Recap: Week Ending July 25, 2014

July 28, 2014

Corporate earnings took center stage as geopolitical tensions appear to be somewhat easing. The economic calendar for the past week was relatively light. Like previous weeks, little conviction was seen in either direction as markets continue to stutter step at all time highs. So far for the 2014 calendar year S&P 500 is up 8.2%, the NASDAQ has gained roughly 7%, and the Dow Jones is lagging behind its peering only increasing 3.6%. A similar story played out this week as the Dow Jones lagged behind others, being the only index to close the week lower. For the month of July, both the S&P and Dow Jones have been stuck in a sideways horizontal pattern, creating very choppy market conditions. This lack of direction has led to narrow trading ranges, creating some of the lowest levels of volatility which markets have seen in a long time. Even though these markets continue to trade in a horizontal pattern with low volatility, they are still within a day’s range of making new all time highs. With this being said, the NASDAQ100 has been able to climb higher at a steady pace for the past month.

Unlike US markets, the Toronto Stock Exchange Composite Index, TSX, marched higher this week into new highs for the year. The TSX did not have one losing day last week with Canadian stocks looking strong. Currently the RSI, Relative Strength Index, is reading 71, which is a technical level indicating that it is overbought. The last time the Canadian based index saw this level on the RSI stocks climbed a percent higher then fell into a strong horizontal chop.

Monday saw little economic news out of either Canada or the US. The main activity on the day was the Chicago Fed National Activity Index for June. The reading came in at 0.12, a drop from the previous reading of 0.16. There was no consensus for this figure. On the earnings front, Netflix reported a $71million net income in the past quarter which results in $1.15 a share. This quarter last year Netflix reported a net income of $29million with 49 cents earnings per share. The strong growth in the net income can be attributed to the expansion of their subscriber base which grew by 1.7million users worldwide. The increase in users is a direct reflection of the Netflix created content which have become just as popular as scheduled TV shows.

Markets closed higher Tuesday as the Consumer Price Index, year over year, came it unchanged at 2.1%. This gave fire to the markets as it signals there is no expansion in inflation, signaling the possibility of lower rates for a longer period of time.

Wednesday, The Canadian Retail Sales month over month for May was released which showed that Canadian spending has decreased. The reading came in at 0.7% vs. the previous reading of 1.3%. The figure was not as bad as economists were expecting with a consensus expectation being 0.6%.

Thursday saw very narrow range trade in the Dow. The main focus of the day was the beat in the Initial Jobless Claims coming in at 284K. Economists were expecting an increase to 308K over the previous reading of 303K.

Friday by far saw the largest range trading of the week with a strong sell off in equities. The US Durable Goods Orders for June contributed to the selloff coming in at 0.7% vs. a previous reading of -1% and the consensus of 0.5%. Even though this figure beat expectations and the previous reading, it may be a signal that the economy is improving and rise in rates is around the corner.

 

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