technical shape

Rally Caps Are On!

Posted on by George Mahfouz

After breaching all moving average support lines including the 200-day, the major averages have their rally caps on! The Dow Jones Industrial Average (see chart here) finished the month of April on a high note. The same can be said for the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here and below).

After a slow start to the year including a brief dance with a bear market, stocks have rallied recently to turn green. Even the small-cap Russell 2000 is now green for 2023. So, what is causing the renewed bullish action? In part I think a stronger than expected first quarter earnings results have played a role in this latest bull run along with the Federal Reserve potentially slowing down their interest rate hike program. Positive earnings surprises have come from the health care sector, consumer discretionary and Industrials sector. It’s not just better than expected earnings results, it’s the top line revenue numbers that are also coming in stronger than expected. These data sets are great to see but we still do have some headwinds with inflation remaining high which means the Federal Reserve may not be quite done yet with higher rates.

When I take a look at the technical shape of the markets, there are some encouraging signs that may play a role in the continuation of this latest bull run. It appears that the Dow Jones Industrial Average (see chart here) is breakout out of a month’s long trading channel, as is the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) also appears to be breaking out. I also see that the aforementioned indexes have not yet breached the 70 value level of the Relative Strength Index aka the RSI. The 70-value level of the RSI is considered the beginning of overbought conditions and we are not there yet.

Let’s see how the month of May goes and we will check back on the technical shape of the markets in June. Good luck to all 🙂

~George

Rally Caps Are On! - Paula Mahfouz

No Surprise Here…

Posted on by George Mahfouz

It’s no surprise here that the month of August was weak for the overall stock market. Despite the current economic backdrop historically August tends to underperform compared to the rest of the year. The Dow Jones Industrial Average (see chart here) last month closed down over 1000 points and the S&P 500 (see chart here) closed below the 4000 mark. The Nasdaq Composite (see chart here) gave up over 500 points and the small-cap Russell 2000 (see chart here) pulled back slightly. That being said and considering the current headwinds we are facing I believe stocks held up pretty well.

Now that we are in September and from a seasonal perspective especially with mid-terms approaching, I anticipate volatility to continue. There is also a possibility that vol will accelerate. Looking at the current backdrop, we have a Federal Reserve that continues to raise interest rates, corporate earnings are stagnating and the political situation in our country is nothing to be proud of now. Taking all of these factors into consideration, plus the constant flow of negative news, August could off sold off a lot more. Out of all these dynamics I prefer to tune out most all of the noise and really study how the Federal Reserve is navigating itself through this cycle. To me it is this entity that swings the biggest bat on how the markets move. As you know by now, I also pay attention to the technical shape of the key indexes.

Speaking of the technical shape of the market, let’s take a look. The Dow Jones Industrial Average (see chart here) is trading below its 20 day, 100 and 200 day moving averages. The S&P 500 (see chart here) is also experiencing a technically weak pattern as is the Nasdaq Composite (see chart here) and the Russell 2000 (see chart here). Again, no surprise here but I did notice the markets today appeared to find some support. For the markets the dog days of summer are almost over, but I think we all need to buckle up between now and the mid-terms because I do expect volatility to continue.

Good luck to all and have a great and safe Labor Day Holiday!

~George

What A Month For Stocks!

Posted on by George Mahfouz

What a month for stocks as the major averages rebounded sharply in July. After witnessing an incessant selloff over the past few months, July turned out to be the best month for stocks in years. After falling into bear market territory, the S&P 500 (see chart here) gained almost 10% last month cutting its year to date losses in dramatic fashion. As I look at the Dow Jones Industrial Average (see chart here) a thousand-point gain in the last week or so is not too shabby either. Last but not least, both the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) also has enjoyed a strong recovery from their recent lows.

So why was there such a strong performance in the month of July? Q2 earnings reporting season is in full swing and at best this Q2 earnings so far have been a mixed bag. The Fed last week also raised interest rates another 0.75%. Inflation remains at or near 40-year highs. So, if you solely look at these metrics one would think the recent selloff would be accelerating. Clearly this is not the case, yet! The bears would argue that this is an “oversold” bounce and part of me agrees with that. However, I think it is too early to say that we are back to a full-fledged bull market. I do think if the markets remain stable over the next couple of months this could be a sign of a bottoming process. Let’s see how the rest of the summer plays out.

