Recap: Week Ending November 13, 2015
Equities across the globe sold off as the S&P 500 was unable to maintain a seventh straight week of gains. The losses last week pushed both the S&P as well as the Dow Jones Industrial Average into the negative for the 2015 calendar year following a very bullish month of October. With this being said, the NASDAQ Composite Index is still positive for the 2015 calendar year. However, last week the Dow Jones Industrial Average was one of the stronger indexes in the United States, falling 3.65% in comparison to a weaker S&P, which fell 3.71%. The NASDAQ 100 index was the worst performing index in the United States, closing the week lower by 4.36% to settle Friday at 4,502.14. One of the main triggers for the selling last week was the notion that the last Friday’s strong unemployment report has given the Federal Reserve a window to raise interest rates. Such ideas were confirmed even further as many voting, and non-voting Federal Reserve Open Market Committee Members expressed support for near-term rate tightening. Many believe that the current rally in equities is the direct result of investors borrowing money using low interest rates which has further contributed to buying pressure. Companies have also been able to take advantage of the lower interest rates, borrowing at low rates which has allowed them to finance further projects and, as a result, reported higher earnings. However, it must be noted that the Federal Reserve has taken its time in regards to raising rates and as a result the economy should be healthy enough to withstand such a shock. A rise in rates will signal that the economy is healthy, which could contribute to further buying in equities.
Commodities prices remain the story of the year as various classes of commodities continue to fall as the US Dollar strengthens and supply and demand move in opposite directions. As a result, the commodity heavy TSX fell hard last week, closing the week down 477 points or 3.53% to settle Friday at 13,075. A large contributing factor to the selling in the TSX was the aggressive 8.5% push lower in the price of NYMEX crude which settled Friday at $40.73. It must be noted that out of the last five trading weeks the price of crude has fallen four of those times. Currently crude is at multi-month lows and is looking to push lower to test lows made at the end of August at $37.75. Like crude, gold also settled the week lower, marking the fourth straight weekly loss for the precious metal. Currently, gold is making new monthly lows; however, more importantly is approaching multi-year lows of $1,072 which it established during the week of July 20th. From a technical analysis standpoint, the weekly MACD, which stands for Moving Average Convergence Divergence indicator, is starting to rollover, representing that the price of gold could trade much lower. The RSI, which stands for Relative Strength Index, is trading at 37.5 on the weekly timeframe. Readings below 30 are considered oversold while any value above 70 is considered overbought. With a reading above 30 while the index is trading very close to trend lows signals that the price of gold may trade a lot lower with aggression. It will be important to see if the prices of both gold and crude continue to trade lower and if they do, subsequent losses will likely be seen in the TSX.