Is The Bounce Real?

After the major averages breached their 200-day moving averages, the question now becomes, “is the bounce that is currently underway real? Last month I wrote about how the 200-day moving averages were in play. Meaning we could see either a bounce off of the 200-day or a breach of it with markets heading lower. Despite trying to bounce off of their 200-day, ultimately in the second half of October 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 here and below) began their decent and breached this key technical support line.

Now the question becomes “can the rally we are seeing this week continue?” Well if you look at the latest GDP report and how our economy grew in the 3rd quarter, it would be easy to assume the markets will continue rallying. The U.S. Gross Domestic Product aka the GDP is a monetary measure of the market value of all final goods and services is a specific time period. In this case it was the 3rd quarter of this year. The U.S. economy grew faster than expected in Q3 coming in at 4.9%. This increase was due in part to consumer spending, increased inventories as manufacturers gear up for the upcoming holiday season and government investments. As mentioned above, it is easy to assume that the markets will continue rallying, however, there is a catch.

With our economy showing this type of strength, this will most likely grab the attention of the Federal Reserve as it pertains to their current interest rate policy. It’s no secret that the Fed has been raising interest rates to stem inflation. Well, when you have such a strong GDP report such as the one that was just issued, this could impact the Fed’s decision with continuing to raise rates, or at the very least maintain the current interest rate dynamic. Markets tend to want to see interest rate stability before any sustainable rally ensues. That being said, the recent interest rate hikes may be enough to weather the stronger than expected economy we saw in Q3.

Good luck to all 🙂

~George

Is The Bounce Real? - Paula Mahfouz

 

Finally Congress Gets a Deal Done!

After 16 days of a partial government shutdown, Congress finally came to terms to reopen the government and raise the debt ceiling. Talk about waiting until the last minute! Needless to say, stocks over the past couple of weeks have experienced an increase in volatility with triple digit gains and losses during the shutdown. Despite the turmoil in Washington, the Dow Jones Industrial Average (chart) on Wednesday closed up over 200 points, the Nasdaq (chart) managed to close at a 13 year high, the S&P 500 (chart) is nearing its all time high and the small-cap Russell 2000 (chart) finished the trading day at an all time record. Now the street can focus on Q3 earnings reporting season and so far, not so good.

After the close yesterday, bellwether International Business Machines (NYSE: IBM) shocked the street by missing revenues by almost $1 billion dollars and is down nearly seven percent in pre-market trading. Also after the close yesterday, Ebay (NasdaqGS: EBAY) reported in-line revenues, however guided lower for the upcoming holiday season. With Q3 earnings reporting season kicking into to high gear, I am questioning whether or not this will become the trend for the quarter? Most analysts do not expect this to be a robust quarter for corporate America, so now the question becomes does the imminent pullback in stocks become a buying opportunity before year end? Quite frankly with the headline risk out of Washington seemingly over for now, I beleive that the trend of pullbacks being bought will continue between now and year-end. I will look at key technical support levels for possible entries, and on the S&P 500 (chart) the 1680 zone appears to be the first level of support, which also happens to be its 50-day moving average, followed by the 1620 area. What gives me this vote of confidence of a continuing bull market into year-end is not necessarily how corporate earnings will fair, but the fact that the Federal Reserve continues to promise that it will do whatever it takes to support the economy, hence the bull market should continue. That said, when the Federal Reserve begins to taper, this will be the time that corporate America will truly need demonstrate top-line growth. In closing, no matter how your portfolio is positioned, it is usually the best practice to implement some type of protective stop initiative and of course always consult with a certified financial professional(s) while considering any investment strategy. Good luck to all. 🙂

~George

 

Tough week for stocks…

Earnings reporting season is in high gear and the markets are not liking what they are seeing. For the week, the Dow Jones Industrial Average (chart) fell 1.77%, the Nasdaq (chart) -0.59%, the S&P 500 (chart) -1.99% and the small-cap Russell 2000 index (chart) declined 2.89%.

For the most part, corporate America continues to show a slowdown in their businesses and companies are also providing tepid outlooks in the near term citing the uncertainty of the pending fiscal cliff, and the expiration of the Bush era tax cuts. Even tech-titan Apple (NasdaqGS: AAPL) guided with an outlook that caught the street off guard. Despite the disappointing earnings reporting season so far, the key indices have managed to remain above their respective 200-day moving averages. The 200-day is one of the most closely watched key technical support indicator that market technicians and institutional investors respect.

Next week, Q3 results will continue to pour in so I expect that the 200-day will once again be tested. If this is the case, and this key technical level can hold, we just may make a run into the end of the year? Good luck to all.

Have a great weekend 🙂

~George