Recap: Week Ending February 13, 2015

February 15, 2015

Once again, equities climbed higher last week as the march to new all time highs continues. The NASDAQ 100 was the strongest on the week as the tech-heavy index climbed 3.67%. The Dow Jones Industrial Average was the weakest, only climbing 1.09% on the week. The Toronto Stock Exchange Composite Index, TSX, climbed 1.20%. The economic calendar was relatively quiet last week which led to low volatility trade. Last week the Dow traded in a narrow 2% range. This tightened trading range is one of the narrowest on a per week basis the market has seen in some time. The quietness in the markets was directly reflected in the VIX Volatility Index, which trade down 15% last week. Currently, the VIX is sitting at levels which it has not seen since December of last year. The US 10-year note closed the week out with a 2.02% yield, which was up 4.28% last week. Last week was the second week in a row which saw the yield move higher. Negative yields have taken center stage as many European securities trade negative; this includes products in Germany and Switzerland. Apple announced recently that they would be issuing debt in Swiss Francs in order to capitalize on the negative yield presence, where investors pay Apple to hold their money instead of them receiving coupon payments. This very well could become a major trend in regards to bond issuers.

The TSX climbed higher once again last week. So far, the TSX is up a bit over 4% on the year. The move in the Canadian benchmark comes as the price of oil is slowly recovering. So far for the 2015 year North American crude is roughly breakeven. The price of crude is important when following the TSX as many Canadian companies benefit from a higher price in the energy. Last week the Canadian Dollar caught a nice bid and was able to close the week up 0.51%. The pusher higher in the Canadian currency without a doubt assisted in the bid of the TSX. The CAD has taken a real beating as most recently the Bank of Canada lowered its interest rate. From a technical standpoint, the TSX is nearing the overbought zone. The RSI, also know as the Relative Strength Index, which provides a reading between 0 and 100, 0 being oversold, and 100 being overbought. Currently, the TSX is reading in the high 70s, signaling the index is entering overbought territory. The last time the index saw these levels on the RSI was in early September of last year. Following hitting these levels, the TSX sold off roughly 13% before bottoming. To this date, the TSX has yet to recover fully from those losses. On the flip side, the MACD or Moving Average Convergence Divergence Indicator is still maintaining a buy signal. It must be watched closely to see if the MACD moves towards a sell signal and confirms the bearish signal created by the RSI. If this occurs, a selloff will occur more likely than not.

This week is a shortened week with both Canadian and American markets closed Monday. Canada will celebrate Family Day, and the US will celebrate Presidents Day. Markets will resume regular trade Tuesday following the holiday. The shortened week will no doubt lead to a lack of volatility in markets in the US and Canada once again.

DeGroote on Facebook DeGroote on Twitter WMA LinkedIn