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Weekly market recap: Market rotation continues

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Overview

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For the week ending May 10, 2014, the markets ended mixed as rotation out of tech and small cap stocks and into the more stable large cap stocks continues. The Dow closed at a record high of just over 16,583 while the Nasdaq Composite and Russell 2000 closed lower.

With little economic news, the focus was on Fed Chair Janet Yellen as she testified before Congress. The highlights of her prepared remarks were the following: monetary policy is not a panacea; long-term inflation target is 2 percent; higher interest rates will be offset by increased revenues as the economy improves; and tapering will continue as long as improvement in the labor market continues.

The JOLTS report, released Friday, indicates a soft labor market with job openings down while hires and separation rates remain flat. This will support the Fed's position for continued accommodative monetary policy.

On the earnings front, earnings season is winding down. Retailers are reporting, and their results could be a drag on the markets over the next week.

In The News

The crisis in the Ukraine has eased as Russian President Vladimir Putin is considering postponing the referendums scheduled this weekend by pro-Russian militants and allowing the Ukraine presidential election to go forward on May 25. In addition, Russia states it will pull its troops back from the Ukrainian border.

The positive effects of Obamacare (the Affordable Care Act) continue as a recent survey from Gallup indicates an increase in paid enrollments (20 percent, up from 16.7 percent last month). In addition, the overall uninsured rate had dropped significantly (13.4 percent, down from 18 percent in mid-2013).

Next Week

The latest monthly data indicate that bad weather did have a significant impact on the economy as spring thaw continues. The only business activity that is lagging is hiring.

The focus next week in the U.S. will be on two reports that will determine if second quarter GDP is picking up: Retail Sales; and Housing Starts. Retail Sales jumped last month, and investors will be looking for a continuation. Housing Starts has been lagging, but improvement this month is expected after employment jumped dramatically.

Globally, the Bank of England is releasing its Quarterly Inflation Report, the Euro zone is releasing its flash first quarter GDP, and China's April estimates for retail sales and industrial production will be released.

We are expecting the markets to remain in consolidation next week as the situation in the Ukraine remains subdued; if not, we could see volatility spikes. There is a moderate amount of economic data being reported, but no surprises are anticipated.

Market Gauge

Year-to-date the markets are mixed: Dow 0.0%; S&P500 +1.6%; Nasdaq -2.5%.

The Markets for the past week were: DJIA up 0.4%; S&P500 down -0.1%; Nasdaq COMP down -1.3%.

Commodities (ETFs) for the past week were: Gold (GLD) down -0.77%; Silver (SLV) down -1.44%; Oil (OIH) down -0.71%; Dollar (UUP) up 0.38%; 30-yr Bonds (TYX) rose 10 basis points to 3.47%.

The VIX this past week (a measure of market sentiment and volatility) rose slightly to 12.92% due to lack of economic and global news.

Top Headlines

To view details of headlines, go online to CNBC.

In the U.S.: Romney backs minimum wage hike; Wholesale inventories jump in March; Plosser: Fed needs systematic policies; Yellen on minimum wage hike; Jobless queue shortens, snapping 3-week surge; Draghi says ECB may act, jawboning euro lower; Yellen: Economy on track, but watch housing market; Winter freezes productivity, fires up labor costs; Export surge helps narrow March US trade gap; Sorry, China is NOT about to be No. 1 economy; OECD cuts growth forecast, warns of complacency; Charge! The US government's OTHER debt problem; White House issues dire warning on climate change; Forget jobless rate, this is the key to the economy; US service sector grows at sizzling pace in April; Services grow in April, but not as quickly: Markit; Blame misaligned policies for state of US economy; Fed won't consider rate raise until October: Fisher; Why gas prices should go down in the weeks ahead; Hiring rebounds but more gave up looking for work; Payrolls jump in April as thaw hits jobs market; Chart: What’s the real unemployment rate?; Factory orders rise in March, but below forecasts; and What millennials don't know about the job market.

