technical support levels

New Week, New Record Highs?

Posted on by George Mahfouz

New week, new record highs? The Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) are fast approaching all-time highs. Both of these major indexes have been on a tear of late and could see new record highs this upcoming week. However, breaking news came out yesterday that Saudi Arabia has shut down half of its oil production after drones attacked the world’s largest oil processing facility. This attack will impact 5 million barrels of daily oil production. One sector that will certainly be affected is the energy space. The price of oil is now expected to skyrocket at least here in the short term. I am not sure if the markets will shrug this dynamic off, but I do expect energy stocks to outperform.

As I take a look at the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) both of these indexes appear to be ready to breakout and join the Dow Jones Industrials and the S&P 500 most recent performances. If the news out of the middle east has a negative impact on stocks, there are plenty of technical support levels that would come into play. All of the aforementioned key indexes are trading comfortably above their 20-day, 100-day and 200 day moving averages. During the month of August the 200-day moving average provided major support multiple times. As I look at the relative strength index to see how close we are to overbought conditions, there is still plenty of real estate before we see the 70 level of the RSI. So technically speaking the indexes appear to be in relatively good shape.

Without question the oil markets and the energy sector will be the focus this week. I am also curious to see how the overall markets react to this latest development out of the middle east. Good luck to all 🙂

~George

 

 

Gold gets pummeled!

Posted on by George Mahfouz

The price of gold fell below $1,400 an ounce for the first time in over two years. In fact, gold and silver both have lost over 10% of its value in the past two trading sessions. Panic selling has set in with not only key technical support levels being shattered, but fears that Cypress and other European countries may have to sell their gold reserves in order to generate liquidity. In addition, slower than expected Q1 growth out of China also added to the panic selling. This capitulation type selling has spilled over to the majority of the gold miners with the gold miners ETF (Symbol: GDX) chart losing over 20% of its value over the past couple of trading sessions. Folks this type of panic selling is what can happen once technicals and fundamentals breakdown and fear takes over. In looking at the most popular ETF that tracks the price of gold (Symbol: GLD) chart, it appears that a multi-year support zone could be found in the $128.00 area which is now only a few dollars away. However, when you have panic selling, margin call selling, institutional and hedge fund selling, all bets are off pertaining to technicals until the smoke clears and cooler heads prevail.

As far as the equities markets are concerned, this is a big week for Q1 earnings reports. We will hear from the likes of Coca-Cola (NYSE: KO), Goldman Sachs (NYSE: GS), Johnson & Johnson (NYSE: JNJ), Intel (NasdaqGS: INTC) Yahoo (NasdaqGS: YHOO), Bank of America (NYSE: BAC), American Express (NYSE: AXP) and Ebay (NasdaqGS: EBAY) just to name a few.

Good luck to all and have a great week 🙂

~George

Unemployment report send equities spiraling!

Posted on by George Mahfouz

As if the European crisis wasn’t enough. Yesterday’s unemployment report was a stark reminder that our own economy is by no means out of the woods yet. U.S. employers added only 69,000 jobs to their payrolls, far less than the 150,000 that most economists projected. The unemployment rate also ticked up to 8.2%. This sent the markets into a tailspin with the Dow Jones Industrial Average (chart) losing 274.88 points, the Nasdaq (chart) -79.86, the S&P 500 (chart) -32.29 and the Russell 2000 (chart) -24.40 points. Couple yesterday’s tape with the 6%+ decline for the key indices in May, and you have almost a 10% correction in a month and a day!

Too far too fast? Not so sure? Unless the governments and central banks unite over this weekend and come up with some sort of an additional stimulus plan, we could be in for further downward pressure on Monday and the rest of next week. I am not suggesting that the central banks should step in every time we have a market meltdown, but with the incessant debt crisis in Europe and now our own economy faltering, there may not be another alternative.

As an investor/trader in this type of market environment, one must exercise extreme caution. For me it would be easy to say “well the markets have now officially broken down and broke through key technical support levels, let’s go short” and probably that strategy would work. However, I have seen this movie before in whereas technically and fundamentally speaking equities appear to heading a lot lower. Then you wake up one morning and indeed the governments from around the world come up with a blanket plan to place a floor under the markets and then the massive rally begins.

Point being this, we live in a very different world today and what appears to be undervalued or for that matter overvalued in the marketplace, it really doesn’t matter. So long as you have accommodative Fed policies, the markets will trade according to the central bank(s) guidelines, not on fundamentals. Good luck to all.

Have a great weekend 🙂

~George