Recap: Week Ending March 14, 2014
For the first time in many weeks equity indexes across the board pointed lower. The largest losses were seen in Asia equities with the Japanese NIKK 225 falling 6.20%. European shares were also weak with the German DAX falling 3.15% for the week. North American markets faired slightly better with the Dow Jones Industrial Average off 2.35% and the TSX down 0.50% for the week. Currently for the year, the Dow is down 3.1%, the NASDAQ has gained 1.6%, and the S&P 500 has shed 0.4%. The move down in the Dow is the first in 2 weeks. The TSX has been on a recent rip to the upside as natural resources such as gold have become hot commodities. With this being said, despite the strong bid activity in gold this week the TSX fell. The main cause for the bearish action can only be related to the downside action seen in US equities. Fears regarding the situation on Ukraine have spilled over into the markets. European stock indexes have taken a hit because of the possible implications that could arise from a Russian takeover of Ukraine. Currently, a vote will be held Sunday March 16th in the province of Crimea to determine if the area which is currently under Ukrainian power will become Russian Territory. World powers, including the United Nations, do not believe this vote is legal and have already said that they will not acknowledge the result. Many believe that the result of the vote has already been determined, and Russia will take over the land which is already heavily populated by Russian people and supports of Putin. The US has already stated that if Russia takes control of Crimea that sanctions against Russia will occur. Despite this, Russia continues to fight for Crimea, stating that they will ignore any threats from the United States. Equities in Russia have not reacted positively to the news of the country expanding, with the Russian Trading System index falling 25% since the middle of February. A strong bid has seen in various Russian bear ETFs listed on American exchanges. The RBL, a Russian ETF, listed on the New York Stock Exchange has fallen about 20% since the start of violence in Ukraine.
The threat of crisis in Eastern Europe has sent both bonds and gold into new highs. Gold closed the week off at $1382.50 per ounce. Currently, gold is trading at levels which have not been seen since the start of September. However, it must be noted that, on the daily relative strength index, or RSI, that gold has entered the 70 level, which indicates an overbought zone. The last time gold was at this level was in August, which led to a fall of over 16% in the price of gold. Like gold, investors have been flocking to US treasury bonds as tensions tighten between US and Russia. Bonds caught a strong bid late in the week to close at 133.81. This level is the highest level seen since March 3rd. The recently push higher in bonds appears to be backed by a strong technical buy in the MACD indicator. Currently, the MACD is showing a bullish cross indicating that this push higher in bonds may be the start of something much bigger to come.
The situation in Eastern Europe is very active, and the outcome is still far from over. Investors appear to be pricing in the worst as indexes continue to fall lower, and haven plays continue to catch a strong bid. With this being said, once tensions do clear, a strong reversal in all instruments can only be expected.