Recap: Week Ending August 21, 2015

August 24, 2015

Global markets sold off last week as equities and commodities took a hit. Last week the NASDAQ 100 index fell 7.36%, making its one of the worst global performing indexes. The Dow Jones Industrial Average was one of the better performing indexes last week and closed down 5.82%. The selling comes as China appears to be cooling at a rate not believed by investors to be true until recently. A weakening China provides a good picture of the health of the global economy as China is one of the largest manufacturers in the world. China showing weakness can signal a weak demand for goods from global nations. The news out of China put a damper on the markets; however, news last week that an interest rate increase could occur in September had markets on edge. However, many are starting to question if the Federal Reserve will indeed increase rates with China being so unstable. The Fed has been slow to raise rates and appears to be very cautious regarding the matter. As a result of these news events, markets sold off heavily to lows not seen in the 2015 calendar year. The big news last week also remains the fall in the price of oil. NYMEX Crude has closed down 10 of the past trading weeks. The fall in the price of oil is a reflection of oversupply combined with weak global demand. The demand appeared even weaker last week as China continues to show weakness. Weak oil is weighing on equity markets, with selling spilling over into stocks. Last week crude fell $1.89 or 4.48% to settle the week at $40.29, an area that has not been seen for many years. On the bright side, the selling and fear has led the price of gold higher, trading up to a high of $1,167.90 last week. The precious metal that many consider a haven rallied $46.70 or 4.20% last week to close Friday at $1,159.90. The move higher in gold is also a reflection of the market believing that interest rates may stay lower for a longer period, allowing the inflation to continue to occur in the United States.

 

The Toronto Stock Exchange Composite Index, or TSX, did not fair any better than other global markets, falling 5.63% last week to settle Friday at 13,473.67. The Canadian benchmark equity index continues to fall as commodity prices continue to take a hit. As the TSX is heavily made up of energy and natural resource based companies, a fall in the price of any resource has major implications on the TSX. From a technical analysis standpoint, the TSX is considered oversold on the Relative Strength Index, or RSI. The current reading on the RSI is 23, falling below the 30 level indicating oversold. A reading above 70 is considered overbought. It must also be noted that the TSX traded lower every day last week and settled points off its weekly lows on Friday. On a weekly basis, the TSX is approaching is 200-day simple moving average, an area that can act as potential support. The 200 is currently sitting at 13,389, roughly just under 100 points away from where the TSX is currently trading.

 

As markets continue to slide, many are asking where is the bottom. As news out of China is constantly being updated, it appears that the selling could continue for some time longer. However, it is not just China which is causing this selloff; there are a lot of moving parts, and good news out of China could not necessarily result in a rally back towards previous areas of acceptance.

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