Recap: Week Ending May 9, 2014

May 9, 2014

Equity markets finished the first week of May mixed as divergence among indices comes into effect. This week the Dow Jones Industrial Average finished higher, however, both the NASDAQ100 and S&P 500 closed the week lower. The largest loser on the week was the Rusell 2000 Small Cap Index. As both the Dow and S&P flirt with new all time highs, the NASDAQ and Russell have been seen driving lower. The push lower in both of these indexes has put a stop on any push into new highs in either the Dow or S&P. Because of this divergent activity, indexes remain in balance for the last several months. The Dow is just under 60 points from printing a fresh new all time high where the S&P is only 20 point away from reaching its all time highs. Both of these highs can be reached on a strong day with an aggressive push to the upside. It must be noted that both the S&P and Russell are finding support at their 50 day moving averages. The 50 day MA commonly acts as an area of extreme support, providing the notion that this test of the average may be the final one before a push into new all time highs. On theotherhand, the Russell, wherethebulk of the downside activity is beingseen, is below its 50 daymovingaverageand its 200 day moving average. Falling below both averages confirms the extreme selling pressure in the Russell. It is believed that once the Russell bottoms that markets may head higher as the selling press decreases in the overall marketplace for equities.

This past week was a quite week with little economic data being released in the United States. The main event of the week was numerous speeches by US Federal Reserve Chairwomen Janet Yellen. At her various speaking engagements, little surprises were announced as she is expected to continue with her current set of economic values for the time being. With this being said, the European Central Bank, ECB, announced Thursday that they will be keeping their targets rate at 0.25%.

After rallying big time in recent months, the Toronto Stock Exchange Composite Index, TSX, fell hard for the first time in recent memory. This past week the TSX saw loosing days with the expectation of Wednesday where the index was able to slow strength and close and the highs for the day. Currently, the TSX is up over 6.5%, making it one of the strongest equity indexes in North America. Looking at the daily chart for the TSX one will notice that the MACD indicator, Moving Average Convergence-Divergence, is showing a bearish signal. The signal is currently signally a possible downtrend in the market. The last two times the MACD provided this signal the index fell over 3% and 1% before signally an uptrend.

This past week we saw the release of one of Canada’s most important economic indicators, the unemployment rate. The unemployment rate came in line with analyst expectations at 6.9%. 6.9% is also the prior release, indicating little action in the jobs market. Along with the Unemployment rate the labor force participation rate was released. The prior reading of participation was 66.2% with analyst predicting no change for the month of April. The actual came in at worse than expected at 66.1% indicating that the number of people searching for work decreased during the past month. A degree in the labor force participation rate is bad for the economy and can also give a better than it appears unemployment rate as the number of people looking for work has decreased. Those who are not looking for work in turn rises, these works are called discouraged workers.

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