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Weekly market recap: Global markets retrench

DIA April 12, 2014
DIA April 12, 2014OptionsAnnex.com

For the week ending April 12, 2014

Overview

The equity markets sold off this past week amid fears of a global correction. What initially started as rotation out of technology and biotechnology stocks in the U.S. has now spread to most of the major global indexes, increasing the fear that a significant correction is likely to occur shortly. See Valuation fears drag down world equities.

Equity markets around the world suffered one of the worst weeks this year: the Dow was down -2.4 percent; S&P down -2.6 percent; and the Nasdaq down -3.1 percent. The S&P had the worst 2-day decline since June 2013. Globally, the FTSE 100 was down -1.0 percent; Nikkei 225 down -5.8 percent; and the SXXP 600 down -1.6 percent. Overall, international markets declined -1.8 percent (MSCI EAFE). See Tolleson Weekly Recap.

U.S. markets were down despite good economic news. The FOMC Minutes diminished fears of an accelerated timeline for raising interest rates citing qualitative factors, not quantitative metrics, as a guideline; and persistent low inflation remains the current concern. The Budget Deficit for March was the lowest in fourteen years due to increased tax revenues from an improved labor market and lower government spending. See Tolleson Weekly Recap.

Earnings kicked-off this week with banks JP Morgan (JPM) and Wells Fargo (WFC) reporting on Friday. JPM missed expectations and tumbled -3.7 percent (the worst Dow performer), while WFC exceeded expectations and rose 0.8 percent. See MarketWatch.

In The News

Given the current aggressive actions by Russia against the Ukraine, the G-7 is united on more aggressive sanctions against Russia, according to Treasury Secretary Jacob Lew. The Ukraine faces its first elections (since the ouster of President Viktor Yanukovych) on May 25. The outlook for the Ukraine is not good, with three possible disaster scenarios.

The free-fall drop in mortgage originations seems to be abating, as the two largest home-loan lenders (JP Morgan and Wells Fargo) show quarterly declines slowing. First quarter originations for JPM dropped 27 percent (vs. 43 percent in the prior quarter) and WFC dropped 28 percent (vs. 38 percent).

Sylvia Mathews Burwell is the nominee for Secretary of Health and Human Services as current Secretary Kathleen Sebelius announced her resignation after serving five years. After the disastrous rollout of the Affordable Care Act website last fall, the Whitehouse sent in management expert Jeffrey Zients to help with the turnaround that resulted in achieving the registration goal of 7 million.

Next Week

The markets are jittery over high equity valuations and the onset of earnings season. The central banks of Japan and England left monetary policies unchanged, and China's merchandise trade report missed expectations by a wide margin.

The focus next week in the U.S. will be on Retail Sales and the Fed's Beige Book (in anticipation of the FOMC meeting April 29 and 30). The focus overseas will be UK inflation and labor market data, and China's first quarter GDP, and March Industrial Production and Retail Sales.

We are expecting an increase in volatility next week as the situation in the Ukraine unfolds, earnings season continues, and the potential for a correction escalates (pundits are anticipating a correction in May if the economy falters). The continued slide in the markets will occur if China's growth continues to slip and the April job growth falls below 250 thousand.

Market Gauge

Year-to-date the markets are down: Dow -3.3%; S&P500 -1.8%; Nasdaq -4.2%.

The Markets for the past week were: DJIA down -2.4%; S&P500 down -2.6%; Nasdaq COMP down -3.1%.

Commodities (ETFs) for the past week were: Gold (GLD) up 1.08%; Silver (SLV) up 0.16%; Oil (OIH) down -2.95%; Dollar (UUP) down -1.25%; 30-yr Bonds (TYX) dropped 11 basis points to 3.48%.

The VIX this past week (a measure of market sentiment and volatility) rose to 17.03% due to concern over high equity valuations and fear of a significant correction.

Top Headlines

To view details of headlines, go online to CNBC.

In the U.S.: US consumer sentiment hits 9-month high; PPI posts largest jump in 9 months; Bonds not stock correction sign: Pro; Jobless claims plunge to near 7 year low; Jack Lew: 'Main Street' hasn't been made whole yet; A sign the labor market is improving, really; US inventories gain in Feb., may not help growth; Detroit passes key milestone with insurer deal; Despite steady mortgage rates, few are refinancing; Kocherlakota: Fed must combat jobless rate better; Wal-Mart trying to break through India barrier; Key jobs report eyed by Fed flashes green in Feb.; IMF: Rich nations to propel growth, but risks linger; Chart of the Day: Small businesses more optimistic; Larry Summers calls on US government to spend; Millions of Americans aren’t working. Why?; Can young immigrants force Obama's hand?; March jobs report just-right mix; How is monthly jobs report compiled? CNBC explains; Chart: What’s the real unemployment rate?; Fed's Fisher: Forward guidance shouldn't be binding; Jobs market bounces back as weather effects wane; and Why I'm bearish on Friday's jobs report: Pro.

