Recap: Week Ending February 27, 2015

March 1, 2015

Markets traded with little direction after a week of important economy data. This past week both the S&P 500 and Dow Jones Industrial Average traded at all-time highs, and like the last time this happened, trading ranges were thin. The month of November saw the Dow make multiple all time highs, however, traded in an extremely narrow range; it appears a similar pattern is emerging here. A similar note can be said about the Dow at the end of December when it printed more all time highs on narrow ranges. Last week the Dow Jones was the weakest of the bunch only falling 0.04% compared to the S&P 500 which was much weaker, trading down 0.27%. The Toronto Stock Exchange Composite Index fared much better than its US counterparts, trading up 0.41% on the week. The push higher was despite a falling price of crude. Lat week crude tumbled $1.23 or 2.42%. With the lack of correlation between crude and the TSX which has been seen in recent times, one starts to wonder if the recent cut in Canadian interest rates is taking its bullish effects finally on the TSX. With this being said, the Canadian Dollar closed the week flat as it continues to chop around at the 0.80USD level. The Canadian currency has been under pressure ever since the recent rate cut by the Bank of Canada earlier this year.

Last week had its fair share of significant economic data including a two-day questioning of US Federal Reserve Chair Janet Yellen. Yellen testified on both Tuesday and Wednesday. The market reaction on Tuesday was bullish with the Dow trading 97 points higher on the day. Following Yellen’s remarks Wednesday the market traded in a much narrower range, with the Dow only closing up 16 points on the day. Overall it appears that the comments made by Yellen were more dovish than hawkish, indicating a rate hike may not come until September of this year at the earliest. She also appeared to be rather flexible; being quoted saying a rate hike is “on a meeting by meeting basis.” These words sent the market for bonds higher with the price of the 30 year trading up by 1.78% on the week. The move higher was not seen as strongly in the ten-year benchmark note which only traded 0.77% higher on the week as the curve appears to be steepening. On an interesting note, the US Dollar index traded higher last week despite relatively dovish comments. In previous events, dovish comments sent the dollar index lower. Recently the US Dollar has had a positive correlation with the Treasury market; however, it appears that that relationship may be quickly fading. Taking these remarks into consideration, investors and traders alike must wait again to the next Fed meeting for further guidance on the movement of the interest rate market.

As mentioned in previous week’s editions, the MACD indicator, which stands for Moving Average Convergence Divergence, is starting to roll over indicating a downturn in the market may be sooner rather than later. The last time the MACD showed such a signal was at the end of December where the Dow Jones fell 4%. Investors and traders must keep their eye on this to indeed see if the MACD does turn bearish in the Dow, indicating a potential selloff. The MACD on the S&P is slowly rolling over as well, if both indicators on separate indexes show a similar signal, the selloff could occur with greater strength and force.

 

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