technical

Nasdaq Closes At A Record High!

Posted on by George Mahfouz

Tech stocks have taken off this week due to their strong earnings results. Companies such as Netflix (NasdaqGS: NFLX) soared 18% today after the company reported better than expected subscriber growth. Also today and just after the close, Google (NasdaqGS: GOOGL)  too reported better than expected results with revenue coming in at $14.35 billion compared to $14.26 billion the street was expecting. In after hours trading Google is up over 10% or well over $70.00 per share. Thanks to Google’s earnings results, most other tech companies are also trading up in the after-hours session so it appears that the rally on the Nasdaq (chart) will continue at least through tomorrow.

On a technical note, I want to point to your attention how two of the most influential major averages held their respective 200-day moving averages recently. A little over a week ago the markets were roiled in the Greece debt drama as well as how China’s stock market was falling off a cliff. There was enormous uncertainty as to how Greece and even more so how China’s stock market would play out. This fear and uncertainty sent the Dow Jones Industrial Average (chart) and the S&P 500 (chart)  tumbling down toward and below their 200-day moving averages. It really only took a day for this key support metric to kick in and demonstrate its technical support influence. Since this brief but noticeable selloff occurred, both indices have snapped back and we now find the S&P 500 (chart) within 10 points of its all-time high. Some pundits did indeed expect that Q2 earning reporting season could be the catalyst to lift the markets out of the fears of Greece and China. And seemingly their expectations have been met. That said, there are many more companies set to report their earnings results over the next couple of weeks, with all eyes now focusing on how Apple (NasdaqGS: AAPL) will fare as they are set to report their quarterly report next Tuesday July 21st after the close. As with most earnings reporting seasons over the past few years, stocks have overall fared well and this time it appears well enough to break key index records.

Good luck to all 🙂

~George

Late April Sell-Off Wakes Up The Bears…

Posted on by George Mahfouz

Stocks sold off sharply on the last trading day of April. The Dow Jones Industrial Average (chart) fell 195 points, the Nasdaq (chart) closed down 82.22 points, the S&P 500 (chart) lost 21.34 points and the small-cap Russell 2000 (chart) finished lower by 26.83 points. The biotech sector has lead the charge in this most recent selloff with the most popular biotech ETF (Symbol: IBB) (chart) losing over 10 percent of its value since mid-March. Another factor in this sell-off is the sloppy earnings reporting season we find ourselves in. Just this week both Twitter (NYSE: TWTR) and Linkedin (NYSE: LNKD) surprised the street with their weak quarterly results and even weaker forward guidance. So the selling pressure is not just in the biotech space, it has now spilt over to the technology sector as a whole. That said, this morning there may be a bit of a respite with the futures market pointing up sharply.

Let’s take a look at the technical shape of the markets as we now enter into May. One troubling sign is the four major averages mentioned above have all breached their 50-day moving average line, with the small-cap Russell 2000 falling prominently below it. Let’s see if these key indices remain below this popular technical indicator for more than a few days. A one day breach does not necessarily mean a total technical breakdown however, another slight concern of mine is that these averages are not oversold yet according to the relative strength index or the RSI. Click here for the definition of the RSI. Now take a look at the charts of the Dow (chart), Nasdaq (chart), S&P 500 (chart) and the Russell 2000 (chart) and you will see at the very top of the chart the plot of the relative strength index and you will further see that these indexes have more room to go to reach the 30 value level of the RSI, which is the level that qualifies an oversold condition. Now throw into the mix that May is historically a weak month for equities and we indeed be in for some additional selling pressure.

In closing, I will re-visit the technical make-up of the markets in mid-May and see where there could be some buying opportunities. Good luck to all 🙂

~George

Interest Rate Hike Fears Spook Stocks…

Posted on by George Mahfouz

Since the release of the February labor market report, which was much stronger than the street expected, stocks have been on a wild ride. Triple digits gains and losses have occurred this past week with the Dow Jones Industrial Average (chart) In addition, the S&P 500 (chart), the Nasdaq (chart) and the small-cap Russell 2000 (chart) have all pulled back noticeably since the February jobs report was issued. So wait a minute, a strong labor market is good for the economy, hence, good for stocks too right? Logically speaking yes, but as it pertains to the Federal Reserve, a stronger labor market and a stronger economy gives them the green light to begin to raise interest rates.

