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Weekly market recap: Markets respond to news on Ukraine, China and Fed

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For the week ending March 22, 2014

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Overview

This past week the markets had a lot of news to digest. The major concern over the Ukraine the prior week has dissipated as the response to the Crimean election was muted. While Russia finalizes the annexation of Crimea, Ukraine signs an EU trade pact which solidifies Europe's support and recognition of the new Ukrainian government under President Viktor Yanukovych. The response by the EU and the U.S. was to sanction Russian lawmakers and businessmen, but not Russia. The situation in the Ukraine is still evolving; but for now, the markets are less concerned. See CNN article.

The gradual slowdown of China's economy could lead to further defaults within its immense shadow banking system. This would lead to a financial crisis, and it is uncertain how China's government will respond. China will be issuing its flash PMI this Sunday night. The markets are expecting some slowdown, but a large miss will likely cause a sharp reaction. In the interim, the PBOC (China's central bank) widened the daily trading range for the yuan by 2 percent from its midpoint. This action is to improve market efficiency and allow increased two-way price swings. It is uncertain if this action will be effective, since similar actions in the past have failed. See WSJ article.

The latest policy statement and forecasts from the Fed on Wednesday caused some market jitters as concerns increased over an interest rate hike occurring earlier than expected. The Fed forecast that interest rates would increase by 1 percent by the end of 2015, and 2.25 percent a year later; these rates are higher than previously forecasted. During Fed Chair Yellen's first quarterly press conference, the news media focused on her statement that an interest rate hike could occur as early as 6-months after the completion of tapering (or mid 2015). The resulting market losses on Wednesday were recovered the next day as the markets rallied.

This past week the S&P reached new highs briefly on Friday before going negative during quadruple witching. The little economic news for the week was positive; especially the better than expected Philadelphia Fed manufacturing index (9.0 actual vs. 3.0 expected).

Equity markets world-wide, despite mid-week weakness, rallied ending positive for the week. The FTSE was up 0.4 percent; the CAC up 2.8 percent; the DAX up 3.2 percent; and the SMI up 2.2 percent.

Overall, the U.S. markets got off to a strong start on Monday as the tension in the Ukraine was diminished when Russian President Putin offered calming comments that Russia does not want to partition the Ukraine and would rely on "diplomatic and legal means" to defend its interests. The markets continued its rally on Tuesday as housing permits came in higher than expected. Wednesday saw a pullback in the markets on Fed comments only to be erased on Thursday with good economic news. Friday was choppy due to quadruple witching and heavy FedSpeak.

Economic data in the first quarter suggest increasing momentum for the second quarter, especially as the manufacturing and housing sectors are showing signs of improvement. However, the unusual cold weather in January is expected to have a negative impact on GDP for the first quarter. We expect that volatility next week will increase over growing concerns with China's shadow banking system and the continuing events in the Ukraine.

The focus next week will be on housing and manufacturing with reports from Case-Shiller and new and pending home sales, durable goods orders and the Markit surveys.

Market Gauge

Year-to-date the markets are mixed: Dow -1.7%; S&P500 1.0%; Nasdaq 2.4%.

The Markets for the past week were: DJIA up 1.5%; S&P500 up 1.4%; Nasdaq COMP up 0.7%.

Commodities (ETFs) for the past week were: Gold (GLD) down -3.48%; Silver (SLV) down -5.33%; Oil (OIH) up 3.64%; Dollar (UUP) up 0.89%; 30-yr Bonds (TYX) rose 2 basis points to 3.61%.

The VIX this past week (a measure of market sentiment and volatility) dropped to 15.0% due to lower concerns about events in the Ukraine and improving economic news.

Top Headlines

To view details of headlines, go online to CNBC.

In the U.S.: More bad news for long-term unemployed; Fed's Kocherlakota blasts new rate guidance; Fitch Ratings takes US off negative ratings watch; Reasons to cheer rising rates; The winter that was: What it cost us; US manufacturing is coming back—Thank shale; US claims tick up, 4-week average hits 4 month low; Home resales drop to 19-month low; leading indicators up; Winter's snowy barrage hammers US road budgets; The Fed's new move: 'qualitative teasing'; Why equities sold off despite a dovish Fed: El-Erian; Fed shift threatens its credibility: Farr; CEOs are more upbeat on the US economy; Feb. housing starts surprise to the downside; Wall St sharply divided on 2015: CNBC survey; Manufacturing output sees largest gain in 6 months; Factory activity gears up in New York state; US claims slide to new 3-month low, raising hopes; Business inventories climb 0.4% in January; Retail sales up a bit more than expected in Feb; and Pimco: US economy to grow while China slows.

