Recap: Week Ending April 17, 2015

April 18, 2015

Equity markets fell in trade last week as the sideways trend continues to have a dominating presence in the market. The NASDAQ 100, which has most recently exerted the most volatile moves, was down the most last week, falling 1.59%. The S&P 500, which is commonly seen as the stable benchmark for US indices, fell 0.99% last week, making it one of the better performing indexes. With this being said, the S&P continues to trade in about a 4% range that it has established over the course of the past two months after making new all time highs in later February. Currently, the index is sitting in the middle of this range, falling roughly 2% short of its all-time highs. The horizontal trade is not only seen in equities. So far for the month of April gold has been stuck in about a 3.5% trading range. As of the close Friday, gold is currently 5% above its yearly low that it established back in the middle of March. Like the others, US Treasury bond prices are also trading in a well-defined range. Last week the 30 year long US Treasury bond traded up 1.05% in price, to close just shy of multi-year highs. These ranges are becoming more and more established as time goes by; it appears that to exit such well-defined upper and lower boundaries a change in sentiment must occur not just in equities but across the board.

One of the biggest news events to hit the wires last week was that the Bank of Canada, BoC, will keep its interest rates targeted at 0.75%. This move was expected by economists. Following the press conference, economist David Madani of Capital Economics wrote in his research notes, the BoC is “showing confidence that, after stalling in the first quarter, the economy will rebound in the second quarter and never look back.” This appeared to be the overall tone of the event that sent the Canadian currency higher against the US Dollar. Last week the CAD was able to climb 2.68% against the USD, closing the week at 0.8169USD. The move higher comes as the price of oil is slowly drifting upwards. As of recently, a positive correlation has appeared between the Canadian Dollar and the price of crude oil. It seems that the lower price of oil hurt the Canadian economy; however, the BoC believes that prices have since stabilized and will soon head higher to more realistic values despite global levels of crude production expanding. Madani went on to further state that “We think this is pure fantasy and expect the oil shock to hit the economy hard. Eventually, the Bank will have no other choice but to cut further.” From this stance, it appears that the BoC may be a little too optimist on the price of oil which accounts for a good portion of Canada’s exports.
After climbing higher in previous weeks, the Toronto Stock Exchange Composite Index, TSX, was unable to maintain that momentum, closing the week down 27 points or 0.18%. Like others, the TSX also traded in a narrow range on the week. From a technical analysis standpoint, the TSX appears to be somewhat top heavy and overbought. On a daily chart, the Relative Strength Index, also known as RSI, is reading a 63. This reading comes just after the RSI hit 70 in weeks prior. A reading of 70 indicates that the price is overbought and that a pullback or a slight change in momentum may be in the cards. It must also be noted that the MACD, or Moving Average Convergence Divergence, is starting to roll over, signaling that the current trend to the upside that has recently been seen may be starting to reverse.

DeGroote on Facebook DeGroote on Twitter WMA LinkedIn