This is what is now permeating through the stock market. The concern is that the Federal Reserve has enough data to begin to change their stance on their multi-year accommodative financial policies, policies that have benefited equities since 2009. We may not have to wait too much longer to gauge the Fed’s stance as it prepares for next week’s Federal Open Market Committee meeting. I think the anxiety we are witnessing may be a little exaggerated. It’s normal to have emotions play out and even take control over investors, however, people seem to forget that the Fed has been extremely cautious as to even eking out the wrong language in their official policy statements. I would not expect the Fed to shock the markets by raising rates too early or too aggressively. That said, I do expect volatility to continue and for markets to get “emotionally” charged. We could very well be in the midst of yet another dip back to the 200-day moving averages of the aforementioned key indices and should that occur, I would expect that buyers would come in bargain hunting. Over the past few years, the 200-day moving average has acted as significant support for these key indexes. The only difference and question now would be, is if the Federal Reserve indeed changes their position on interest rates, how well would this favorite technical indicator fare? Good luck to all and have a great week 🙂

~George

 

As Expected, New Market Highs Continue…

Posted on by George Mahfouz

In my previous blog, I eluded to the notion that the bulls would remain in charge for the foreseeable future and sure enough, in charge they are. Last week, the Dow Jones Industrial Average (chart), the S&P 500 (chart), and the small-cap Russell 2000 (chart) all hit record highs while the Nasdaq (chart) continues to gravitate toward the 5000 level. This market has no quit. With the majority of the S&P 500 companies reporting their Q1 earnings, overall earnings growth was relatively good, topping expectations. Meanwhile, Fed Chair Janet Yellen stated at her biannual meeting with the Senate Banking Committee that the Fed will be patient before any change in interest rate policies and that guidance would be given prior to any such action. This, along with the no real surprises coming out of earnings reporting season and the U.S. labor market showing a continuation of job growth, without question has played a role in the continuing strength of the U.S. stock market.  

Okay, all clear right? Well, we all know there is always the other side to the story and markets do not go up in a straight line forever. Without many upcoming catalysts in March, or in any given time period where catalysts are few, I always refer to the technical shape up of the markets to see if overbought or oversold conditions exist. As you all know by now, one of my favorite technical indicators to gauge whether or not the markets are in extreme conditions, is the Relative Strength Index. If you go back historically and look at the RSI indicator of any given stock or index, you too can see the reliability of this particular indicator when it reaches overbought or oversold conditions. Click on this link to get the definition of the RSI. Now I am not saying to completely base trading or investment decisions off of this technical indicator or any other technical indicator for that matter. However, for me personally this has proven to be a trusted guide and I do include this analysis when viewing the current market environment. That said, we are beginning to look a little overbought and I am going to look for pullbacks before I entertain any new positions in equities. Good luck to all and I wish all a very prosperous month 🙂

~George

Overbought Conditions and Iraq Weigh In On Stocks…

Posted on by George Mahfouz

After the Dow Jones Industrial Average (chart) and the S&P 500 (chart) set all time highs last Monday, the conflict in Iraq and overbought conditions spun a modest pullback in the key indices. Although some are attributing the selling pressure to the unexpected defeat of the House majority leader Eric Cantor (R., VA).  For the week, the Dow Jones Industrial Average (chart) lost 148.54 points, the tech ladened Nasdaq (chart) -10.75 points, the S&P 500 (chart) -13.28 points and the small-cap Russell 2000 (chart) closed slightly lower on the week. What has been eye popping to me is how complacent and tranquill market participants have been. Over the past several months and especially the past couple weeks, investor sentiment has been extremely bullish which in turn has sent the VIX to multi-year lows. The VIX, also know as the fear gauge, is used as an indicator of investor sentiment. Recently the value of the VIX (chart) hit a trough low of 10.73, its lowest level since 2006. Out of all of the market events that are going on, this indicator has me concerned more than any other. As much as I have been bullish on the overall markets, when sentiment gets this comfortable and the VIX trades this low, historically markets set up for a pullback or even a correction of sorts.

This set-up is just what both the bears and the bulls have been waiting on. I personally have been tempted to short this market considering the historic record breaking run up stocks have had. But I have learned a long time ago is you don’t want to step in front of the Federal Reserve or a freight train either, which is what this market has been. So my preference is to be patient, wait for whatever pullback(s) or correction we may get, and then begin to scale in on certain long positions. I will refer to the technical set-ups of indexes and certain equities to assist me in establishing entry points. Click here to see what I look at pertaining to technical analysis. Now whether you are a technical trader or fundamental investor, the fact remains that markets remain awash with liquidity thanks to the Fed, and there really is no where else to get the alpha that hedge funds and institutional investor alike need for their performance mandates. So knowing that these institutions really dictate the ebbs and flows of the markets, my bets will continue to align with theirs and over the past few years whenever we do experience an increase in market volatility and market pullbacks, a buy signal usually ensues. Please remember it is always wise to at least consult with a certified and trusted financial advisor(s) before you compose any investment strategy or make any investment decisions. Good luck to all.

Happy Father’s Day 🙂

~George

Where are they now?

