Recap: Week Ending May 23, 2014

May 23, 2014

For the first time in many weeks equity markets moved together to the upside to close the week near their highs. All four major US indexes closed in the green for the week, including the Russell 2000 Small Cap which has recently seen strong downwards pressure. Even the Toronto Stock Exchange Composite Index, TSX, pushed higher. It must be noted that all of these moves come on shortened week in Canada and before a long weekend for United States Markets. The week started out rather quite on the economic calendar for both Canada and the US. The real highlight of the week came Wednesday with a speech from US Federal Reserve Chairwomen Janet Yellen and the release of the Federal Reserve Open Market Committee minutes. The upside action for the week started Wednesday with the release of the minutes. In general, the Fed’s outlook from the March minutes has not changed very much. It was noted that board members are still focused on exiting the bond buying program known as Quantitative Easing. Furthermore, the board is looking into testing such tools as reverse repo, lower and term deposit plans to release the markets back to a normal state. The minutes showed that inflation is expected to be around the 2% in a few years which will in turn lead to a short term interest rate increase. The board noted that the presence of inflation is not expected to harm further job growth. The somewhat positive outlook on the market from these minutes has led to a rally in the past three days with the Dow Jones Industrial Average bouncing off of its 50 day Simple Moving Average, SMA. Currently, the Dow is just under 150 points away from making new all time highs. After seeing a strong bid enter the market, the TSX continues to sit just under its yearly highs made in the beginning of May at 14,765, this area will for sure be an upside target within the next trading week. With this being said, the S&P 500 is just points off of its all-time highs proving that this market does still have life left in it.

In recent weeks equity markets around the globe have been trading in a strongly developed horizontal channel. This channel has made for tight narrow range trading with a lack of conviction of buyers or sellers in either direction. The buy side momentum appears to be picking up across the board, which in turn should lead to a push to new highs for the year for equities. The Russell 2000 is still the largest lagger sitting roughly 7% lower from the 2014 highs it made earlier in the year. The sideways chop activity is not only visible in equities but also very prodominate in metals. Over the course of the past few weeks and even months gold has been unable to break to either the upside or downside. The same thing can also be said about silver where little volaititlity has been seen. The one metal which has seen some life is copper which is currently down about 7.5% for the 2014 year, however, appears to be gaining momentum to the upside. In recent times, copper caught the attention of many as it was believed that it was being used as colaterial for loans in China. Following that annoucment the metal sold off, however, almost all losses of the industrial medal have been recoevered and it is now seeking resistance at its 200 day SMA that is a mere 4 cents away.

The upcoming week will be a shortned week for US trading as Monday markets will be closed for Memorial Day. With this being said, other major markets around the world will remain open, however, one can only expect limited activity.

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