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Weekly market recap: Blame it on the weather

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For the week ending February 15, 2014

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Overview

This past week the weather was blamed for the slowing of the economy during the beginning of the first quarter. Thus, despite weak economic news, the markets rallied strongly finishing the week up over 2% across the board.

On Tuesday, Janet Yellen publicly testified before the House for the first time as chairman of the Federal Reserve. During her testimony, she said she would continue with the "measured steps" scheduled for reducing the QE stimulus, but would stop any further tapering if the economy continued to slow. This removed a lot of the uncertainty surrounding this issue, which helped fuel the rally. Yellen was scheduled to testify before the Senate, but it was postponed due to bad weather.

Also during the week, the House approved legislation extending the debt ceiling without any attached provisos. This removed another issue of uncertainty which also contributed to the rally.

During the week, what little economic news the markets received was not good. Retail Sales were weak, falling -0.4% (expected was -0.1%) along with a drop in prior month's revised figure to -0.1% (from +0.2%); and Industrial Production was down -0.3% (expected was +0.3%) with Manufacturing down -0.8% (expected was +0.1%). The markets, however, responded positively after an initial drop; a possible indication that 'bad news is good news' in expectation that the Fed will not accelerate tapering. These are early indications that the first quarter is (and will be) sluggish; and if proven true, could lead to the Fed suspending tapering.

On the corporate front, Comcast has agreed to acquire Time Warner Cable and earnings season is coming to a close.

With earnings season winding down, the focus will be on economic data and the impact of bad weather on retail sales and industrial production. Uncertainty due to weather will continue through February (and possibly March) until the effects of weather (from the norm) is reported.

Overall, the economy still shows signs of slowing in the first quarter, especially in the Manufacturing sector. The burden falls on the Consumer sector to maintain growth. Given the current sluggishness in this sector (based on retail sales), we can expect a downward revision to GDP. If much of this is attributed to bad weather, it is likely (in the short run) the markets will be little affected and the rally will continue.

The focus next week will be on the Housing sector and inflation numbers. While housing sales have slowed recently, homebuilders have been optimistic despite the increase in mortgage rates. The reports on the housing market index, housing starts, and existing home sales will provide additional information on the direction of the Housing sector.

Information on inflation (inflation has remained subdued so far) will be provided by the Producer (PPI) and Consumer Price Index (CPI). Keep in mind, however, that the composition of the PPI has been changed to emphasize final demand.

The FOMC Minutes is on Wednesday. Nothing new is expected beyond the remarks of Janet Yellon last Tuesday before the House.

Market Gauge

Year-to-date the markets are mixed: Dow -2.5%; S&P500 -0.5%; Nasdaq 1.6%.

The Markets for the past week were: DJIA up 2.3%; S&P500 up 2.3%; Nasdaq COMP up 2.9%.

Commodities (ETFs) for the past week were: Gold (GLD) up 4.08%; Silver (SLV) up 7.16%; Oil (OIH) up 2.45%; Dollar (UUP) down -0.74%; 30-yr Bonds rose 2 basis points to 3.70%.

The VIX this past week (a measure of market sentiment and volatility) dropped to 13.57 due to the reassuring statements made by Chairman Janet Yellen before the House of Representatives, the passing of an extension to the debt ceiling in the House, and the expectation that bad weather is causing weakness in the economy.

Top Headlines

In the U.S., Welcome to the good news/bad news economy; Unemployed Americans left hanging; US consumer sentiment steady in Feb.; US output tumbles in January; Jan. import prices tick up as inflation stays tame; California budget only seems OK: Kashkari; All of that snow is dragging down US growth; US inventories in upside surprise after grim data; Congress finally out of way...for awhile: Corker; Data setback: US claims spike, retail sales tumble; Janet Yellen is NOT Ben Bernanke; Bad jobs reports won't change tapering: Yellen; House passes debt-ceiling increase with no add-ons; US inventories gain in Dec., but fail to impress; Yellen sees better economy, less money printing; US small businesses upbeat on the economy; and Why the US economy may be in a semi-permanent funk.

