Recap: Week Ending November 8, 2013
Markets ended the week mixed on once again uncertain news of taper. The Dow Jones Industrials lead the way higher closing up 0.9% on the week; the S&P gained nearly half that up 0.4% on the week. The NASDAQ 100 index lagged on the week, closing in the red. The Toronto Stock Exchange, TSX, closed positive on the week. US stocks are experiencing very uncertain times regarding fed policy. It is believed by many that the most uncertain times are occurring in financial markets as the US Federal Reserve continues to threaten a possible slow down to their bond buying program, quantitative Easing (QE). Currently the Fed is buying bonds at a rate of $85B a month with the intention of keeping interest rates low. With interest rates at lows investors and businesses are able to refinance and expand their operations, in turn improving the economy. As the Fed threatens to slow down QE, both bonds and stock have sold off. It is believed by many investors that the massive rally this year in equities can be attributed to low interest rates. Once those rates rise many feel that sudden buying using “cheap money” will shut off, and a wave of selling will enter the market. Gold has sold off in reaction to a slowing of QE. As gold is a hedge against inflation, the amount of money circulation in the economy is expected to decline, decreasing the option for inflation. Recently the gold trade has been very technical and difficult as the outlook on the economy continues to flip flop. The next Federal Open Markets Committee, which is responsible for QE, will have their next meeting December 17th and 18th. It must be noted that this meeting will be the last meeting Chairman Ben Bernanke will be at the head of the US Fed. Many think that because this is chairman Bernanke last FOMC meeting that no change in policy will occur, and he will want to end his term on a positive note. The next chairman of the reserve has yet to be announced, however; Janet Yellen is expected to receive the position following an endorsement from President Obama.
On a technical view, both the Dow Jones and S&P 500 are at or near all time highs, signally potential downside. The market appears to focused on the extremes, with the last three trading days in the Dow having ranges of over 100 points in either direction. The NASDAQ 100 is not currently at its highs for the year as it lagged on Friday’s push to the upside. The Russell 2000, which represents a large basket of small cap stocks, has seen the most gains on the year, however, has recently experienced strong selling pressure. The divergent activity in the Russell maybe enough to spook out investors as it continues to sell off despite other majors pointing upwards. The push higher Friday was off of the Russell’s 50 day moving average, this average will be key support if the index does test support on the downside. The TSX had a relatively small trading range compared to its US counterparts. This narrow range comes at the top of a monster rally for the index in the month of October. The TSX continues to be divergent relative to gold if this continues the TSX may see a strong push to the downside.
This week Twitter began trading publically for the first time. The IPO was successful in comparison to Facebook which suffered majorly on its first day of trading. Unlike Facebook, the exchange did not experience any technical issues on the launch of the new security. Instead of the expected exchange, the NASDAQ, Twitter is listed on the New York Stock Exchange. The listing on the NYSE comes after many shut downs and technical issues with the NASDSAQ which is entirely digital. Twitter opened at $43.10, well above its expected open of $26.