Posted on by George Mahfouz

Just a mere 2 weeks ago the pundits came out in full force declaring the end of the bull market or at the very least a 10-20% correction for stocks. Fast forward to today and we find ourselves yet again in record breaking territory. For the month of May, the Dow Jones Industrial Average (chart) closed up 0.82% at a new record closing high of 16,717.17, the Nasdaq (chart) closed the month up 3.11% at 4242.61, the S&P 500 (chart) closed at an all time record high of 1923.57 and the small-cap Russell 2000 (chart) closed out May up 0.68% at 1134.50.

In my previous blog I wrote about certain experts calling for an imminent correction in which I thought was a bit pre-mature considering how the Federal Reserve continues to accommodate the economy and the markets. I understand where the bear camp is coming from, as soon as the Fed begins to hike interest rates, we should indeed see the markets react accordingly. The problem with the sell-side thesis is this just isn’t happening now. Policymakers continue to reiterate their stance on interest rates which are to remain low for the foreseeable future as the bond tapering program continues and ultimately exhausts itself, which could be by year-end. Then I think bear growl may have a lot more punch to it.

So how do we continue to make money in an environment that continues to make record highs seemingly with no end in sight? In addition to honoring the power of the Fed, I will continue to refer to the technical shape of the key indices to spot opportunities as we wait for the second quarter to wind down. With the incessant “melt-up” of the markets, one may think that stocks maybe overbought a bit. This most certainly is the case with select individual stocks, however, as I look at the closely followed Dow (chart), Nasdaq (chart), S&P 500 (chart) and the Russell 2000 (chart), none of these indexes are in overbought territory at least according to their respective Relative Strength Indexes. Remember, the Relative Strength Index (RSI) is a technical indicator which signifies whether or not a stock or index is overbought or oversold, with the 70 plus value level indicating an overbought condition, and the 30 minus level indicating an oversold condition. Click here for the expanded definition of the RSI. In addition, all of the moving averages are intact for the aforementioned indexes. Click here for the moving averages definition.

So as we enter the month of June, I am expecting the continuation of the “melt up” that has occurred so far this year with modest pullbacks. Of course as we witnessed in mid-May, sentiment can change quickly and the pundits and press for that matter can spread fear like wild fire, and should this be the case, I will prepare myself to add to certain long positions to take advantage of any potential weakness. As always, it is best practice to consult with a trusted financial advisor(s) before making any investment decisions. Good luck to all 🙂

~George

 

 

A Ho Hum Q1…

Posted on by George Mahfouz

It doesn’t seem like it, but for the first quarter of the year the four major averages were essentially flat. For the quarter, the Dow Jones Industrial Average (chart) closed basically unchanged, the tech heavy Nasdaq (chart) finished up just over 1% percent, the S&P 500 (chart) +2.2% and the small-cap Russell 2000 (chart) closed out Q1 slightly up. Quite an uneventful quarter at least from a P&L standpoint especially considering China’s economic slow down and the Ukraine crisis that unfolded in the quarter. There was a period in late January in which we saw a sharp 5% decline only to be met with unconditional support, followed by a rally which led the markets back to almost unchanged on the year.

As I always do at the end of each quarter, I look at the technical conditions of the aforementioned indexes and how they are shaping up going into a new quarter. There are plenty of market technicians out there that use a variety of techniques and indicators to identify trends and where the markets may be headed. My preference is to keep things as simple as possible when conducting technical analysis. As you may know by now, two of my favorite technical indicators are the  Relative Strength Index also know as the RSI and the moving averages. Part of the reason why I prefer these two reliable indicators over most is it is now seemingly more than ever computerized trading models are emphasizing the RSI and the 20-day, 50-day, 100 and 200-day moving averages in their models. These indicators also have been a long time favorite of institutional investors. So it’s no wonder that when the Relative Strength Index (RSI) is indicating an overbought or oversold condition in an index or equity, more times than not, the asset finds support and changes direction. The same can be said for the moving averages, whenever a stock or index bumps up against or comes down to its moving average, typically the stock or index finds support or resistance.

Let’s break this down in more detail starting with the (RSI), The RSI is designed to demonstrate whether or not an index or equity is overbought or oversold, depending on certain value levels. According to the RSI principle, the 70 value level or greater, is an overbought condition and the 30 value and below is an oversold condition. Looking at the aforementioned indices now, there is no indication of an overbought or over sold condition. However, both the Nasdaq (chart) and the small-cap Russell 2000 (chart) are trading and have closed below their 50-day moving averages. These two indices have been leading the markets higher and now comparatively speaking, they have begun to lag, a potential short term ominous sign. Now it has only been a couple of days that both of these indexes have been trading below this support line so we will have to wait and see if this turns into a longer term trend.

