Recap: Week Ending April 11, 2014

April 13, 2014

Volatility rocked equity markets around the globe for the second straight week. Stocks fell well into the red with the NASDAQ seeing some of its largest downside days since 2011.Stocks in the US took much of the brunt, however, European indices also closed well into the red. The TSX closed down on the week, however, the sell off was less dramatic. The bulk of the downside activity was seen in the NASDAQ which led stocks lower on the day Friday. The sell off in the NASDAQ is significant as it paved the way for equities higher in recent months and years. The signal of weakness in the NASDAQ is looking as though it is going to be the start of large downside action. This period of selling comes on the start of the US corporate quarterly earnings season. A few companies reported earnings this past week including Alcoa as well as JP Morgan Chase. JPM missed earnings estimates on below-consensus revenue sending the stocks of the US banking giant down over 3.5% on the day. The miss from JPM sent jitters down the spines of many investors who view the bank as a bellwether of financial institutions. With this being said, equities are expected to have a volatile week as a large portion of earnings come into the picture.

The bright spot on the week was Wednesday when US Federal Reserve FOMC minutes were released to investors. The FOMC is in charge of all market operations run by the US Federal Reserve. The board meets on a regular basis to discuss actions they may take. Minutes from the past meeting indicated that the board members are committed to maintaining a low Fed Funds rate well into 2015. These put a bright spot on equity markets as many believe that the low interest rate environment is allowing many to purchase equities cheaply. As low rates continue to occur, equity buying will only continue. It must be noted that little surprises occurred in the minutes of the past meeting. The Fed has yet to announce a clear date for any rising in interest rates as an announcement may be taken too extreme and if objectives are not met for a rate rise causing a negative cloud may form over people’s view of the US economy. Following the announcement, gold caught a small bid. A much larger presence of buyers was seen in US treasuries which caught a strong bid following the notion that rates will stay low for at least a year to come.

The Toronto Stock Exchange Composite Index, TSX, faired rather well compared to its US counterparts. Much of the support in the TSX can be attributed to a strong bid which entered crude oil. Crude has seen a strong presence of buyers as tensions between Ukraine and Russia appear to be rising once again. A more forceful uprising in Eastern Europe could cause crude shipping distributions which in turn could cause a rally in the price of oil. With this being said, the TSX also appears to have found support at the bottom of its range which it established in the month of March. This area will act as strong support; any break below this zone would be seen on strong selling pressure. Once through this zone, past levels of support will act as resistance on any move to the upside.

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