tariffs

The 200-Day Moving Average Holds!

Posted on by George Mahfouz

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 🙂

~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

 

 

Now Mexico Too?

Posted on by George Mahfouz

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

 

The T-Word Has Done It Again!

Posted on by George Mahfouz

No question the T-word has done it again aka tariffs. The week started off with China’s retaliation to the Trump tariffs with a market sell-off on Monday sending the Dow Jones Industrial Average (see chart here) down 600 points. The trade war also sent volatility soaring earlier in the week as well $VIX (see chart below). This after the market set all-time highs. No matter what the case is, stocks will continue to sell-off on any negative tariff news. Why not? Tariffs can essentially act as a tax on American businesses and the consumer at least in the short term.  Without question the tariff tape bombs have hit the market and had nearly doubled the price of vol over the past week or so. (see chart here) 

Now that the wild market swings are back, what’s next? Whenever I see a pick up in vol I take a closer look at the technical shape of the key indexes. Let’s start with the Dow Jones Industrial Average (see chart here). Since volatility kicked back in the Dow Jones Industrial Average lost around 1000 points, but found support at its 100 and 200-day moving averages and bounced off of those key support levels. The S&P 500 (chart) also sold off sharply over the past week or so but it too bounced off of key support zones. The Nasdaq Composite (chart) sold off almost identical to the S&P and bounced back nicely.  Last but not least, the small-cap Russell 2000 (chart) actually fell through its 200-day moving average and found support at its 100-day. So technically speaking and if you are in the bull camp this is a very good sign for the continuation of the latest upward trend in the market. I am always a fan of pullbacks that meet support, holds that support and resumes its uptrend and that’s what we seemingly have now.

Let’s see if we get any positive developments on the trade war to calm the markets down a bit. Good luck to all 🙂

~George

$VIX - george mahfouz

8 In A Row!

Posted on by George Mahfouz

8 in a row is the number of weeks that the Dow Jones Industrial Average (see chart below) and the Nasdaq Composite (see chart here) have notched gains. The S&P 500 (chart) and the small-cap Russell 2000 (chart) have also rallied sharply. So what’s going on? Earnings reporting season is well underway and so far it’s been somewhat of a mixed bag, although more bullish than bearish I would say. I think the obvious reason the rally is continuing is the fact the government did avoid another partial shut down this week and the chatter that has been coming out of China and the U.S. is that progress is being made towards an agreement on tariffs. That said, I am leery about an agreement coming together in the near future simply due to how both sides seemingly come together then fall back on whatever the tariff subject matter of the day. If there are any delays or signs of negotiations going sideways this could put a lid on the current rally and act as the catalyst for another pullback or correction. Some other chatter that has come up recently is corporate buybacks and how some politicians want to cap buybacks or outright regulate them. My friends if this happens, this too can be a catalyst for a pause and reversal of the 2019 market rally. Company buybacks have been a huge tailwind for this decade long bull market and if buybacks actually do become regulated, then things could look very different going forward especially in market sell-offs. We will see if this is just political chatter or something more.

Regardless of the pending outcome of the tariff negotiations or the balance of the Q4 earnings reporting season, I think we are due for a potential pullback of some sort after running for 8 straight weeks. The markets as a whole are a bit extended especially the small-cap Russell 2000 (chart)  which has entered overbought conditions with its RSI aka the Relative Strength Index (click here RSI) closing out the week at a value of 74.

Good luck to all 🙂

~George

Dow Jones Industrial Average - George Mahfouz Jr.

 

Happy New Year!

Posted on by George Mahfouz

Happy New Year! Well if you have been long the markets and with the way stocks closed out 2018, it wasn’t so happy for the bull camp. However, a new year means new beginnings :-). Let’s do take a gander to see how the major averages fared in 2018. The Dow Jones Industrial Average ( click here or see chart below) finished the year down 5.6%, the S&P 500 (chart) closed the year down 6.2%, the Nasdaq Composite (chart) closed down 4% and the small-cap Russell 2000 (chart) closed 2018 down 12%. This is the worst performing year for stocks in a decade.