In Europe: Now Venice wants independence; Merkel: US shale gas imports an option; Hollande braces for losses in local vote; Sarkozy denounces 'Stasi' phone-tapping; A Victorian solution to London's housing crisis?; EU adds 12 names to Russia sanctions, mulls further steps; Twitter outages in Turkey after PM threatens ban; Europe adds 12 names to Russia sanctions; S&P downgrades Russian outlook to 'negative'; Ex-Credit Suisse trader fined $1.1 million for bond fixing; Ukraine: What next for battered economy?; Irish bank bailout estimate was $65 billion short; Strauss-Kahn hedge fund aims to raise $2 billion; Russia retaliates to sanctions, bars 9 US officials; Handbag wars: The great luxury goods divide; Putin to billionaires: Pay your taxes; 'Dire' consequences loom for jobless Europe; Draghi hails 'great progress' after banking union deal; EU leaders hold critical talks on Russian sanctions; Credit Agricole eyes 60% profit rise by 2016; Russian forces seize two Ukrainian bases in Crimea; UK budget unveils pension revolution; and Greece could sell bonds by end of June: Source.

In Asia: Thai court declares Feb general election void; Wal-Mart supplier shares soar on spin-off plans; Aussie dollar resilience: Here today, gone tomorrow?; Will gamblers go to the final frontier?; China moving closer to unleashing fresh stimulus; Bloomberg hints at curb on articles about China; China regulator warns of risk in investment products; Australia says suspected plane debris may have sunk; China yuan band widening a sign of caution, not reform; Alibaba valued at up to $250 billion in grey market bids; MH370: Objects sighted near Australia are 'credible'; Roach: No magic number for China growth; Goldman Sachs slashes China growth outlook; China’s debt problems are bad, but not Lehman bad; Yuan's fall may leave some exposed to heavy losses; Can South Korea become the next Vegas or Macau?; Cash-strapped Chinese sell Hong Kong luxury real estate; Malaysia discounts missing plane sighting in Maldives; Chinese saddened, not put off travel by missing plane; China, Airbus in talks on possible $20 billion deal; Japan's exports still not getting a weak-yen boost; Why are investors dumping Japan Display on its debut?; China’s yuan takes first big swing in wider band; and Are China’s A-shares the next big thing?

Weekly Review

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

On Monday, with the Crimean vote completed and muted reaction from the western nations, the Dow rose 1.1% to 16,247. Gold held at $1,340; Oil dropped $1 to $101.

On Tuesday, with a jump in housing permits indicating future strength in housing market, the Dow rose 0.6% to 16,366.

On Wednesday, with unexpected hawkishness from the Fed on policy rate guidance, the Dow dropped -0.7% to 16,222. Gold dropped $25 to $1,330.

On Thursday, with a drop in Initial Jobless Claims and a very strong Philly Fed report, the Dow rose 0.7% to 16,331.

On Friday, with little news and quadruple witching, the Dow dropped fractionally to 16,299.

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 – flash PMI Manufacturing Index, FedSpeak; on Tuesday – S&P Case-Shiller HPI, New Home Sales, Consumer Confidence; on Wednesday – Weekly EIA Petroleum Status Report, Durable Goods Orders; on Thursday – Weekly Jobless Claims, GDP, Pending Home Sales Index; and Friday – Personal Income & Outlays, Consumer Sentiment.

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 up at 162.63. If the DIA drops, then the next level of support will be at 153.12 (weekly chart); the next level of major resistance is 165.05 (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 and strengthening, and the Stochastic moving up at the overbought area.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up at the midpoint.

SPY

The S&P500 (SPY) closed up at 186.20. If the SPY drops, then the next level of support will be at 173.71 (weekly chart); the next level of major resistance is 189.02 (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 bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the midpoint.

QQQ

The Nasdaq 100 (QQQ) closed up at 89.00. 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 bearish posture (down Arrow) with the MACD positive but weakening, and the Stochastic moving down at the overbought area.

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

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