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Stocks Are Back!

Posted on by George Mahfouz

Since losing over 10 percent of their values and going into correction territory earlier this year, the major averages now find themselves almost back to par. Year-to-date the Dow Jones Industrial Average (chart)  is only down around one percent, the S&P 500 (chart) is also lower by around one percent, the Nasdaq (chart) on the year has gained back over half of its losses and the small-cap Russell 2000 (chart) is lower by 4.5%. Since this bull market began over seven years ago, time and time again stocks have demonstrated astounding resilience. Seemingly every time there is a sell-off, willing buyers are ready to step in at varying support levels and buy up equities.

Today the Federal Reserve left interest rates unchanged and actually slashed their forecast to project only two additional rate hikes for the rest of this year versus the four rate hikes they had originally targeted. Stocks initially popped on the news and only one can conclude that the continuing accommodating monetary policies not only here in the United States, but from around the world is most likely the reason why this seven year bull market continues.

That said, the aforementioned indices are approaching overbought conditions according to the relative strength index. Remember the RSI is one of the favorite technical indicators by market technicians, certain algorithmic programs and institutional investors alike. The relative strength index measures and compares the size of moves in a selected period of time and according to the RSI, the 70 or greater value level signals an overbought condition and the 30 value level or lower indicates an oversold condition. Keep in mind stocks and/or indexes can remain overbought or for that matter oversold for an extended period of time. Currently the Dow Jones Industrial Average (chart) is almost touching the 70 value level and the other indexes are not too far behind. Of course this is only one of many technical indicators that traders and investors utilize, but I have found over the years the RSI is one of the more reliable indicators out there.

Good luck to all 🙂

~George

Record Closing High For The S&P 500!

Posted on by George Mahfouz

Despite choppy trading for most of the week and weak economic data being released, the S&P 500 (chart) closed the week out at a record closing high of 2122.73. The Dow Jones Industrial Average (chart) is now only a mere 16 points away from its all-time high of 18,288.63, the Nasdaq (chart) appears to be closing in on its record high of 5119.83 and the small-cap Russell 2000 (chart) is attempting to claw its way back to record territory.

I thought you were supposed to “sell in May” and go away? Apparently not! However, I will say this, these records that are occurring are happening on lighter volume than I would want to see to validate the most recent price action. Nonetheless, you cannot deny the incessant strength that the markets are showing. Not less than two weeks ago it appeared that we might of been en route to the 10% correction or so that had been chattered up by the pundits. In early May, the S&P 500 (chart) had breached its 50-day moving average only to snap back and set a new record closing high yesterday.

Speaking of the moving averages, the aforementioned key indices are now comfortably trading above their 50-day moving averages with the exception of the small-cap Russell 2000 (chart). The Russell yesterday did closed right at its 50-day. We will see next week if this index can join the other major averages and reclaim its 50-day moving average and close in on its record high. Now let’s take a look at the Relative Strength Index which another favorite technical indicator of mine. The RSI is a technical indictor that demonstrates whether or not a index or stock is oversold or overbought, click here for the complete definition of the RSI. Even though we are at record highs, none of the major averages are in overbought territory according to the RSI. Add to the mix that next week will lead up to Memorial Day weekend and volumes should begin to decrease, I do not see any major catalyst that would interfere with the most recent upward trend of the market.

Speaking of Memorial Day, both Paula and I wish everyone an upcoming safe Memorial Day holiday weekend and let’s not ever forget all who had bravely served our country.

~George