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Weekly market recap: Markets nervous over Ukraine and China

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For the week ending March 15, 2014

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Overview

This past week the U.S. markets dropped over two percent on both geopolitical and economic events. On the geopolitical front, the increase in hostilities in the Ukraine and the pending election this Sunday in the Crimea have sent global markets down with investors everywhere rushing to safe havens and away from risk assets.

The U.S., Ukraine, and European Union consider the referendum in Crimea to be illegal. There are only two issues on the referendum: secede from the Ukraine and join Russia immediately; or secede and consider joining Russia at a later date. If the former occurs, sanctions against Russia (led by the U.S. and the EU) will follow. Many pundits feel that the markets have already adjusted for the latter scenario and that the severe impact on Russia's economy (with bond yields now over 9 percent) will soften Putin; if so, then the U.S. markets could stage a small rally on Monday. However, if events escalate (which is likely) and the Crimea votes to join Russia, the expectation is for the markets to drop further. The concern is that events in the Ukraine will encourage other pro-Moscow parts of the Ukraine to follow suit, which could extend to other nation-states in the region over time. See MarketWatch article.

Of greater concern to the markets is China. The latest economic news shows China's economy continuing to slow (China's exports dropped over 18 percent since last year vs. a 4 percent expected gain) with no reaction from the PBOC (China's central bank). Within the last several weeks, there have been two defaults: an investment trust; and a corporate bond. If this is the start of additional investment trust defaults, it could significantly impact the confidence in China's economy and its unregulated shadow banking system. In addition, China currently faces a housing bubble with cities full of empty high-rises.

Equity markets world-wide declined with losses ranging from -0.5 percent (India's Sensex 30) to -6.2 percent (Japan's Nikkei 225). China's Shanghai Composite dropped -2.6 percent, and is down -5.3 percent year-to-date.

Overall, the U.S. markets got off to a soft start due to economic news from China and Japan, and then tumbled on Thursday due to rising tensions in the Ukraine with the S&P suffering its worst day since February despite good initial jobless claims and retail sales numbers. China will be posting its flash PMI on Monday, March 24; if economic conditions in China continue to slip, we could see additional defaults by lenders and a growing negative impact on U.S. markets. The expectation next week is for increased volatility as events in the Ukraine unfold. If Crimea votes to join Russia, expect the markets to tumble; else, we could see consolidation throughout the week. The FOMC Minutes, due on Wednesday, is expected to continue with tapering. There will be discussions within the meeting regarding when to raise rates, but current expectations are that rates will remain unchanged for the remainder of this year.

The focus next week will be on Fed Chair Janet Yellen (who will be conducting her first quarterly press conference) and the FOMC Meeting Announcement (including Fed forecasts). Additional economic news on the manufacturing and housing sectors (which have recently been mixed) will come from updates in industrial production, housing starts, and existing home sales.

Market Gauge

Year-to-date the markets are mixed: Dow -3.1%; S&P500 -0.4%; Nasdaq 1.6%.

The Markets for the past week were: DJIA down -2.4%; S&P500 down -2.0%; Nasdaq COMP down -2.1%.

Commodities (ETFs) for the past week were: Gold (GLD) up 2.42%; Silver (SLV) up 1.39%; Oil (OIH) down -3.55%; Dollar (UUP) down -0.19%; 30-yr Bonds (TYX) dropped 13 basis points to 3.59%.

The VIX this past week (a measure of market sentiment and volatility) rose to 17.82 due to events in the Ukraine and the economic slowdown in China.

Top Headlines

To view details of headlines, go online to CNBC.

In the U.S.: US claims fall to new 3-month low; Business inventories climb 0.4%; Retail sales up more than expected; Fed nominees stress jobs and stability; Pimco: US economy to grow while China slows; Can't increase prices 'fast enough': Mohawk CEO; US poised to become world's only superpower; Wholesale inventories rise, but sales drop sharply; As rates edge higher, mortgage applications slip; White House: US economy will pick up in 2014, 2015; Emerging economies hurting global growth: OECD; Dick Bove sees recession, 7% rate...in a few years; February jobs growth hit by weather: Fed's Plosser; Housing chill more than weather: Hovnanian; Better economy not enough for Fed to ease: Dudley; Bond yields at six-week high, weather factor fades; Heating up: Job creation accelerates in February; Chart: What’s the real unemployment rate?; US trade deficit steady, exports bounce back; Here are 5 clues to the health of the US job market; US factory orders drop adds to slowdown concern; Fed's Plosser 'very worried' about QE consequences; and Fed's Williams sees rate hike by mid-2015.

