Recap: Week Ending April 4, 2014

April 6, 2014

Equities around the globe pushed higher to close the first week of April in the green. The main expectation for upside activity was the NASDAQ 100 which represents the top 100 technology securities in the US. The NASDAQ was weakest Friday closing down 2.70% erasing all gains that were made earlier in the week. As a result, the largest losers on the week were seen in the NASDAQ 100. Amazon fell Friday by over 3%, Priceline.com lost 4.8% while Netflix shed 4.9% on the day. Friday marks the first of many down days for tech, especially Netflix which has fallen 26% in the past month. Netflix’s market cap represents a larger proportion of the NASDAQ 100; as a result, any weakness in Netflix will easily drag down the index. Since roughly the same time when Netflix peaked in the start of March, the NASDAQ 100 has fallen 5.4%. Relative to others, the NASDAQ is extremely weak. This past week the S&P500 hit new all time highs along side the Dow Jones Industrial Average which made new intraday highs. Both the Dow and S&P’s weakness is not as strong as seen in the NASDAQ as Netflix does not account for such a large portion of the indexes. Netflix is not component of the Dow Jones.

Friday saw a worse than expected US unemployment rate announcement which without a doubt contributed to further downside action in US stocks. US unemployment came in at 6.7%, which is unchanged from its previous reading, however, did not beat expectations that were 6.6%. The Canadian unemployment picture was better than expected coming in at 6.9%, beating both expectations and a previous reading of 7%. On a less positive note, the Canadian labor force participation rate did not change from the prior reading of 66.2%. The expected reading was also 66.2%. The US labor force participation rate ticked slightly up from 63% to 63.2%, there was not an expected reading.

The Canadian unemployment rate had little impact on the Toronto Stock Exchange Composite Index, TSX, which closed down nine points on the day or 0.06%. This week the TSX broke its horizontal channel which it had established for the month of March. During March, the TSX traded in roughly a 1.5% trading range with very limited volatility and no conviction in either direction. Wednesday of last week saw the TSX hit multi year highs at 14,471.53. It appears that the main reason for downside in the TSX its relation with its US counterpart indexes. Currently, the TSX has a 0.84 correlation with the S&P 500. Rated against the NASDAQ100, the TSX has a 0.30 correlation. Even though this correlation is relatively weak, it still shows that any activity in the NASDAQ will be reflected in the Toronto based index. Despite its past support for the TSX, gold has been weak as of recent. Gold has in previous times moved in sync with the TSX as a large portion of the index is made up of gold mining components. Currently, the TSX/gold correlation is sitting at -0.33. The relationship between gold and the TSX is going to be tested in the upcoming week at gold is currently sitting just under its 50 day simple moving average. The 50 day will act as resistance for gold, as the correlation shows a move higher in gold would push the TSX lower. Any resistance at the 50 day moving average would signal more upside in the TSX. Two weeks ago a golden cross occurred in gold providing a bullish signal. The golden cross occurs when the 50 day simple moving average cross above the 200 day simple moving average.

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