Now let’s move over to the technical shape of the aforementioned indexes. What has caught my eye is how the major averages are either at or have recaptured their 100-day moving average. This important support and/or resistance line is key as to whether stocks will pause into the resistance that moving averages experience, or if the momentum continues, then this could mean that this latest bull run will continue.

Good luck to all 🙂

~George

Technically Speaking…

Posted on by George Mahfouz

The sell-off in the markets accelerated in the month of April and technically speaking it appears there could be more selling pressure ahead. On the year, the Dow Jones Industrial Average (see chart here) is down nearly 10 percent, the S&P 500 (see chart here) is off over 13%, the Nasdaq Composite (see chart here) is down over 21% and the small-cap Russell 2000 (see chart here ) year to date is down 17%.

I am not surprised of the market weakness due to all the factors at play right now. From the war in Ukraine, to the highest inflation rates we have seen in over 40 years, the ongoing Covid backdrop albeit this dynamic appears to be improving and finally, interest rates. The Federal Reserve now has woken up to the fact that this low interest rate environment that we have lived in for over a decade is over. Runaway inflation has now become a major concern for the Fed, and they are now being beyond vocal of their intentions. A 50-basis point increase appears to be the hike here in May and hikes throughout the year are in play. In my view, this is the top catalyst as to the sell-off but let’s keep things in perspective. Last year and previous years for that matter have been a boon for stocks and pretty much every other asset class out there. Record after record have been set for years on asset classes and this is simply not sustainable. A healthy correction is beyond needed and it seems like we are in that mode now!

Now let’s look at the technical shape of the aforementioned key indexes. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the Russell 2000 (see chart here) all closed the month of April out below their key moving averages. The 20-day, 50-day, 100 and 200-day have all been breached while the Relative Strength Index aka the RSI have not yet breached an “oversold” condition. The RSI is a technical “momentum indicator” that has two values of importance. The 70-value level for potential “overbought” conditions and the 30-value level and below is a level that is considered “oversold. All the above indexes are currently hovering around the 35 level. Please remember “technical indicators” are there as a guide and a tool when assessing the technical backdrop of any given stock or index and is not 100 percent perfect.

Good luck to all 🙂

~George

 

 

 

A Tough Quarter For Stocks…

Posted on by George Mahfouz

It was a tough quarter for stocks as the markets dealt with and continues to deal with the war in Ukraine, runaway inflation, rising interest rates and the seemingly never ending Covid dynamic. For Q1, both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) lost nearly 5%. The Nasdaq Composite (see chart here) lost more ground closing out the quarter down 9%. Last but not least, the small-cap Russell 2000 (see chart here )  also closed Q1 down 9 %.

As mentioned above, it was a tough quarter for stocks and indexes but with the current state of global backdrop my feelings are we are quite lucky to not of experienced more of a drawdown. In fact, I am very surprised if not shocked that we did not see a 20 percent sell-off or more due to these major headwinds. So, this begs the question as to why there was not more of a correction? Could it be corporate earnings will surprise the street once Q1 earnings reporting season kicks off here in April? Or could it be that while interest rates are going up and will continue to do so, that rates are still relatively low, and money continues to get put to work in the overall markets? I do think that this upcoming earnings reporting season will be one of the most important metrics in years pertaining to whether stocks find their footing or continue to be under pressure. The one other metric I will be paying close attention to is yield curve inversion. For the first time in years the 2-year Treasury yield surpassed the 10-year and historically when that happens the chances for a recession increase. So, as you see there is much to learn over the coming weeks and throughout the summer.

Last but not least, when I look at the current technical shape of the aforementioned key indexes, all of them are trading right around their respective 20-day, 100-day and 200-day moving averages. Based on this action it is possible that we see a breakout above and/or a breakdown below these historic support and resistance lines.

Good luck to all 🙂

~George

 

 

Record After Record!

Posted on by George Mahfouz

The U.S. stock market notched record after record in 2021! What a year for all asset classes from stocks, to real estate, to the crypto markets!

