Recap: Week Ending July 24, 2015

July 25, 2015

Markets across North American closed in the red last week as corporate earnings and falling commodity prices took center stage. The Dow Jones Industrial Average was the weakest amongst the US majors, falling 2.86% last week as many of its constituents reported poor earnings or weak guidance. On the flip side, the S&P 500, which is a better representation than the Dow of the market was the better of the bunch, closing the week down 2.21%. Equities were not the only thing to fall last week. The price of gold took a drastic turn lower, trading to a low of 1072.30 last week. The push lower last week was the equivalent of a loss of $33.90 or 2.99%. Gold has fall for the majority of trading days in July. The pressure is building on gold as the US Federal Reserve is nearing an interest rate increase, signalling a reduction in inflation. As well, gold is not an interest or dividend bearing security which causes it to lose its lustre when rates are hiked. The move lower in gold last week was the 5th straight weekly loss for the metal. Gold faired much better in comparison to oil which had one of its worst weeks in recent memory. Last week the price for NYMEX crude fell by $2.82 or 5.55%. Like gold, the move lower in crude is the 5th straight weekly loss. It must also be noted that crude closed the week 24cents above its weekly low, signalling that weakness is still in the market and buyers have yet to step in. The move lower in gold comes as concerns regarding a weakened Chinese economy are becoming more of a reality and demand for the energy product falls as production remains the same or builds. Agricultural commodities also took a hit last week with corn and wheat falling 6.55% and 7.75% respectively. The move lower in commodities across the board can be attributed to a recently strong US Dollar. As the value of the US Dollar increases, goods in priced in USD lose value as so-called inflation is not present in the value of the currency.

Like its US counterparts, the Toronto Stock Exchange Composite Index, or TSX, closed in the red last week, falling 456 points or 3.12%. The move lower in the Canadian equity benchmark is the largest the index has seen on a weekly basis in months. This recent push lower can be attributed to the fall in commodity prices which has significant impacts on the earnings of Canadian-based companies. For example, Barrick Gold, one of the world’s largest gold producers, fell almost 17% last week on the TSX. Out of the past 15 weeks, Barrick has fallen 12 of those 15. The move lower in Barrick in a good example for the rest of the gold market where producers, refiners and miners are taking a hit. The same can be said in regards to the energy complex and companies related to crude continue to fall. Last week Husky Energy fell 2.80% to close at yearly lows. The in sync push lower in many commodity-based securities is heavily weighting on the TSX. As a result, the last six trading days on the TSX have been negative. From a technical analysis standpoint, the TSX has not yet entered an oversold level. On the RSI, Relative Strength Index, the TSX is reading a 37. Readings below 30 are considered oversold, and readings above 70 are considered overbought. From this metric, it appears that the TSX still has some room to fall before bottoming. Currently, the TSX is trading between its 50 week and 200 week simple moving average; both averages can act as resistance and support respectively. The current year lows for the TSX were set back in January at 13,892.57. The TSX still has some room to fall to that level from its 14,186.24 close Friday.

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