The last week – March 17 – was afflicted by the geo-political tension between Cold-War warriors of the years gone by culminating in Crimea conducting the referendum, severing ties from Ukraine and fusing with Russia. Theoretically, the upheaval was supposed to push the markets down but they rebounded from a channel low to the channel high at the all-time high. That week was also harassed by dueling interpretation of Chairwoman Yellen’s press-conference by hawks & doves. The downside of this too lasted for only one day and the week ended as a winning one.
Comparatively, the week of March 24, started with less sabre rattling. It also did not have much market upsetting economic, earnings or corporate news. But still, the market decided to revisit the lower limit of the channel. The indecision will perhaps last till the market convincingly breaks above or below a horizontal channel bounded by the upper limit of 1884 and the lower limit of 1839 or a 44-45 point spread. This is a healthy spread that can be profited by nimble and decisive traders on a shorter-term time frame using well-tested range-bound strategies using strong risk management.
Week started with weakening HSBC Flash PMI for China, showing a contraction. The Asian markets closed higher but the optimism did not last through Western market sessions and they closed down. Tuesday fared better with mostly improved data from UK, Germany and comments from ECB members that the central bank could possible buy bank assets to fight deflation. The S&P 500 made an inside-day up candle.
Wednesday started with generally higher Asian markets betting on fresh stimulus from central bankers. This followed by better Durable Goods and Flash Services PMI reading. Market reached intra-week high that could not be sustained by the end. Eventually, woeful IPO by ‘Candy Crush’ game maker, King Digital Entertainment (KING) and continuing decline of bio-tech sector brought the market from week’s high to near the lows. Thursday continued the down trend boosted by stress-test failures by few banks including Citi. News from UK was good and Unemployment claims reduced but the Final GDP was lower and Pending Home sales declined, which followed lower than estimated News Home Sales released on Tuesday.
Last week, a down Friday capped a largely positive week. This week it was the other way round. Friday started with good news out of Japan followed by not so good economic news from Europe and neutral from the USA. The combination was generally Higher Asian markets followed by generally higher European market and the Americas. US indices traded higher during the day but closed near the middle of the day’s range.
Week In A nutshell:
- Most global indices rose for the week except for the North Americans. 3-month picture is a bit mixed. Developed markets rose during last 13 weeks but not emerging markets.
| Week | 3-Month | Week | 3-Month | |||
| North America | Global Dow | 0.9% | 2.7% | |||
| DJIA | 0.1% | 0.2% | ||||
| S&P 500 | (0.5)% | 1.6% | Latin America | |||
| NASDAQ | (2.8)% | 0.2% | Brazil | 5.0% | (3.1)% | |
| Dow Transport | (0.8)% | 1.9% | Mexico | 0.1% | (5.8)% | |
| Russell 2000 | (3.5)% | (0.5)% | ||||
| Europe | Asia & Pacific | |||||
| UK FTSE 100 | 0.9% | (2.9)% | Shanghai | (0.3)% | (2.3)% | |
| German DAX | 2.6% | 1.0% | Nikkei 225 | 3.3% | (9.9)% | |
| French CAC40 | 1.8% | 4.6% | Hang Seng | 2.9% | (3.7)% | |
| Spain | 2.7% | 5.8% | South Korea | 2.4% | (0.8)% | |
| Italy | 2.5% | 15.0% | Australia | 0.5% | 1.4% | |
| Switzerland | 1.0% | 3.3% | Bombay | 2.7% | 5.9% | |
| Russia | 5.5% | (26.0)% | Indonesia | 1.4% | 13.8% | |
| Turkey | 7.0% | 1.5% | Thailand | 0.6% | 3.2% | |
- Treasury yields fell and are substantially lower than 3 months ago. i.e. Bonds rose.
| 30 Years Yields | (1.8)% | (7.8)% | 13 Week Yields | (26.7)% | (43.16)% | |
| 10 Years Yields | (1.4)% | (7.4)% | 30 Years Bond | 0.7% | 4.3% |
- Commodities rose for the week but for precious metals. Most are up for last 3-month.