The Dow Jones Industrial Average (see chart here) finished 2021 up 18.7%. The S&P 500 (see chart here) closed the year out up a whopping 27%. The Nasdaq Composite (see chart here) closed up 21.5% and the small-cap Russell 2000 (see chart here) closed 2021 up 13.7%. How counterintuitive are these results as our country and the world for that matter continues to face and deal with Covid-19. Covid is now entering its 3rd year with the latest variant taking the world by storm. The omicron variant are causing infection rates to soar. However, scientists are hopeful that this variant could be the catalyst to ending this pandemic due to how less virulent this variant is at least to the fully vaccinated. It’s still early but the way omicron has now seemingly and abruptly reversed its course in South Africa, there is hope that this will be the case everywhere else.

Back to the markets. As we enter 2022 the big question and maybe the only question the markets have is how aggressive will the Federal Reserve be in hiking interest rates. No question in the new year interest rates will begin to head north. Inflation is soaring and impacting almost everything, which is part of the reason why we are seeing all-time highs across the board. This is not sustainable and with interest rates on the verge of increasing, stocks will face their first true test as the tightening rolls out. That said and because the pandemic is still wreaking havoc, I do not expect the Fed will be too aggressive out of the gate.

Let’s look at the technical shape of the aforementioned indexes. The Dow Jones Industrial Average (see chart here) is comfortably trading above its 100 and 200-day moving averages as is the S&P 500 (see chart here) and the Nasdaq Composite (see chart here). The small-cap Russell 2000 (see chart below) is trading at it 100 and 200 day MA so let’s see if these support lines hold for the Russell. The other technical indicator that I prefer is the relative strength index aka the RSI and none of the aforementioned indexes are in overbought territory according to the RSI. The 70 value level of the RSI is considered overbought and the 30 value level is considered oversold and each index is trading right around the middle of that range.

Happy New Year!

~George

Record After Record! - Paula Mahfouz

 

Risk On Remains On!

Posted on by George Mahfouz

Risk on in the markets remains on as we approach the second half of the year! It’s truly remarkable to me how stocks, crypto, real estate and other asset classes are still trading at or near all time highs. I do get that the ongoing accommodative policies provided by our Federal Reserve and from central banks across the globe is the main reason why asset prices continue their bullish ways.

That said, I do think it is time to start considering how things could look once the Federal Reserve in our country starts backing away from its accommodative monetary policies and as interest rates begin to normalize. This is not a question of if, it’s a question of when. Tell tale signs of inflation are now seemingly everywhere which is what the Federal Reserve is paying close attention to and could be the catalyst for the Fed to act. It is at this point our markets could be adjusting to align with real interest rates and normalized price to earning multiples. To that end, we have and continue to witness the most unique market conditions ever seen. So I am not calling a top here and I do respect the power of the Federal Reserve, however, I am just suggesting that we may see a healthy and overdue adjustment in asset prices which may not be such a bad thing. There are many investors that are on the sidelines and would be more than happy to step in should we see asset prices adjust to a lower entry point.

Let’s take a quick look at the technical shape of the major averages. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the Small Cap Russell 2000 (see chart below) all are trading above their 20, 100 and 200 day moving averages. This alone is a strong technical backdrop and what’s more is none of the aforementioned indexes are currently overbought according to the relative strength index aka the RSI. So technically speaking things look pretty good right now.

Good luck to all 🙂

~George

Risk On Remains On - Paula Mahfouz

 

Stimulus Package Chatter Buoys Markets…

Posted on by George Mahfouz

Yesterday, the lastest round of stimulus package chatter came out of Washington which helped buoy our markets. The Dow Jones Industrial Average (see chart here) closed the month of September out at 27781, the S&P 500 (see chart here) finished the month at 3363, the Nasdaq Composite (see chart below) closed at 11167 and the small-cap Russell 2000 (see chart here) finished at 1507. Although stocks had a strong close to end September, the month of September was a net negative for the markets. No question the uptick in COVID both here and abroad has put some pause to this bull market rally. Quite honestly, I think stocks have held up pretty well despite the ongoing pandemic and the constant tape bombs coming out of Washington.

Fast forward to today and we are now a month away from our Presidential election. I have got to believe that we are heading into more volatility than what we experienced in September. I think whoever watched the first Presidential debate would agree. In addition to the upcoming election, we are also heading right into Q3 earnings reporting season. Corporate America will be releasing their third quarter financial results over the next 45 days or so and that alone can create higher volatility. I am not sure what to expect when companies report their numbers and even more so how companies provide their forward looking guidance on their conference calls. Whatever the case is, I think it’s fair to say we will not be trading sideways here in the month of October.

