Washington

Impressive resilience…

Posted on by George Mahfouz

Despite the incessant flow of “fiscal cliff” news from all of the media outlets, stocks continue to hold their own. For the week, the Dow Jones Industrial Average (chart) closed up 1%, the S&P 500 (chart) + 0.13%, the Nasdaq (chart) -1.07% and the small-cap Russell 2000 (chart) finished the week flat. Not too shabby considering all of the fear and uncertainty surrounding the fiscal cliff and that Washington has not really progressed towards a deal.

With only a few weeks left in trading year and the fiscal cliff deadline, what is an investor or trader to do? Well if you are a trader you should love this type of environment. I am expecting volatility to pick up steam between now an year end. This should present larger market swings and provide excellent trading opportunities both on the long and short side. If you are an investor you may want to sit it out until we get a deal out of Washington. I remember the days when you would make investment or trading decisions based on fundamentals and technical analysis. Now seemingly the biggest factors are whether or not the central banks will continue to support the markets and whether or not Washington can get along. Needless to say, this dynamic has placed additional uncertainty on the markets and investors or traders now have to add this in the mix of their decision making processes. Good luck to all.

Have a great weekend 🙂

~George

5% haircut since election day…

Posted on by George Mahfouz

One can surmise that the markets have most certainly voted! Once again stocks sold off this week in light of the fiscal cliff fears and whether or not Washington will be able to get a deal done. For the week, the Dow Jones Industrial Average (chart) fell 1.77%, the Nasdaq (chart) -1.78%, the S&P 500 (chart) -1.45% and the small-cap Russell 2000 (chart) closed lower by 2.36%. There was a bit of reprieve from the selling pressure yesterday after both sides of the aisle came out of their first formal fiscal cliff meeting and indicated progress was being made. This was enough to help the aforementioned indexes to close in the green on Friday.

The market climate that we are now in reminds me of last summer when Congress was battling it out over the debt ceiling crisis and how the key indices were down close to 10% in a short period of time. Back then market volatility was historic while the politicians were duking out that crisis. Although stocks are certainly in correction mode, what I am not seeing this time is enormous volatility. Let’s take a look at the VIX index (chart). The VIX, also known as the fear gauge, is used as an indicator of investor sentiment. Right now the value of the VIX (chart) is not indicative of extreme panic in the marketplace especially when you compare it to last summer. Hopefully Washington can come up with a solution to resolve the fast approaching cliff which would restore confidence and calm the markets. Good luck to all.

Have a great weekend 🙂

~George

Post election drubbing!

Posted on by George Mahfouz

Stocks were slammed this week after the results of the 2012 presidential and congressional elections. In fact, it was the worst performing week for equities in months. The Dow Jones Industrial Average (chart) lost 2.1%. The Nasdaq (chart) -2.6%, the S&P 500 (chart) -2.4% and the small-cap Russell 2000 (chart) finished the week lower by 2.4%. With the election producing essentially no change in Washington, fears of the fiscal cliff playing out and much higher taxes took center stage and sent the markets spiriling. Furthermore, all of these bellwether indexes are now trading below their respective 200-day moving averages. For most market technicians and certain institutional investors, the 200-day moving average is a key technical metric that is relied upon as to the future direction of stocks or indexes. Personally, I would need to see several days of trading and closing below the line in order for me to completely change my view of where stocks may be headed.

Now that the election is behind us, we can all now begin to focus on not only what Washington will or will not do, but what really is happening behind the scenes of the economy and corporate America. Q3 earnings reporting season is winding down and as expected corporate profits have been affected by the slowing global economy. Between now and year end, I will be paying much closer attention to the economic numbers here and abroad, and even closer attention to the underlying technicals of the markets, which are beginning to show some cracks. As previously stated, in my view a couple of days of the indexes trading below the 200-day does not concern me too much, however, if we see a repeat performance next week with stocks continuing to decline, we very well may be in for a meaningful reversal that the bears have been waiting on. Good luck to all.

Have a great weekend 🙂

~George