In Europe: West prepares sanctions against Russia; Traders bet Russia moving dollars; Crimea referendum: Why it’s so important; UBS CEO's pay rises to $12.3 million in 2013; Russia stocks hit 4½-year low, outflows surge; China: Real reason for the euro’s strength?; Russia has 'no plans to invade east Ukraine': Lavrov; UK grocer Morrisons suffers payroll data theft; Vivendi enters exclusive SFR talks with Altice; Cyprus one year on: Russians to the rescue?; 'Ridiculous' UK tax system killing off pubs: boss; Soc Gen CEO: I am committed to Russia; Barclays axe swinging over investment bank jobs; Russia massing military forces near border with Ukraine; $3 billion for Ukraine to go straight to...Russia; With eye on euro, ECB ready to fight deflation; Crimean bank runs fueled by jittery customers; Netflix sets sights on Europe for growth; E-commerce revolution drives Europe's IPO rush; Generali doubles dividend as profits hit 6-year high; Irish economy in shock 2.3% decline in fourth quarter; Austria arrests Ukraine oligarch at US request; Risks loom for Europe's 'marathon' recovery: Weidmann; and Pope's most radical change yet—Vatican finances.

In Asia: China widens yuan trading band to 2%; Actions on board MH370 were deliberate; Net titans of China to go public in New York; For Myanmar's Muslims, no escape from brutality; Is China's slowdown actually good for the world?; Fresh worries over China prompt slew of downgrades; Chinese microblogging site Weibo files $500M IPO; PBoC halts Tencent, Alibaba virtual credit cards; Missing Malaysia plane made erratic changes: Report; Singapore to regulate virtual currency industry; Temasek offers to buy Olam, values firm at $4.3 billion; BOJ minutes: Economy, prices on track with forecasts; China banks cut loans to bloated sectors: Sources; Malaysia 'has not jeopardized' search for plane; Panasonic compensates China workers for pollution; Chinese Premier hints at tolerance for slower growth; More worrying data on China's economy; ETFs woo Mrs. Watanabe with foreign stocks; Tiny tropical state joins the extreme weather club; New Zealand central bank hikes interest rates; Dr. Doom: Take the pain now or it'll be worse later; Toyota gives Japan workers biggest pay raise in 21 years; and Japan's machinery orders surged in January.

Weekly Review

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

On Monday, with Russia's grip on Crimea tightening, the Dow dropped fractionally to 16,418. Gold held at $1,340; Oil dropped $1 to $101.

On Tuesday, with Russia's annexation of Crimea appearing certain, the Dow dropped -0.4% to 16,351. Gold rose $10 to $1,350; Oil dropped $1.50 to $99.50.

On Wednesday, with quiet day, the Dow dropped fractionally to 16.339. Gold rose $15 to $1,365; Oil dropped $1.25 to $98.25.

On Thursday, with Russia amassing troops on the Ukraine border, the Dow dropped -1.4% to 16,108. Gold rose $7 to $1,372.

On Friday, with mixed signals from Russia regarding intervention into Eastern Ukraine, the Dow dropped -0.3% to 16,065. Gold rose $8 to $1,380; Oil held at $91.

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 – Empire State Mfg Survey, Treasury International Capital, Industrial Production, Housing Market Index; on Tuesday – Consumer Price Index, Housing Starts; on Wednesday – Weekly EIA Petroleum Status Report, FOMC Meeting Announcement, Chair Press Conference; on Thursday – Weekly Jobless Claims, Philadelphia Fed Survey, Existing Home Sales; and Friday – Quadruple Witching.

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

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 160.65. If the DIA drops, then the next level of support will be at 153.12 (weekly chart); the next level of major resistance is 165.29 (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 bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up at the overbought area.

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

SPY

The S&P500 (SPY) closed down at 184.66. If the SPY drops, then the next level of support will be at 173.71 (weekly chart); the next level of major resistance is 188.96 (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 bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

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

QQQ

The Nasdaq 100 (QQQ) closed down at 88.67. If the QQQ drops, then the next level of support will be at 83.74 (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 bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving down above the overbought area.

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

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