by the resiliency of stocks despite facing a multitude of uncertainties.

This upcoming week should also be a doozy as earnings reporting season kicks into high gear. Starting off the week, Bank of America (NYSE: BAC) will release their quarterly results¬†followed by International Business Machine (NYSE: IBM), Goldman Sachs (NYSE: GS), Intel Corp (NasdaqGS: INTC), Johnson & Johnson (NYSE: JNJ), American Express (NYSE: AXP), Ebay (NasdaqGS: EBAY), Morgan Stanley (NYSE: MS), American Airlines (NasdaqGS:¬†AAL), Microsoft Corp (NasdaqGS: MSFT), Paypal Holdings (NasdaqGS: PYPL), Verizon Communications (NYSE: VZ), General Electric (NYSE: GE), Honeywell (NYSE: HON) and McDonald’s Corp just to name a few. Expectations for this earnings reporting season is subdued and any upside surprise could bode well for sentiment during these volatile times.

Let’s take¬†a quick look at the technical shape of the aforementioned indices and all but the small-cap Russell 2000 appear to be finding support either at their 50-day or 20-day moving averages. ¬†The small-cap Russell 2000 (chart) does appear to be breaking down at an accelerated rate however,¬†it does appear that the 1200 level of the Russell 2000 should be met with a bit of support.

Both Paula and I wish everyone a very safe and Happy Halloween and good luck to all. ūüôā

~George

 

 

Looks Like A Double Top…

A recent attempt to breakout to all-time highs has seemingly failed. The¬†Dow Jones Industrial Average (see chart below)¬†, the tech-focused Nasdaq (see chart below),¬†the S&P 500 (see chart below) and the small-cap Russell 2000 (see chart below) all appear to have “double topped” and have¬†retreated to support lines. Without question growth concerns¬†here in the United States are abound. These concerns escalated right¬†after the release of May jobs report which was dismal¬†to say the least. Couple these concerns with the potential of the United Kingdom leaving the European Union and¬†its no wonder why the markets have pulled back over the past couple of weeks.

One of the risks to the markets that I highlighted in my last blog were interest rates. It appeared at the beginning of the month that the Federal Reserve and market pundits were all but certain that a rate hike would occur at today’s Federal Reserve meeting. Well thanks to the underwhelming¬†May jobs report, no rate hike occurred this month and furthermore the Federal Reserve have lowered their outlook for any near term future increases! The Fed did say that they will be monitoring our economy and the data to guide them in their future policy decisions and sure enough they continue to stand by this protocol.

Now what? First for me, I want to see how the market reacts to next Thursday’s vote as to whether or not Britain leaves the European Union? Momentum does appear to be increasing for a British exit, which could lead to a global slowdown? Nobody knows if the referendum will pass or what type of effect this will have across the pond or here in the U.S. In the meantime,¬†I will be monitoring the technical shape of our key indices and as you can see in the below charts each of these indexes have found support at either the 20-day, 50-day or 200-day moving averages.

Good luck to all ūüôā

~George Mahfouz, Jr.

george mahfouz jr SPX chart

george mahfouz, jr Russell chart

 

 

george mahfouz jr Dow chart

george mahfouz jr nasdaq chart

Stocks Are Back!

Since losing over 10 percent of their values and going into correction territory earlier this year, the major averages now find themselves almost back to par. Year-to-date the Dow Jones Industrial Average (chart)  is only down around one percent, the S&P 500 (chart) is also lower by around one percent, the Nasdaq (chart) on the year has gained back over half of its losses and the small-cap Russell 2000 (chart) is lower by 4.5%. Since this bull market began over seven years ago, time and time again stocks have demonstrated astounding resilience. Seemingly every time there is a sell-off, willing buyers are ready to step in at varying support levels and buy up equities.

Today the Federal Reserve left interest rates unchanged and actually slashed their forecast to project only two additional rate hikes for the rest of this year versus the four rate hikes they had originally targeted. Stocks initially popped on the news and only one can conclude that the continuing accommodating monetary policies not only here in the United States, but from around the world is most likely the reason why this seven year bull market continues.

That said, the aforementioned indices are approaching overbought conditions according to the relative strength index. Remember the RSI is one of the favorite technical indicators by market technicians, certain algorithmic programs and institutional investors alike. The relative strength index measures and compares the size of moves in a selected period of time and according to the RSI, the 70 or greater value level signals an overbought condition and the 30 value level or lower indicates an oversold condition. Keep in mind stocks and/or indexes can remain overbought or for that matter oversold for an extended period of time. Currently the Dow Jones Industrial Average (chart) is almost touching the 70 value level and the other indexes are not too far behind. Of course this is only one of many technical indicators that traders and investors utilize, but I have found over the years the RSI is one of the more reliable indicators out there.

Good luck to all ūüôā

~George

Happy New Year!

The bull run continues for the stock market which posted yet another year of gains in 2014. However, not quite the eye-popping 30% performance that the major averages experienced in 2013. Nonetheless, in 2014 the Dow Jones Industrial Average (chart) gained 7.52%, the Nasdaq (chart) advanced 13.4%, the S&P 500 (chart) gained 11.39% and the small-cap Russell 2000 (chart) finished the year up a modest 3.52%.