| GSCI Index | 1.5% | 2.7% | |||
| Light Crude | 2.2% | 2.8% | Wheat | 0.3% | 14.1% |
| Nat Gas | 4.0% | 0.5% | Soybeans | 2.0% | 8.1% |
| Gold | (3.2)% | 8.1% | Sugar | 6.8% | 10.8% |
| Silver | (2.6)% | 1.9% | Coffee | 5.5% | 55.9% |
| Copper | 3.1% | (8.0)% | Cotton | 0.5% | 14.0% |
| Corn | 2.7% | 13.3% | Cocoa | 0.9% | 6.2% |
- Dollar generally gained for the week and Euro lost. For the three-month period, dollar lost against most majors except for Canadian dollar.
| Dollar | 0.1% | (0.3)% | |||
| EUR/USD | (0.3)% | 0.4% | AUD/USD | 1.9% | 3.5% |
| GBP/USD | 0.9% | 1.7% | NZD/USD | 1.5% | 5.6% |
| USD/JPY | 0.5% | (1.2)% | USD/CAD | (1.5)% | 4.3% |
| USD/CHF | 0.5% | (0.8)% | AUD/JPY | 2.4% | 2.3% |
The Economic Report Card
The amalgamation of economic news for the week was mixed, with uneven spread of good and bad report resulting in similar market move with downside bias for the week.
- Monday 24th
- The European Flash PMI was mixed. France reading showed expansion and was better than estimates at 51.9 but German numbers of 53.8 disappointed.
- The US Flash Manufacturing PMI came at 55.5, below expectations
- Tuesday 25th
- UK numbers were mixed. CPI came in line but Core CPI was higher at 1.7%. PPI was lower at -0.4% and Mortgage Approvals were lower too.
- Case-Shiller came in line but New Home Sales disappointed at 440K..
- Wednesday 26th
- The Core Durable Goods Orders were in line but Durable Goods rose to 2.2%
- Flash Services PMI were better at 55.5
- Thursday 27th
- UK Retails m/m were better at 1.7%
- Unemployment Claims fell to 311K but the Final GDP disappointed at 2.6% so did Pending Home Sales m/m at -0.8%
- Japanese Household Spending was worse than estimates @ -2.5%, Core CPI rose to 1.0% so did Retail Sales y/y and Unemployment Rate fell to 3.6%
- Friday 21
- UoM Consumer Sentiments was worse than estimates at 80.
- Forex futures market speculative positioning data from the CFTC Commitments of Traders report as of the close on Tuesday, March 25, 2014:
- EUR net long 40K vs. long 53K prior
- JPY net short 69K vs. short 62K prior
- GBP net long 30K vs. long 26K prior
- AUD net short 21K vs. short 24K prior
- CAD net short 33K vs. short 70K prior
- CHF net long 15K vs. long 15K prior
- NZD net long 18K vs. long 16K prior
Technical perspective – 30K Ft view:
Despite a negative week, major US indices are still trending up in nice channels. For the past few weeks the market is trading in a horizontal channel. Last week saw the move up from the lower channel line, this week it was reversed and the indices moved down from the upper line.
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Energy was the week’s strongest sector. Energy Sector SPDR, XLE, broke out to a new high. In Early February, XLE tested the highs of 80.97 made in 2011 by retracing to 81.77 from 88.53. On Friday, it broke above last year’s high to record territories by completing a Cup-With-Handle pattern.
XLE has also started to outperform the broader S&P 5oo after the ratio, XLE / $XPS, made a double (or triple) bottom.
Many of the energy stocks are also following XLE to new records. Some made new highs last year and then witnessed a deeper correction the XLE. They haven’t yet recovered al the lost ground but other components have.
