Recap: Week Ending February 7, 2014

February 9, 2014

North American equities ended the week in the green after what has been a roller coaster ride for the month of January. So far for the 2014 calendar year the Dow Jones Industrials have moved down 4.7%, the S&P 500 is lower by 2.8%, the NASDAQ Composite Index has fallen 1.2%, and the Russell 2000 small-cap index closed 4% lower. This week marks one of the largest gains for many US equity indexes. With this being said, the same cannot be said about the Toronto Stock Exchange which has seen better weeks so far this year. Despite a poor performance with its counterparts in the US, the TSX has been able to produce gains for the year so far. So far this year the TSX has added just over 1.5%.

Technically speaking, the TSX looks great on a daily chart with the last 4 trading days producing large gains for the index. The TSX bottomed the recent swoop down just under its 50 day moving average, which is current sitting at 13,539.62. On the upside, the next target for the benchmark Canadian index is just under the 14000 levels. It appears the TSX is on pace to hit this target within the upcoming weeks as the index is currently sitting at 13,786.50. The TSX has been propped up by the current bid activity in gold. Despite producing gains for the year so far, gold has begun to trade sideways as the outlook of the global economy appears to be up in the air. On a technical level, once gold crosses the $1290 mark, the potential for upside is high with further targets being in the upper $1350’s.

Looking at the charts of US indices, it is clear that volatility has once again entered the markets. After falling below its 200 day moving average, the Dow Jones was able to catch bid and push higher towards at appears to be a value area, or sideways trade zone. Areas of horizontal sideways trade create value areas which attract price once they have left them. The Dow Jones appears to be below the midsection of the value area created in the mid 15,900’s. Like the TSX, the Dow has caught a strong bid the last 4 days and has pushed well off of its extreme lows. Similar can be said about the S&P, however, the downfall has not been as extreme. The next upside target for the S&P is the 50 day moving average, which is currently sitting at 1809.35. The NASDAQ 100, on the other hand, is well above its 50 day moving average and appears to be targeting a high of 3,623.31 which is made towards the latter half of January. The US bond market was looking hot the last few weeks; however, as a bid began to hit equities the buying pressure fizzed out of bonds. Early last week the US 30 yr topped out just under the 200 day moving average, which is currently sitting at 133.98. If selling returns to US equities, a strong bid is expected to hit the bond market pushing past the 200 day moving average and into new territory for the year.

The week was closed out with both the US and Canada reporting their monthly unemployment rates for the month of January. The Canada rate dipped 10 basis points to 7%, beating the consensus of 7.1% and the previous reading of 7.2%. Meanwhile, the US also reported a drop in unemployment as the rate fell from 6.7% to 6.6%. The report beat the consensus which was pegged at unchanged from the previous month at 6.7%.

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