In Europe: France + start-ups = bad romance; Britain bounces back to pre-crisis peak; S&P revises Portugal outlook to stable from negative; Co-op Bank to raise another $678 million; ArcelorMittal trims outlook on China, Russia; Putin flies to Crimea, more bloodshed in Ukraine; Omnicom, Publicis deal was driven by ego: WPP; Will the ECB's euro bashing work?; Too big to work? Why ad giants called off merger; Coca-Cola's shrinking its footprint in Russia; US ambassador: Russian troops haven't withdrawn; Bet on euro weakness amid QE talk: HSBC’s Bloom; Euro cause for 'concern,' ECB may act : Draghi; Bank of England leaves rates; asset purchases unchanged; Prudential profits rise 29%, Asia grows again; Barclays CEO defends plans as 19,000 jobs cut; UK house prices lose some momentum in April; BT gains over 3%, as sports, broadband lift results; UK grocer Morrisons sales continue to slide; Lloyd’s warns on climate change impact; Euronext will list on 3 European exchanges in IPO; Russia vs. Ukraine: A fighting force comparison; Ukraine rebels ignore Putin call to delay vote; and Barclays update: Don’t expect a ‘magic wand’.

In Asia: Give 100% at work? Not if you live here; Alibaba chairman Ma's dealings raise red flags; China April CPI rose 1.8%, below expectations; Will 'womenomics' give Japan a boost?; Aussies brace for some tough love in budget; Why Alibaba's IPO is the end, and start, of an era; Toyota sees 2.4% drop in fiscal year net profit; Timeline of latest flare-up in Asia tensions; Batten down the hatches, trouble brews in China Sea; Some Chinese call Jack Ma a traitor on microblogs; Asian countries dominate global education ranking; Yingluck sacked: What now for the Thai economy?; Missing flight won’t impact China ties: Malaysia minister; Markets cheer China trade, but analysts stay cautious; Record profits for Australia's biggest lender; Is a massive rebound coming for the Nikkei?; Tensions rise as Vietnam says China rammed ships; Alibaba strikes huge deal with Amazon rival; Japan automakers get fast and furious in China; Is it game over for Nintendo?; Vietnam China tensions mount in South China Sea; China property bubble popping? Not so fast; Thai court says prime minister must step down; and Alibaba IPO may bring more Chinese firms to US.

Weekly Review

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

On Monday, despite escalating violence in Ukraine and a soft China PMI, the Dow rose fractionally to 16,530.

On Tuesday, with an 18 percent drop in Twitter, the Dow dropped -0.8% to 16,401.

On Wednesday, with dovish comments from Fed Chair Yellen, the Dow rose 0.7% to 16,518.

On Thursday, with a large drop in initial jobless claims and strong chain store sales, the Dow rose 0.2% to 16,551.

On Friday, with mixed economic news and the dollar rising sharply, the Dow rose 0.2% to 16,583.

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 – Treasury Budget, FedSpeak; on Tuesday – Retail Sales, Import and Export Prices, Business Inventories, FedSpeak; on Wednesday – Weekly EIA Petroleum Status Report, PPI-FD, Housing Market Index; on Thursday – Weekly Jobless Claims, Janet Yellen speaks, Consumer Price Index, Empire State Mfg Survey, Industrial Production, Philadelphia Fed Survey, FedSpeak; and Friday – Housing Starts, Consumer Sentiment, FedSpeak.

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

For more information about options, see the 'Suggested by the author' links below.

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 up at 165.72. If the DIA drops, then the next level of support will be at 159.88 (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 up above the overbought area.

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

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

SPY

The S&P500 (SPY) closed down at 187.96. If the SPY drops, then the next level of support will be at 181.31 (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 up 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 overbought area.

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

QQQ

The Nasdaq 100 (QQQ) closed down at 86.80. If the QQQ drops, then the next level of support will be at 83.28 (weekly chart); the next level of major resistance is 91.36 (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 negative but strengthening, and the Stochastic moving up toward the midpoint.

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

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