Recap: Week Ending August 28, 2015

August 28, 2015

Despite seeing extreme downside activity early in the week, North American equity markets closed the week in the green. Last week saw some of the largest trading ranges since 2009 with the Dow Jones Industrial Average falling almost 1,000 points on an intraday basis on Monday.  Despite the freefall, the market closed lower by 588 on the day, erasing much of its original losses. The major cause for the selloff was the combination of concerns regarding a slowing China as well as a strong likelihood of an interest rate hike in the United States this September. As concerns about China faded, and so did the possibility of a rate hike this September, US markets caught a bid and bargain hunters stepped in. The NASDAQ 100 index was the strongest gainner on the week climbing a total of 131.85 points or 3.14% to settle Friday at 4,329.12. The S&P 500 was the laggard amongst the group only closing up 17.68 points or 0.90% last week. The rally was not only seen in equities, the price of NYMEX crude oil saw a huge push to the upside, climbing $4.93 or 12.24%. This weekly push higher in crude is the first time the energy product has closed in the green out of the past 11 weeks. The bounce in crude comes as it was sitting at multi-year lows which many believe to be unprofitable and uneconomical for producers. With this being said, the rally did not extend into the fixed income market where the prices of bonds sold off. Last week saw the long US 30 year Treasury bond fell $3.94 or 2.48% to close Friday at $155.26. The move lower in the price of the 30 year is the first negative week the fixed income product has seen in the past six trading weeks. Despite what one might believe, the price of gold slid lower last week, falling $25.90 or 2.23% to settle Friday at $1,134.  Usually, gold is seen as a go-to asset in times of uncertainty, such as last week; however, this appears not to be the case. With such action occurring, one starts to wonder if gold has lost its luster and is indeed just another metal and is no longer a haven as it was once described as.

The Toronto Stock Exchange Composite Index, or TSX, saw a huge boost last week after falling with a higher degree of correlation with its US counterparts. Last week the TSX gained 391.40 points or the equilibrant of 2.90% to close the week out at 13,865.07. The move higher in the price of crude without a doubt contributed significantly to the pusher higher in the TSX. The move higher for the TSX is the first time in 3 weeks that the index has been able to see upside on the weekly timeframe. From a technical standpoint, the TSX bounced off of its 200-week simple moving average last week, signifying strength is entering the market. Also, the RSI, which stands for Relative Strength Index, bounced off of a 30 reading last week on the weekly timeframe, signifying the market did not enter an oversold zone on the weekly timeframe. A reading below 30 is considered oversold, and a reading above 70 is considered overbought. The last time that the index hit 30 on the weekly RSI was back in the middle of December of 2014 and the TSX rallied roughly 13% before peaking.

Even though the market appears to have shrugged off the weakness seen last week, the possibility of further downside is still a large risk. News out of China could occur at any time and rock the market. Even though it is looking like there won’t be a rate hike this September due to the uncertainty in the global economy, that doesn’t mean that one will not occur. If such an increase in interest rates does occur, there is a chance that equities could visit the lows that they made last week. Investors and traders must have an eye on the market at all times and keep up with the news as the global economy is currently in a very dynamic situation.

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