Recap: Week Ending March 18, 2016

March 21, 2016

Equities in the United States climbed higher once again last week, pushing the winning streak in the US to 5 while the Toronto Stock Exchange Composite Index faltered. The bigger winner on the week was once again the Dow Jones, moving higher by 0.69%. On the inverse, the NASDAQ 100 was the laggard, climbing only 0.24%. This is the second straight week where the Dow has led the way, and the NASDAQ has trailed behind. In recent uptrends a lagging NASDAQ was seen as something of weakness as much of the upside activity was led was started in the tech-heavy index.  On the daily time frame, the Dow has traded higher for the past six consecutive days. The move higher last week sent the S&P 500 into positive territory for the 2016 calendar year as the index finished the week up 0.44%.  So far for 2016 the S&P is higher by 0.27%, the Dow is up by 1.02% and while the NASDAQ remains in the red. One of the causes for the upside activity was that of the dovish tone of the United States Federal Reserve. On Wednesday, the Fed announced that they would not be increasing interest rates at this meeting, a meeting which many believed back in January that they would hike. The latest forecast from policy makers indicate that there will be between two and three hikes in the 2016 calendar year rather than the four which were estimated originally. This dovish tone took to the market as equities rose. The tone spilled over into the bond market with the 30-year bond catching a bid in price. Last week the 30 year US Treasury rallied $2.03 or 1.26%. The rallied was also extended to the energy complex where the price of crude rallied $2.64 or 6.86%. The move in crude comes as news out of Saudi Arabia that per day production will be reduced. Last week crude settled at $41.13, making it the first time which the energy product has traded over the $40 level for the 2016 calendar year. Like in equities, crude has now a net positive gain for the year so far.

 Despite the upside activity seen in crude as well as other equities around the world, the Toronto Stock Exchange Composite Index, or TSX, was unable to maintain its weekly win streak. The economic calendar in terms of Canadian announcement was relatively light last week. With this being said, a technical analysis view was able to provide insight into the movement of the market. Last week the TSX hit its 200-week moving average. This average is typically known as resistance to many in the industry and has once again proven to be correct. On the daily time frame, the TSX is also trading at its 200 day moving average. As well as the resistance from the moving average, the TSX is also trading in the upper levels of its RSI, or Relative Strength Index. The RSI provides readings between 0 to 100 with anything over 70 being overbought and anything below 30 being oversold. Last week on the daily timeframe the RSI traded to a high of 70 before reversing and starting to fall. It must be noted that the last time that the RSI traded up to 70 was in April of 2015. Following trading at this level, the TSX fell over 20% before rebounding to levels which it is currently trading at. This fall may be extreme, however, points out the power of readings on the RSI. Furthermore, the MACD or Moving Average Convergence Divergence indicator is starting to rollover, providing the notion once again that buyers have eased. The last time that the MACD provided a sell signal was the start of this year which subsequently resulted in the selloff of the TSX of over 10%. Keeping this information in mind it will be important to see if the indicators play out in the coming weeks. If such negative technicals continue, one can expect larger selling across the board.

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