In Europe: French stocks to see 60% rally: Soc Gen; NATO: Russian troops must leave Ukraine; Fitch ups Portugal outlook to positive; No business like chore business; IMF ‘proved wrong’ by UK recovery, says Osborne; Bad weather hits UK construction output in February; New Greek bond says more about Germany than Greece; Co-op Bank apologizes, no profit in 2014 or 2015; Putin's Kiev gas warning threatens Europe supplies; Russian economy hammered by massive money drain; Oh, to be French: Work emails banned after 6 pm; Upstart tech hubs hoping to rival Silicon Valley; 5 reasons to buy Greek bonds (yes, really!); Three in four UK grads won’t pay off loans: Report; Is the voracious appetite for Greek bonds justified?; UK house prices to rise annual 6% for five years; BoE holds fire but set to lead on rate hike; M&S's non-food sales fall for 11th straight quarter; Greece offers first long-term bond since 2010; Europe's biggest retailer grows sales in Spain; West must take 'concrete action' vs. Russia: Ukraine; Bundesbank chief: Deflation risks 'pretty limited'; Co-op in crisis: ex-minister Myners quits board; and Putin's Ukraine adventure may hurt Russian economy.

In Asia: China soy importer defaults – should you worry?; Does the Galaxy S5 have what it takes?; Fast Retailing tumbles after cutting guidance; Latest 'ping' unlikely to be missing jet's; China market is tough, says fastest-growing chat app; China importers default on US, Brazilian soy cargoes; China says to ease restrictions on overseas investments; China inflation data reflect sluggish demand; Tigerair will 'roar again': Tiger CEO; Emerging markets carry trade? Well, it’s back; How big data has changed India elections; Hong Kong and Shanghai unveil plan to link bourses; AirAsia to return to Japan 'like Caesar': CEO; Give China credit on yuan: Australian Treasurer; CEO of China's 'Facebook' unfazed by 80% stock drop; China's March exports miss big, tumbling 6.6%; Australia's jobs numbers surprise, bolstering Aussie; Japan machinery orders fall 8.8% in February; Why China doesn't have a big bond problem; India elections: Business winners and losers; Indonesia vote: Opposition ahead, Islamic party gains; This may be the silver lining to China's smog; Why Indonesia’s parliamentary elections matter; and The bitter Chinese turf war hampering regulation.

Weekly Review

To see the week in review, go to the Econoday calendar.

On Monday, with little economic news and growing fear of a correction, the Dow dropped -1.0% to 16,245.

On Tuesday, with a solid rise in job openings and in anticipation of the FOMC Minutes tomorrow, the Dow rose fractionally to 16,256.

On Wednesday, with the FOMC Minutes reconfirming expectations, the Dow rose 1.1% to 16,437.

On Thursday, despite good economic news, the Dow dropped 1.6% to 16,170.

On Friday, with good economic news raising concerns of a rate hike, the Dow dropped -0.9% to 16,026.

Next Week's Calendar

To see what's on the calendar for next week, go to the Econoday calendar.

The economic calendar for next week is moderate: on Monday – Retail Sales, Business Inventories; on Tuesday – Consumer Price Index, Empire State Mfg Survey, Treasury International Capital, Housing Market Index; on Wednesday – Weekly EIA Petroleum Status Report, Housing Starts, Industrial Production, Beige Book; on Thursday – Weekly Jobless Claims, Philadelphia Fed Survey; and Friday – markets closed for Good Friday.

If the Markets move down, stay on the side lines or consider Contra ETFs. For Option players, selling premium is advised.

To the Charts

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 down at 160.02. If the DIA drops, then the next level of support will be at 153.12 (weekly chart); the next level of major resistance is 166.06 (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 but weakening, and the Stochastic moving down below the overbought area.

The daily chart indicates a bearish posture (down Arrow) with the MACD negative and weakening, and the Stochastic moving down above the oversold area.

SPY

The S&P500 (SPY) closed down at 181.51. If the SPY drops, then the next level of support will be at 173.71 (weekly chart); the next level of major resistance is 189.70 (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 but weakening, and the Stochastic moving down below the overbought area.

The daily chart indicates a bearish posture (down Arrow) with the MACD negative and weakening, and the Stochastic moving down above the oversold area.

QQQ

The Nasdaq 100 (QQQ) closed down at 84.11. If the QQQ drops, then the next level of support will be at 84.11 (weekly chart); the next level of major resistance is 91.36 (weekly chart).

The monthly chart indicates a bearish posture (down 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 negative and weakening, and the Stochastic moving down below the midpoint.

The daily chart indicates a bearish posture (down Arrow) with the MACD negative and weakening, and the Stochastic moving up above the oversold area.