Recap: Week Ending February 14, 2014

February 17, 2014

Equities in North America rallied on the week in what looks to be an attempt to breakthrough the past resistance made at previous all time highs. The NASDAQ Composite Index was able to close at its highest level since late 2000. On an interesting note, the usual strong holds of the market lagged in compassion to those sectors which have recently taken a beating recently. Both the financial and transportation sectors lagged behind in the past weeks rally. Taking the lead were the beaten down healthcare, energy, and even consumer discretionary which has recently taken a large hit on earnings. Despite the aggressive move to the upside, trading volumes on the New York Stock Exchange are below their usually daily averages. Friday only 609 million shares were traded; this is the lowest volume since January 3rd of this year.

Tuesday Janet Yellen addressed the market for one of the first times since being sworn in at Chairwomen of the US Federal Reserve.  The news conference was lackluster and did not show any surprises which many expected to see. Yellen announced that the Fed would continue with the current economic policy set by Ben Bernanke before leaving office. Despite such negative comments towards the US Quantitative Easing program, stocks continued to rally into new highs for the week. As news of the continued pace of tapering broke, bonds sold off even more. Such news is not good for bonds as it means that the rate of bond purchases is going to continually decrease at a consistent rate. The real winner from the Yellen testimony is gold which has been up 6 out of the last 6 trading days. The strong bid in gold was increased following Yellen’s testimony as she hinted that inflation is slowly creeping back into the market. Traders understood this from the notion that the taper of Quantitative Easing will continue at its current pace. Friday gold close up $18.80 to end the week at $1318.90. This close in gold is significant as it is the first time the precious metal broke through its 200 day moving average since this time last year. This is one of the first testimonies Chairwomen Yellen has made before the House Financial Services Committee. As her time in office continues, more change can only be expected.

Despite poor economic data later in the week, US stocks continued to rally. The notion behind this is that as poor economic data is released, the rate at which the US Federal Reserve slows its bond purchasing will decrease or even stop. With an announcement of such news, equities around the world would rally and bonds would also catch a strong bid.

The Toronto Stock Exchange, TSX had a great week ending above the prior highs for the year. The Canadian index has rallied 8 out of the last 8 trading sessions, trading positive every day in February so far. At these levels, the TSX is currently entering an overbought level on the daily Relative Strength Index, RSI. The TSX closed the week in the 14,000s, making it the first time the index has traded this area since May of 2011.

The upcoming week will be shorted as Presidents Day in the United States shuts down markets Monday. Despite being Family Day in Ontario and other provinces, the Toronto Stock Exchange will remained open Monday.

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