Looking ahead to 2015, simply put, if the Federal Reserve stands pat and does not raise interest rates, stocks here in the U.S. should continue to head north. Of course should the U.S. economy continue to expand and the job market continue to improve, we should begin to see rates inch up, which could possibly slow this six-year bull market down. I think the velocity of any rate increases will be the main factor as to how the markets would react. A slow and steady course should not disrupt stocks too much, however, if the fed surprises the street by raising rates too aggressively, then we could be in for a very volatile year. Whatever the case is, I also believe in 2015 the street will be looking more closely to the top-line growth of corporate America in order to justify the lofty average P/E ratio of S&P 500 companies. The current P/E ratio of the S&P is around 18 compared to the historic average of around 15.

Let’s now take a look¬†at the current¬†technical set-up of the aforementioned indices. The Dow Jones Industrial Average (chart), the Nasdaq (chart), the S&P 500 (chart) and the small-cap Russell 2000 (chart) all remain below the 70 value level of the relative strength index (RSI) The 70 value level of the RSI is considered¬†overbought territory. In addition, these indexes are also trading above their 20, 50 and 200-day moving averages which is considered support zones of this particular technical indicator, especially the 200-day moving average. So technically speaking, stocks appear to be on solid footing heading into 2015. That said, Paula and I wish everyone a very safe, prosperous and Happy New Year ūüôā

Sincerely,

~George

 

Not Even The Dog Days Of Summer Can Slow Down This Bull!

Stocks once again defied logic setting records in the month of August, which is typically a soft month for equities. For the month, the Dow Jones Industrial Average (chart) finished up 3.2%, the tech-heavy Nasdaq (chart) closed the month up 4.8%, the S&P 500 (chart) gained 3.8% and the small-cap Russell 2000¬†(chart) closed the month up 4.85%. Now granted these gains came on relatively low volume, but nonetheless a very impressive performance considering the macro environment we are in especially with the geopolitical concerns in the middle-east and Ukraine. I suppose the U.S. economic numbers that have come out recently is part of the reason why stocks continue to march north. Last Thursday the Commerce Department revised the second quarter U.S.¬†gross domestic product (G.D.P.) number to 4.2% which is quite a healthy expansion of our economy and what’s more, the sources of growth were¬†broad based.

Looking ahead to this month, when¬†traders and investors come back from their summer vacations, they will see¬†all time highs for the S&P 500 (chart), the Dow Jones Industrial Average (chart) and don’t look now, even the Nasdaq (chart) is slowly approaching the 5000 mark, a mark that has not been seen since the tech-bubble of 2000. If you have been bearish or short this market, I do not know what to say other than I feel your pain. We have not had a 10% correction in equities in years now and just the slightest of pullbacks have been met with incessant support. I do not know what is going to break this trend and you know what they say, “the trend is your friend”. Enough of that, seriously, I too have been expecting at least a 5-10% correction, which if you are bullish, you should welcome it. Not only would this be healthy for the markets, in my view it’s getting to the point to where¬†it’s almost required. I am beginning to become a little¬†concerned that should a “black-swan” event occur, and history says “they happen when you least expect it” we could see such a sharp correction, that¬†could trigger margin selling, which would lead¬†to more selling pressure etc., we have all seen this movie before. I am not saying that this will take place, but if it does, and we if don’t have healthy corrections along the way, which we haven’t, this could magnify matters and we would be having a much different discussion.

With all that said, I will continue to monitor the economic numbers this month as well as the technical make-up of the aforementioned indices. Technically speaking, we are¬†now approaching overbought territory according to the relative strength index (RSI). Paula and I wish everyone a very safe and Happy Labor Day ūüôā

~George

Bears take charge!

Although the markets appear to be oversold, the bears have clawed their way back into the spotlight. For the week, the Dow Jones Industrial Average (chart) lost 3.52%, the Nasdaq (chart) -5.28%, the S&P 500 (chart) -4.30% and the Russell 2000 (chart) -5.42%. In my May 6th blog, I eluded to the 200-day moving average being tested on these key indexes and it appears that next week this major support line will indeed be intruded. In fact, the Russell 2000 (chart) not only tested its 200-day, it closed below it yesterday.

So what has happened in May to turn the markets and what is the retail investor to do? Without question the European debt crises is at the forefront of this selloff. Between Greece’s seemingly imminent default and multiple Spanish bank downgrades last week, this alone was more than enough to spook investors. Then add in the mix the continuing fallout of JPMorgan’s (NYSE: JPM) massive trading loss, plus the spectacular run that stocks have had since last October, it’s no wonder we find ourselves in the midst of a 10% correction.

So what is one to do? As an investor/trader when I see fear in the marketplace as we have now, I make a list of top notch companies and look for select buying opportunities. However, I have learned that you must be patient in this type of environment and if you think the market is close to bottoming, it is always best to take on positions very slowly and in very small increments. For example, if you are looking to buy 1000 shares of a given company that you have been waiting for to go on sale, you may want to consider 100 share lots over a period of time. Far too many times investors think that equities have hit bottom and buy all at once without considering that stocks and indexes can continue to go lower and remain oversold for an extended period of time. With the scale in method, the good news is that should the markets turn and go higher, at least you have initiated a position and will benefit from the turn. Whatever your strategies are, it’s always best to exercise patience in this type of climate and always use protective stops on all of your postions. Good luck to all.

Have a great weekend ūüôā

~George