Recap: Week Ending February 21, 2014

February 23, 2014

Equities in the US closed down for the week as Canadian markets saw equities push higher. The past week was shortened in Canada for Family day and in the United States for Presidents day. The shortened week appeared to have sucked the life out of the markets. The Dow Jones Industrial traded in just a 200 point range for the week. In previous weeks, the Dow has seen 200 point swings on a daily basis. Similar can be said about the S&P 500 and the NASDAQ 100 which both traded in horizontal chop for the week. Despite the sideways action, trade volumes were relatively high for the week.

The Toronto Stock Exchange continued to march higher on what appears to be a never ending bid session for Canadian Stocks. The TSX has been up 11 out of the past 12 trading days. The first negative close was Friday the 21st when the index closed down only 4.65 points for the day. The close of 14,205.72 Friday was the low of the day. With such statistics out of the TSX, it makes investors wonder where the top is on this rally. Extended bid sessions are not uncommon in the TSX. In October of 2013, the index moved higher 9 out of 11 trading days. In December, the index gain moved higher 7 out of 9 trading days. In January of this year, the index moved higher 9 times out of 11. With these figures in mind, it appears that a top could soon be in the works for the Toronto index as it is currently surpassing the 11 day rally mark, a number which proved to be the top of most rallies.

The rally in the TSX can be attributed to a push higher in gold. For the past 13 trading sessions, gold has closed higher 11 times. Last week gold traded sideways, however; it remained above the 200 day moving average, an area which has proven to be of key support. The 200 day MA was tested twice last week but held the precious metal up. Next up it appears gold is targeting the $1360 area which historically has been an area of both support and resistance. Looking at the daily Relative Strength Index, or RSI, gold is currently sitting at an oversold level of 70.42. The last time the metal hit this level on the RSI was in late August with the Syrian scare. After touching this level, gold sold off over $232 or 16% in 77 trading days, bottoming in the middle of December.

On Wednesday, the US Federal Reserve released their minutes for the past meeting. The meeting minutes showed little change in policy and ideas. Market reaction to this event was limited with little movement in either direction happening. The reaction was so limited, the US treasuries did not move as they have in past events.

The week ahead looks like it should make up for the slow one we experimented last week. The CBOE Volatility Index, also known as the VIX, is sitting at both its 200 and 50 day moving averages, it appears to have found support here and is looking to bounce higher. A bounce in the VIX would send stocks lower also pushing up treasury prices.

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