That said, we will not have to wait much longer. This Friday’s jobs report will shed light as to the health of the labor market and don’t look now but Q1 earnings reporting season is on deck. Without a doubt, Q1 earnings reporting season will be placed under a microscope to see if corporate America and the markets deserve their current valuations. Personally, I think a rather healthy pullback may be in the cards for equities and if so, most likely, the trend of unconditional support will come back into the markets as well.

Good luck to all. 🙂

~George

Dow 16000+, Nasdaq 4000+, S&P 500 1800+, Russell 2000 1100+! Records Continue to Shatter!!

Posted on by George Mahfouz

As we are now in the final month of the trading year, some of the top key indices  continue to set records. For the month on November, the Dow Jones Industrial Average (chart) finished up 3.48% closing at 16086.41, the tech-heavy Nasdaq (chart)  was up 3.57% closing the month at a 13 year high of 4059.88, the S&P 500 (chart) advanced 2.8% in November closing at a record high of 1805.18 and the small-cap Russell 2000 (chart) closed the month of November up 3.88% at 1142.89, yet another record. I think one of the reasons why the markets continue to lift into year-end is that most pundits do not believe that they can. There is not a day that goes by where “bubble” is not one of the top headlines in print, online or on the tube. That said, in my last blog I highlighted the current technicals of the top key indexes and in particular the Relative Strength Index (RSI) technical indicator. Well in the last two weeks or so both the Dow (chart) and the Nasdaq (chart) have now breached the 70 value level with the S&P 500 (chart) and the Russell 2000 (chart) not too far behind. The 70 value level according to one of the RSI principles is an overbought condition. If you go back historically and analyze what typically happens when an index or equity for that matter enters into an overbought condition, the majority of the time a “reversion to the mean“ occurs. Now this is not to say that overbought conditions in an index or stock instantly changes course, however, typically at some point in time a reversion does indeed occur. Now with that said, I have seen indexes and stocks remain overbought for weeks and months at a time before a natural reversion occurs, but it’s something to keep an eye on especially if you have long term gains in your portfolio or if you are a trader and have the gumption to consider a short strategy in this parabolic market.

As this broad rally continues and as we are now in overbought conditions in certain key indexes, one has to wonder what will it take for a “reversion to the mean?” to occur? At this point in time in the calendar year, I am not sure? With only one month left to go in 2013 and with third quarter earnings reporting season behind us, a Federal Reserve that continues to be extremely dovish and fund managers year-end window dressing upon us, whatever pullback (if any) that may occur between now and year-end should be met with anxious support. I just do not see any type of a imminent catalyst that would jar these markets significantly, unless some unforeseen macro/geopolitical event happens, which of course is always a possibility. Should an unexpected negative geopolitical event occur, this in my opinion would be one of the only conditions between now and year end that could create a “reversion to the mean” type scenario that most bears have been waiting on.

Good luck to all 🙂

~George

Technically speaking…

Posted on by George Mahfouz

Stocks finished lower for the week as volatility continued to rise. For the week, the  Dow Jones Industrial Average (chart) closed down 1.17%, the Nasdaq (chart) -1.32%, the S&P 500 (chart) -1.01% and the small-cap Russell 2000 (chart) closed the week lower by 0.63%. Is this bull market beginning to show signs of fatigue or is this just a typical pre-summer pullback? Let’s take a look at the technical picture of these key indices and see what’s going on there.

Market technicians use a multitude of indicators to discern potential support or resistance levels. My preference has always been to keep things as simple as possible when analyzing charts of stocks or indices. The two indicators I pay the closet attention to is the Relative Strength Index also know as the RSI and the moving averages. Out of dozens of technical indicators that are available, you may ask why do I prefer these particular indicators? The answer simply is that high profile market technicians,  computerized trading models and certain institutional investors utilize them.  Time and time again when I see that Relative Strength Index (RSI) is indicating an overbought or oversold condition, the majority of the time the asset or index reverts to the mean. Same rings true with the moving averages, whenever a stock or index bumps up against or comes down to its moving average, typically the stock or index finds support or resistance.

Let’s break this down in more detail. Pertaining to the (RSI), The RSI is designed to demonstrate whether or not an index or equity is overbought or oversold, depending on certain value levels. According to the RSI principle, the 70 value level or greater, is an overbought condition and the 30 value and below is an oversold condition. As of right now the aforementioned indices are hovering around the 50 value level which is not indicating an extreme condition either way. Looking at the moving averages these indices remain above their 50-day moving average and as you can see with the Dow Jones Industrial Average (chart) and S&P 500 (chart), these indexes have bounced off their 50-day moving averages/support lines three times over the past week or so which clearly demonstrates the potential of the power and precision of this particular technical indicator.

So technically speaking, I see nothing that would indicate an extreme condition of these indexes and as long as their are no major surprises out of the FOMC meeting next week, we should see smooth sailing heading into the summer. Good luck to all.

Have a great weekend 🙂

~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