In Europe, UK salary split sees übers pull ahead; 'Demolition Man' Renzi's next fight: Berlusconi; Euro zone's surprise growth boosts recovery hopes; UK pensions leave consumers short-changed; Time to curb the enthusiasm about Europe?; Euro zone GDP seen weak as optimism wanes; Italy's Letta to submit resignation Friday; The app economy: Europe’s next big source of jobs?; BNP Paribas profit misses, hit by legal provision; Britain: Scotland would lose pound if it leaves UK; Lloyds returns to profit, bonus pool hits $655 million; Renault sets 'realistic' 2017 goals after profit drop; ABB trims targets on slow global recovery; Nestle up against ‘challenging’ 2014: CEO; Don't expect a dividend: Commerzbank CEO; Finally – Sterling's turn to steal the show; BoE's Carney unveils 'next phase' of forward guidance; Insurers braced as Britain battered by storms; ECB's Draghi says SSM can fight localized bubbles; Trump snaps up $20 million Irish golf course; Irish PM counters corporate tax rate claims; France's Hollande to woo techies in Silicon Valley; and SocGen's earnings triple in 2013 but miss estimates.

In Asia, Thai riot police retake protest sites; Emerging market chaos short-lived: DBS; A double dose of love for China; The battle of CPI and WPI in India; China’s Jade Rabbit springs back to life; China's inflation stays subdued in January; China smog makes capital 'barely suitable' for life; Bid to curb shadow banking in China may be working; Singapore's biggest bank misses profit expectations; Air New Zealand gets flak for 'sexist' video; Japanese equities poised to pop: Pro; Indonesia keeps rates steady at 7.5%; China’s stellar smartphone market dips; Rio Tinto CEO: China aiming for resource security; Australia’s jobs picture keeps getting uglier; Is the Philippines headed for boom or bust?; World's biggest PC maker posts 30% profit jump; Highlights from the Singapore Airshow; Southeast Asia's biggest telco ekes out profit rise; China posts blowout trade data, exports jump 10.6%; Corporate handouts in Australia: the right move?; Is China using gold to internationalize the yuan?; Do China’s banks face a new headwind?; and Casino hub in Vietnam? Maybe sooner than you think.

Weekly Review

On Monday, with no economic data and the markets waiting for Janet Yellon's testimony before the House, the Dow rose fractionally to 15,801.

On Tuesday, with a favorable response to Janet Yellon's testimony of tapering based on data-dependency, the Dow rose 1.2% to 15,994. Oil rose more than $1 to $100.45.

On Wednesday, with little news, the Dow dropped fractionally to 15,963. Oil rose $0.50 to $101.

On Thursday, despite an unexpected drop in Retail Sales and a downward revision from the prior month, the Dow rose 0.4% to 16,027. Gold rose $10 to $1,302.

On Friday, despite an unexpected reversal in Industrial Production, the Dow rose 0.8% to 16,154. Gold rose $20 to $1,320.

Next Week's Calendar

The economic calendar for next week is full: on Monday – markets closed for Presidents' Day; on Tuesday –Empire State Mfg Survey, Treasury International Capital, Housing Market Index; on Wednesday – Housing Starts, Producer Price Index, FOMC Minutes, FedSpead; on Thursday – Weekly Jobless Claims, Consumer Price Index, PMI Manufacturing Index Flash, Philadelphia Fed Survey, EIA Petroleum Status Report; and Friday – Existing Home Sales.

If the Markets move down, stay on the side lines or consider Contra ETFs. For Option players, selling premium is advised. To learn more about options and earning consistent weekly income, go to optionsannex.com.

To the Charts (see charts above)

The following ETFs (DIA, SPY, QQQ) provide a technical review of the Market (and are also excellent Option trading vehicles). Represented are the Dow Industrials (DIA), S&P500 (SPY), and Nasdaq 100 (QQQ).

The Charts for each include views for Monthly, Weekly (including Price Channels), and Daily (including monthly Pivot Points) with MACD and Stochastic indicators. The Pivots are: white for central pivot point; yellow for R1 and S1; magenta for R2 and S2; red for R3 and S3.

DIA

The Dow Industrials (DIA) closed up at 161.59. If the DIA drops, then the next level of support will be at 153.12 (weekly chart); the next level of major resistance is 165.51 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving down above the overbought area.

The weekly chart indicates a bearish posture (down Arrow) with the MACD positive and strengthening, and the Stochastic moving down below the midpoint.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up at the overbought area.

SPY

The S&P500 (SPY) closed up at 184.02. If the SPY drops, then the next level of support will be at 173.71 (weekly chart); the next level of major resistance is 184.94 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

The weekly chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving down at the midpoint.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up above the overbought area.

QQQ

The Nasdaq 100 (QQQ) closed up at 89.81. If the QQQ drops, then the next level of support will be at 83.74 (weekly chart); the next level of major resistance is 89.82 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving down above the overbought area.

The weekly chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving down below the overbought area.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up above the overbought area.

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