Foreign Markets
The markets around the world are showing a mixed picture. The past week was good for most markets in developed an emerging economies. In February, EAFE iShares, EFA, which measures the developed markets, broke above a long-term horizontal channel. Since then it has re-tested the upper limit and the moved above again. This is reflecting most of the developed market – Germany, UK, France, Italy, Spain, Switzerland and Japan. The major components of the ETF include Nestle (NSRGY), Roche (RHHBY), HSBC (HSBC), Nopvartis (NVS), Toyota (TM), Royal Dutch (RDS.A), GlaxoSmithKline (GSK), and Sanofi (SNF).
The Emerging Markets iShares, EEM, has underperformed EFA for past many weeks but it is showing signs of revival. So are many emerging markets, which are forming a bottoming pattern or bouncing off the oversold regions, in any case, presenting nice trading opportunities.
Looking Ahead To Week Of March 24th, 2014
Earnings:
Not many major companies will come out with earnings report next week. The notables are:
- Cal-Maine Foods (CALM) is scheduled for Monday before open
- Apollo Group (APOL) will after close on Tuesday
- Lindsay Corp. (LNN) before open and Paychex (PAYX) after close on Wednesday
- Monsanto (MON), Acuity Brands (AYI) will announce in the morning and CheckPoint Systems (CHKP) will do in afternoon.
- Perry Ellis (PERY) is scheduled for Thursday morning and Micron (MU), Mitel Networks (MITL), and Synnes (SNX) are scheduled after close
- CarMax (MAX) and AZZ Inc. (AZZ) will announce before open on Friday 4th
Splits
- EOG Resources (EOG) is splitting 2:1 and UBIC (UBIC) is doing a reverse split of 1:10 on April 1st.
- Pegasystems (PEGA) will split 2:1 and Astellas Pharma (ALPMY) will spilt 5:4 on April 2nd
- Google (GGOG)is splitting 2:1, on April 3rd
Economic Reports
In the economic reports, this is a big week as US Non-Farm Payroll will come out on Friday.
- Monday
- Chicago PMI at 9:45 AM
- Tuesday:
- 10:00 AM – ISM Mfg. PMI, Construction Spending, IDB/TIPP Survey, Vehicle Sales
- Wednesday:
- ADP Non-Farm Employment at 8:15
- Factory Orders at 10:00 AM
- Thursday:
- Challenger Jobs Cuts y/y at 7:30 AM
- Unemployment Claims and Trade Balance at 8:30 AM
- ISM Non-Mfg PMI at 10:00 AM.
- Friday:
- Non-Farm Employment Change and Unemployment rate at 8:30 AM
Non-US Economic Data:
- Sunday:
- Australia will rlease New Home Sales and New Zealand ANZ Business Confidence
- Monday
- Japan: Housing starts at 1:00 AM
- EU: CPI Flash Estimates y/y at 5:00 AM
- CAD: GPD m/m at 8:30 AM
- China: Manufacturing PMI at 9:00 PM; HSBC Final Mfg. PMI at 9:45 PM
- Japan: Tankan Indexes at 7:50 PM; Avg. Cash Earnings y/y at 9:30 PM
- AUS: Cash Rate and RBA Statement at 11:30 PM
- Tuesday:
- UK: Manufacturing
- EU: Unemployment rate at 5:00 AM
- Wednesday:
- UK: Construction PMI
- EU: Final GDP q/q and PPI m/m at 5:00 AM
- AUS: Retail Sales and Trade Balance at 8:30 PM
- Thursday:
- UK: Services PMI at 4:30 AM.
- EU: Retail Sales m/m at 5:00 AM; Minimum Bid rate at 7:45 AM; ECB Press Conference at 8:30 AM
- CAD: Trade Balance at 8:30 AM
- Friday:
- UK: Halifax HPI m/m
- EU: Retail PMI at 4:10 AM; German Factory Orders m/m at 6:00 AM
- CAD: Employment Change and Unemployment Rate at 8:30 AM; Ivey PMI at 10:00 AM
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