Recap: Week Ending December 13, 2013

December 15, 2013

For the first time in many weeks, all the major market indices tracked by DeGroote MarketWatch closed lower. This move lower comes after a mammoth rally in equities during the past year. For the calendar year 2013, the Dow Jones Industrial Average has risen 22.98%, the NASDAQ Composite Index is rallied 36.48%, the S&P 500 has gained 28.29%, and the Toronto Stock Exchange TSX has rallied just fewer than 5%. The move this past week is one of the strongest moves to the downside equities have seen since the month of October. More importantly, it must be noted that global equity markets are moving in unison as previously noted. This in sync move can drive prices even lower as selling pressure hits various markets at the same time.

Activity in the markets appears to be muted as we enter holiday trade. Little economic data came out of both Canada and the US this past week. With such a lack of information, the markets appeared to sell off as the profit taking from this year’s rally continues. It must be noted that this week marked the rollover in US equity futures, rolling from the December contract to March, which has become the front month. As futures contracts expire, investors and traders must move to the next month in order to ensure they do not take delivery of the underlying asset. Rollover occurs every 4 months in US equity index futures. The rollover this quarter is extremely important as the market enters to new highs. Investors are given the question, do I rollover continuing my long position, or do I take profits and enter the short side of the market. It appears the more investors are rolling over short than they are long as selling pressure is seen in the market. The current pace of rollover is above its historic average, signaling some anxiety in investors.

Economic data in the upcoming week starts off slow but picks up substantially towards the latter end of the week. Monday the Foreign portfolio investment in Canadian securities will be published with a prior reading of $8.36B followed by US Net Long-Term TIC Flows for the month of October. TIC Flows prior reading came in at $25.5B. Tuesday the Canadian Manufacturing Shipments for the month of October will be released, the consensus reading is -0.3% from a previous reading of 0.6%. Manufacturing Shipments will be followed by the US Consumer Price Index for the month of November. The previous reading on the price index was 1%, and the consensus for the upcoming reading is 1.3%. Wednesday the quantity of economic data picks up as the Canadian Wholesale Sales will be released followed by the US interest rate decision and the FOMC economic projections. This upcoming interest rate decision and FOMC economic projections will be the last time Ben Bernanke will be allowed to make changes as he is leaving his job at the end of the month. Thursday US initial jobless claims for the week of December 13 will be released, the previous reading was 368k. The week will end off with a bang with the Bank of Canada Consumer Price Index Core and the US Gross Domestic Product Annualized being reported. The Canadian price index has a previous reading of 1.2%, and the US GDP has a previous reading of a growth of 2.5%.

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