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Weekly market recap: Markets advance on low volume

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Overview

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For the week ending May 31, 2014, the markets advanced during the short 4-day week (markets closed on Monday for Memorial Day) with the S&P500 again making new highs on low volume, and the Dow posting a new record close on Friday. The advance occurred despite a very poor GDP figure indicating a contraction in the economy for the first quarter.

For the month, both the S&P500 and Dow had the largest gains since February with each making new record highs. The S&P500 gained 2.1 percent for the month, closing at 1,923.57; the Dow gained 0.8 percent, closing at 16,717.17.

GDP dropped to -1 percent after a first quarter revision (down from initially +0.1 percent) following a fourth quarter 2.6 percent rise. This is the first negative number in GDP in 3 years. The largest portion of the drop, as much as 1.5 GDP points, is blamed on bad weather; the remainder is blamed on a decline in inventory investments (especially car dealerships), U.S. exports, and reductions in spending on government programs and housing.

On the earnings front, as earnings season comes to a close: Costco, missed estimates; Kors and Toll Brothers beat estimates, and HP hit estimates (although revenue missed).

In The News

U.S. warned China today to halt actions in Asia that are causing destabilization; specifically its actions asserting claims in the South China Sea. In response, China said it would not initiate aggressive action in that area unless provoked.

The situation in the Ukraine grows worse under President-elect Petro Poroshenko (the inauguration is scheduled for June 7). Acting Defense Minister Mykhilo Koval said Ukrainian forces will continue operations in East Ukraine, charging that Russia was conducting "special operations". Poroshenko will be meeting with world leaders next week to garner support for military actions against the separatists.

Next Week

Despite the negative first quarter GDP figure, the markets believe that economic growth will continue through the rest of the year.

The focus next week in the U.S. will be on the following: ISM Mfg Index, International Trade, and the Employment Situation (Jobs Report and Unemployment Rate).

Globally, where the economic data in Europe disappointed, the focus will be on the ECB and its Monetary Policy Announcement. China will be reporting its PMI Manufacturing for May on June 2.

We are expecting increased volatility next week as there is an abundance of economic data being released; of key importance will be the Jobs Report and Unemployment Rate. If the turmoil in Ukraine leads to further Russian involvement, expect the markets to drop.

Market Gauge

Year-to-date the markets are up: Dow 0.8%; S&P500 4.1%; Nasdaq 1.6%.

The Markets for the past week were: DJIA up 0.7%; S&P500 up 1.2%; Nasdaq COMP up 1.4%.

Commodities (ETFs) for the past week were: Gold (GLD) down -3.28%; Silver (SLV) down -3.11%; Oil (OIH) up 1.86%; Dollar (UUP) down -0.05%; 30-yr Bonds (TYX) dropped 9 basis points to 3.31%.

The VIX this past week (a measure of market sentiment and volatility) rose to 11.40% due to uncertainty over economic growth.

Weekly Review

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

On Monday, markets closed for Memorial Day.

On Tuesday, with a strong Durable Goods report, the Dow rose 0.4% to 16,675. Gold dropped $25 to $1,265.

On Wednesday, with little news, the Dow dropped -0.3% to 16,633.

On Thursday, despite a negative GDP (offset by a very positive Weekly Jobless Claims report), the Dow rose 0.4% to 16,698.

On Friday, despite soft economic news, the Dow rose fractionally to 16,717.

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 full: on Monday – ISM Mfg Index, Construction Spending; on Tuesday – Motor Vehicle Sales; on Wednesday – ADP Employment Report, International Trade, Productivity and Costs, Weekly EIA Petroleum Status Report; on Thursday –Weekly Jobless Claims; and Friday – Employment Situation.

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 166.93. If the DIA drops, then the next level of support will be at 159.88 (weekly chart); the next level of major resistance is 167.29 (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 above the overbought area.

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 192.68. If the SPY drops, then the next level of support will be at 181.31 (weekly chart); the next level of major resistance is 192.68 (weekly chart).

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

QQQ

The Nasdaq 100 (QQQ) closed up at 91.31. If the QQQ drops, then the next level of support will be at 83.28 (weekly chart); the next level of major resistance is 91.31 (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 up above the midpoint.

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

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