Recap: Week Ending February 26, 2016

February 29, 2016

Equities around the world traded higher for the second straight week as volatility in crude oil eased. Last week the NASDAQ 100 tech-heavy index was the leader to the upside, closing the week at 4,235, marking a gain of 1.72%. On the flipside, the Dow Jones Industrial Average was the laggard closing higher by a respectable 1.51% last week to settle Friday at 15,639. The move higher last week marks the second straight week of returns for US indexes as they attempt to push off 2016 lowers which were established in early January and were revisited a few weeks ago. The movement is occurring as somewhat of an uptrend is attempting to pick of steam in crude. Such correlations between equities and crude have remained strong on short-term timeframes. Like equities, crude climb higher last week, settling Friday at $32.84, marking a weekly gain of $3.12 or 10.5%. The move higher in crude is also the second straight weekly gain seen for the energy product. The move higher in crude does look bullish, however, when one looks at the chart on a daily timeframe it appears it is heading for a sharp upper level of resistance. In January of this year prices had a difficult time moving about the $34 level. When buyers failed at this level, sellers were able to step in and send prices plunging down to make new lows at $26.05 before attempting the rally which we are currently experiencing. With the upside activity in crude occurring comes selling pressure in gold which has recently regained is status among investors as a haven asset. For the past two weeks as a bid was seen entering both crude and stocks gold saw selling pressure. Last week gold settled with a marginal loss of $3.80. With this being said, it must be stated that gold did trade down to a low of $1202.50 on the week before rallying to $1,222.80 to close the week out on Friday. Even though gold did trade lower on the week, the ability for buyers to step in at lower levels indicated to traders and investors that this push higher in gold is sustainable, and further upside could be seen.

To the surprise of many the Toronto Stock Exchange, or TSX, did not see a bid last week despite a strong presence of buyers in crude. In recent weeks, a strong positive relationship has emerged between the TSX and the price of crude oil. Last week the Canadian benchmark equity index fell 0.12% to settle Friday at 12,798. Like gold, the TSX did trade much lower last week before buyers stepped in at the lows of 12,506 to prop it back up to more neutral levels on the week. Some of the selling among Canadian equities can be rooted to a poor performance on behalf of the banking sector. The second largest lender by assets in Canada, RBC, reported weakness in insurance and capital markets divisions. RBC’s weakness is an indicator that the weak oil market is finally showing its effects. Last week RBC on the TSX traded down 4.19% to settle the week at $68.29. It will be important to see if the relationship between financials and the TSX emerges strong this week or if oil is once again the key driver of direction among equities.

 

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