Let’s take a gander at the technical shape of the aforementioned indexes. What has impressed me lately is how the Dow Jones Industrial Average (see chart here) found support near its 200-day moving average and more recently its 50-day moving average. The same can be said for the other major averages in how they too have found support at their respective moving averages. What’s more is these key indices are no where near overbought territory according to the relative strength index aka the RSI. So from a technical analysis standpoint, the markets look to be on solid footing.

Good luck to all 🙂

~George

Stimulus Package Chatter Buoy Markets - Paula Mahfouz

Fear Of A Global Pandemic Grips Markets!

Posted on by George Mahfouz

Stocks went into a tailspin as fear of a global pandemic grips the markets! New outbreak clusters of the highly contagious coronavirus are beginning to surface which is pressuring leaders from around the world to act and act more aggressively. Stocks have also entered correction territory as companies and analysts begin to ratchet down their revenue and earning forecasts. Over the past week or so the Dow Jones Industrial Average (see chart here) has lost over 10% in the past week alone, the S&P 500 (see chart here) has also entered into correction mode, the Nasdaq Composite (see chart here) has been hit hard and the small-cap Russell 2000 (see chart here) is also witnessing a sharp sell-off.

Personally I believe a correction was needed because of how robotic the markets have acted. Stocks no matter what risks were out there behaved in a way never before seen. We have been in the strongest bull market ever and nothing over the past 12 years could slow this bull market down. Now I am not happy that it is a global health risk that’s the catalyst to put stocks in correction mode, but nonetheless this is where we find ourselves. Of course when fear is rampant in any market this is where opportunity can be found. I am not suggesting to jump in here because as we all know fear and/or greed can be excessive and markets tend to over do it when emotions take the lead over rational thinking. So when we get overextended to the upside or downside the first thing I look at is how the technicals look during extreme market moves.

When I now look at the technical shape of the markets at least at it pertains to the moving averages things do not look so good. The Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here) and the Russell 2000 (see chart here) have all breached their 20-day, 100-day and 200-day moving averages which are all seen as major support zones especially the 200-day. The Nasdaq Composite (see chart here) is the only major index that has yet to close below its 200-day. That said, all of the aforementioned indexes are oversold according to the relative strength index (RSI) which when we see the 20 value level hit on any stock or index, snap back rallies can and do occur. This type of market is great for traders if you are experienced enough to trade off of technicals, however for investors that have a long term view these type of market environments requires a lot of patience and keeping the emotions at bay. Let’s all hope that the spread of the coronavirus abates and that a vaccine becomes available as quickly as possible.

Good luck to all 🙂

~ George

It’s A Broken Record!

Posted on by George Mahfouz

It’s a broken record indeed! That is the continuing record breaking run on Wall Street. On Friday the Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here), the Nasdaq Composite (see chart here) set new all time highs. Seemingly, there is no stopping this record setting run that the markets have been on, at least for now. The latest catalyst was news out of Washington that the U.S. and China are close to coming to a “Phase 1” agreement on a trade deal. As I eluded to in my November 15th blog, new record highs could come into play by year-end if we see a trade deal happen. The caveat here is the deal is being titled as a “Phase 1” agreement and there is much more to agree upon to finish the deal out. That said, this is a definite step in the right direction and the markets seem to agree. I do want to keep my enthusiasm in check because of the volatility that continues to come out of Washington on this subject. We have all seen over the past several months tweets and statements out of Washington that we are close to a deal with China to only then wake up the next day to get the opposite statement either out of Washington or China. Phase 1 is a great step, but I am looking forward to the complete deal getting done and most likely that will yield to the first quarter of 2020.

In the meantime, investors are continuing to enjoy record highs and there doesn’t seem too much ahead between now and year-end that will change the course. The technical shape of the bellwether indexes remain intact. The Dow Jones Industrial Average (see chart below), the S&P 500 (chart) and the Nasdaq Composite (chart) are all trading below the 70 value level of the relative strength index (RSI). Also, each of these indexes are trading healthily above their 20, 50, 100 and 200 day moving averages.  

Paula and I wish everyone a very safe and happy holiday season.

~George

It's A Broken Record! - Paula Mahfouz