So what happened? In my view and simply put how can stocks go up in a straight line for over a decade without a correction? That’s right, stocks essentially have gone up for over 10 years’ without a healthy 20% correction. So when the markets finally had a real correction which is what occurred in the 4th quarter, it felt like the sky was falling. No question the Federal Reserve and rising interest rates have played a role in the market correction, however, let’s keep this in mind a 2-2.5% Fed funds rate is still historically low. What wasn’t normal over the past decade was a 0 percent interest rate policy and no market volatility. Everyone got spoiled with such an accommodative policy and market environment.

Another factor playing into the mix of the Q4 market correction is without question the trade war and tariffs that our President has ignited. This to me is even more of an issue to our economy than rising interest rates lifting to a normalized level. Not only is the trade war and its ramifications playing a role, but the inconsistency and chaos out of Washington are wreaking havoc on the markets.  No doubt in my mind that investors and Wall street are falling out of love with how our country is being governed, especially over Twitter. This is all fixable, we will just have to wait and see if the ego’s and the political agendas on both sides of the aisle can get the confidence back in our marketplace. Paula and I wish everyone the happiest and most prosperous 2019.  Good luck to all 🙂

~George

Dow Jones Industrial Average - George Mahfouz Jr

Tariffs and Interest Rates…

Posted on by George Mahfouz

Tariffs and interest rates are at front and center. Now that Q3 earnings reporting season is winding down, without question the two remaining catalysts for these markets between now and year-end are  tariffs and interest rates. It’s been a long time since we have seen the swings that are going on right now in the stock market. Investor’s and trader’s alike are attached to every headline or tweet pertaining to the current trade war between China and the U.S. and whether or not the Federal Reserve will take its foot off of the pedal. The growing tensions between China and the U.S. regarding tariffs did abate late Friday when President Trump tweeted that China does want to make a deal. This was enough to rally the markets on Friday afternoon, but not enough to get the the key indexes out of the red on the week. On the week, the Dow Jones Industrial Average (chart) closed at 25,413, the S&P 500 (chart) closed at 2,736, the Nasdaq Composite (chart) closed at 7,248 and the small-cap Russell 2000 (see chart below) finished the week out at 1,527.

With the aforementioned looming catalysts on the horizon the big question is will we get a year end rally? My feelings are we may only need one of these catalysts to come through for a potential year-end rally. If China and the U.S. can agree upon more favorable terms to the imposed existing tariffs and/or actually withdraw some of the existing tariffs, we may have a shot. Not to say interest rates aren’t important, but relatively speaking interest rates still remain historically low. Even if the Federal Reserve raises rates in December, I still think that a China U.S. deal would be enough for a rally as we close out 2018. The G20 summit is just two weeks away and let’s hope some sort of deal can come forward out of the summit. Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz

 

Bellwether Indexes Surge To All Time Highs!

Posted on by George Mahfouz

Bellwether indexes surge to all time highs as the S&P 500 (chart) closed the month of August at 2901, the Nasdaq Composite (chart) closed at 8109, the small-cap Russell 2000 (chart) closed at 1740 and the Dow Jones Industrial Average (chart) is within striking distance of its all time high. I thought August is supposed to be a tough month for stocks? Not this year! New highs are happening while the political environment in our country is at a seemingly all-time low, the word impeachment surfaces daily now, tariffs are in the headlines daily, interest rates have been on the rise and now it seems that any type of progress made over the summer with North Korea may be in jeopardy. One would think that the aforementioned risks would be enough for an outright 10-20 percent market correction. Add in the seasonality factor and we should indeed be going red, not making all-time highs.

Now I am afraid to even mention that the month of September is historically the weakest month of the year for stocks right alongside with August. Do I dare say that September will be the month that our markets correct in a meaningful way? Do I have the courage to predict that this will be the month where the markets recognize and adjust for all of the risks that are present in our current environment? I don’t know people, I am as baffled as the next guy as to how these markets keep shrugging off real market issues. Oh by the way I forgot to mention we have mid-term elections forthcoming, the markets are not pricing in any risk there either. These markets are priced and acting like there is no absolute risks at all out there. Ok enough banter already!

How to play the markets now? I am a fan of the old adage “the trend is your friend” but folks I just can’t hop on this train at this point in time. I am heading to the sidelines until I see any type of technical breakdown to possibly consider implementing a short thesis or just wait for the inevitable pullback/sell-off to identify any potential long set-ups. Until then, Paula and I wish everyone a very safe and Happy Labor Day weekend 🙂

~George