Recap: Week Ending September 26, 2014

September 28, 2014

Volatility entered the markets this past week as equities took wild swings in both directions. Early in the week equities sold off, however, a sell off with much greater conviction was seen Thursday with the Dow Jones Industrial Average closing down almost 260 points on the day. The selloff was met by a rebound the following day where the index was able to erase some of the damage closing up 167 points. The Dow was the strongest of the indexes based in the US, with the S&P 500 losing 1.37% and NASDAQ 100 falling 1.13% for the week. This is interesting to note as the Dow has historically this past year been the weaker of the three most watched indexes. The sign of relative strength in the Dow signals to investors and traders that there is still upside potential in this market despite last weeks strong selloff. The volatility arrived just as the VIX, CBOE volatility index, was sitting just one point off its yearly low. This past week the VIX closed up just over 22%, marking one of the strongest weeks for the index since the end of July. The last time the VIX has such a strong perform it sold off the following week where it bottomed out below its 50 day simple moving average.

From a technical aspect, it must be noted that all US major indexes are at or just above their 50 day simple moving average, also known as 50 MA. This is extremely significant as the last time the indexes saw this zone was in the middle of September were equities rallied off its 50 MA to make new multi-year highs. The trend at the 50 MA is also evident on the German DAX and the Japanese Nikkei 225 who are both at this crucial level. If these indexes across the globe are able to catch a bid and bounce off this level at relatively the same time, a strong upside push with conviction will most likely be seen.

The Toronto Stock Exchange Composite Index, TSX, which is predominantly natural resource based took a large hit last week. The Rockefeller family announced that they would be disinvesting almost all of the money they currently have in companies that access the tar sands for oil extraction. The Rockefeller family is known as one of the historic oil barren families of the US, controlling in the past some of the top refineries as well as many major US companies. It was announced that the family will transfer their funds towards more eco-friendly companies focusing on a sustainable future. The move without a double puts the Canadian energy sector in a bad light, because of this, selling occurred in major oil producing companies, sending the TSX lower as a whole. The news could not come at a worse time for the TSX as the index was already weak the past week despite the news from the Rockefellers. Currently, the TSX has fallen just over 4.2% since making new multi-year highs at the beginning of September. The Rockefeller news also comes as the United Nations, UN, hosted a global leaders meeting solely focused on climate change and a sustainable future.

The largest IPO, Alibaba, continues to trade below its opening price of $92.70 a share closing Friday at $90.46. The only day the stock was able to trade above its opening price was the day it listed on the NYSE where it traded at an intraday high of $99.70. Investors will keep an eye on the first quarterly earnings report within the next few months when they can get a real feel for what the companies performance is truly like, possibly revaluing the stock at that time.

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