Recap: Week Ending December 6, 2013

December 8, 2013

Markets this week sold off on what could be considered some moderate profit taking. The profit taking comes after the Dow Jones Industrial Averages has rallied almost 9% since the lows it made in mid October. The gains have been even larger in the NASDAQ 100 which has seen an 11.5% gain since mid October. After the S&P 500 broke the 1,800 level, a historic high, equities have not been able to maintain the rate of upside momentum. The S&P traded sideways above the 1,800 mark for more than 5 trading days. Similar can be said about the Dow Jones. The 16,000 levels acted as strong resistance, however, after testing that zone for 4 trading days the Dow successfully broke it. Whole number levels such as the 16,000 mark in the Dow and 1,800 handle in the S&P have nothing but significant meaning. Many investors like to believe that they have some significant level; however, in the end they are just another number. After selling off strong in the start of the week, US stocks were able to catch a strong bid on Friday following the unemployment figure release. US unemployment beat expectations of 7.2% coming in at 7%. The figure is nothing but good news for the US economy. The day got even better following the release of the Reuters/Michigan Consumer Sentiment Index which came in at 82.5, beating expectations of 76 and the previous reading of 75.1. The release of these figures were able to propel the Dow Jones up 198 points, easing some of the losses made on the week. The Canadian unemployment was a different picture, coming in at unchanged from the previous 6.9% reading. The expectation was 6.9%. The TSX was not able to rebound as much as its US counterparts Friday, only closing up 0.6%. Monday the TSX opened at its 50 day simple moving average, an area for key support. The TSX has sold off roughly 2.3% since making new highs for the year in the middle of November. The strong sell off this week in gold did not provide back support for the bulls in the TSX as well. Both stocks and indexes have become very technical as they have begun to trade lower and enter into areas of past trading history. It is difficult to technically analyze securities when they trade in all time highs since there is no price action in these uncharted areas.

For many weeks, we have been mentioning the taper, or slowing of the current bond buying program, Quantitative Easing. It appears that the dreaded taper is expected to begin within the next few US Federal Reserve meetings. With this theory in play, despite any good news, US stocks continue to rally. In recent months, good news was bad news. The market came to this notion as any good news would signal gains for the US economy, leading to a slowing or taper of QE. The next meeting will be the last one where Ben Bernanke, the current chairman will be present. Janet Yellen is the incumbent chair to the US central bank. On the flip side, many believe that Bernanke will not slow QE on his final meeting, and many do not expect Yellen to make a change at her first meeting. With this theory, some expect that the taper will not happen to possibly March when Yellen’s second Federal Reserve Open Market Committee, FOMC, will occur.

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