Recap: Week Ending April 18, 2014

April 20, 2014

Equities around the globe climbed higher following a disastrous prior trading week. The trading week was shortened due to the Easter Holiday. Bond futures closed early Thursday while the entire market was closed Friday for Good Friday. Keeping the shortened week in mind, many would expect little volatility and conviction in either direction. Volatility was muted, however, equities showed strong conviction to the upside with both the S&P 500 and NASDAQ 100 closing positive for all four trading this. The Dow Jones Industrials had little range Thursday and closed slightly in the red. From a technical aspect, both the SP and Dow Jones broke their 50 day moving averages during their push up. This is a bullish sign for investors who will treat a retracement to the 50 moving average as possible support. The NASDAQ 100 is roughly 95 points below its 50 day moving average. The NASDAQ 100 has fallen the most since highs made in earlier March. So far the tech heavy index is down over 5.5% where the SP is off 1.7% from its high and the Dow is only off 1.2% from its high made at the beginning of April. It is expected that both the Dow and the SP will take a run this week at their 2014 highs which were established earlier this year. Currently, the Dow is 200 points shy of its year high which also happens to be its all time high. The SP, on the other hand, is roughly 35 points from its yearly high which also is its all time high.

The Toronto Stock Exchange Composite Index, TSX, did not fare was well as its American counterparts only closing up 1.70% on the week versus American indexes which closed up over 2%. This week the TSX tested and broke a tight trading range which it established throughout the month of March and April. The TSX closed the week at 14,500 which marks a new high for the 2014 year. This level also marks one of the highest closes in many years. It must be noted that the move to the upside was complimented by a bullish crossover in the daily MACD indicator. MACD which stands for moving average convergence/divergence is an indicator used by many to successfully trade cycles of both downside and upside action. The last time the MACD gave a bullish signal was in the middle of February when the TSX rose roughly 4% before forming a sell bearish cross signal.

This past week we heard from the Bank of Canada, BoC, and the US Federal Reserve, the Fed. The BoC announced that it will maintain short term interest rates at their current level in Canada at 1%. On Tuesday, Janet Yellen spoke to the media where little new news regarding the economy was announced. It is expected that the US Fed will continue their $10billion taper or reduction in the bond buying program known at Quantitative Easing, QE. The current US target Fed Funds rate, which is the US counterpart to Canada’s short term interest rate, is targeted between 0-0.25%. It is expected that the Fed Funds rate will slowly rise following the completion of QE when the Fed can see how the economy operates without the assistance of their liquidity in the bond market.

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