Recap: Week Ending April 15, 2016

April 18, 2016

Equities in North America moved higher last week following a previous week of declines. Last week the Dow Jones Industrial Average led the way higher climbing 1.82% while the NASDAQ 100 index was the laggard on the week, only climbing 1.52%. The move higher also sent the S&P 500 closer to its all time highs which were established in 2015. As of the close on Friday, the S&P is within 2.6% of reaching those highs. As it currently stands and if the upward movement continues, the index could reach such levels later next week. With this being said, the move higher has not impacted all indexes evenly. The Russell 2000 Index, a small-cap US equities index is still 13% below its peak which was also established in 2015. Any move 10% below the most recent trend highs is considered correction territory. The Russell is considered a very volatile index and is not watched or studied by many as such others are, however, it is still important to see that weakness does still exist in this market.

One of the largest news events which sent markets higher last week was that of a possible agreement with regards to oil production. On Tuesday, it was announced that Saudi Arabia and Russia would agree to not factor Iranian production into any coordinated efforts which they might have. Such talks were scheduled to occur over the weekend and will provide large volatility for the open on April 18. In recent discussions and news releases Iran has stated that it will continue to maintain or grow its output of oil despite possible production cuts or stability from neighbouring producers. The news that such Iranian decisions would not impact the coordination efforts sent crude markets higher. The move higher in crude spilled over into equities as the strong relationship between the energy complex and equities appears to be emerging once again. From a technical standpoint, one must take note that the price of WTI crude traded above its 200-day simple moving average last week. The last time which the price did trade above such an average was at the end of July of 2014 when crude was near $100 a barrel.

Last week the Toronto Stock Exchange Composite Index climbed 240 points or 1.79% to settle the week at 13,637. The move higher last week was based on the fundamental move higher in crude. More importantly, on a technical basis, this move sent the TSX above both its 50 day and week as well as 200 day and week moving averages. In recent weeks the Canadian benchmark equity index has had a difficult time gaining traction to the upside as overhead looming resistance from such moving averages was in place. As this occurred the TSX traded in a sideways chop pattern and was unable to move higher. With this move, higher buyers are present in the marketplace and the TSX can benefit from it. This upcoming week will be crucial to see if such activity continues and the TSX can sustain trade above such averages. If so, these moving averages can and will act as support for any move towards the downside. With regards to the Canadian economic calendar, little releases of importance were seen last week that the expectation of a Bank of Canada interest rate decision. With that being said, the Canadian central bank chose not to raise interest rates but rather hold them constant until at least the next meeting. This decision was expected by surveyed economists.

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