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Weekly market recap: Spring is in the air

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For the week ending February 22, 2014

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Overview

This past week the markets took a slight breather and remained fractionally mixed as poor economic data was ignored in expectation that Spring and good weather will bring continued growth. After a large drop on Wednesday in reaction to the FOMC Minutes, the markets recovered the loss on Thursday, and stayed nearly flat on Friday.

The big news this week was the FOMC Minutes which is raising uncertainty over further tapering and the federal funds rate. With weak economic data, it is uncertain whether the scheduled $10 billion incremental reductions would be delayed with the words "further measured steps" from the doves within the FOMC.

The hawks however are pressing for raising the federal funds rate much sooner than expected while the doves argued for maintaining the low rates until inflation rises above the current 2-percent target. It is also uncertain how the Fed will handle unemployment and what their specific employment goals are.

Additional poor economic data came from the housing sector, with a sharp drop in housing starts and a decline in housing permits indicating buyers disappearing in the new home market. Existing home sales took a hit due to bad weather, high prices, and low inventory. The Empire Manufacturing and Philadelphia Fed surveys showed continued slowing and a reversal in new orders, also due to bad weather.

Globally, growth is slowing in China with a flash PMI that unexpectedly fell further to 48.3 (expected 49.4; down from 49.6). A reading below 50 indicates contraction. Among the sub-indexes in China's Flash PMI, employment and both output and input prices declined at faster rates.

The flash PMI for the Euro zone was also lower than expected at 52.7 (expected 53; down from 53.2). Despite the drop, the economies in Europe are still recovering.

Emerging markets, which are currently experiencing fluctuations in their currency due to tighter credit (partially a result of tapering in the U.S.), have not impacted the PIIGS countries (Portugal, Ireland, Italy, Greece, and Spain) as their yields continue to remain stable.

On the corporate front, profits grew 7.5% year-over-year. And, despite the bad weather, domestic activity continues as expected. Wal-Mart and Coke reported earnings below expectations, while Tesla and Hewlett-Packard beat expectations. Facebook acquired texting app WhatsApp for nearly $19 billion for its large user base of 450 million people. The good news for small corporations is the one-year delay in implementing the Affordable Care Act (ACA, aka Obamacare).

Overall, the growth in the economy is uncertain with the new flash PMI report showing an unexpected strong spurt in composite growth (56.7 current vs. 53.7 prior), which is the highest in four years; this contrasts with the weak Philly Fed report (-6.3 current vs. 9.4 prior) which cited bad weather for the large drop. We will know how the economy is doing with the release of the GDP next Friday.

The focus next week will be on manufacturing and economic growth. Durable goods orders, GDP, and FedSpeak are scheduled late in the week. With little economic news, it is expected that the markets will rally and test the highs for the year. The only setback could occur with China, with market concerns over shadow banking and continued declining growth. China's growth target is 7.8%, and it is expected that the PBOC (China's central bank) will intervene to boost growth.

Market Gauge

Year-to-date the markets are mixed: Dow -2.9%; S&P500 -0.7%; Nasdaq 2.1%.

The Markets for the past week were: DJIA down -0.3%; S&P500 down -0.1%; Nasdaq COMP up 0.5%.

Commodities (ETFs) for the past week were: Gold (GLD) up 0.34%; Silver (SLV) up 1.55%; Oil (OIH) up 0.49%; Dollar (UUP) up 0.14%; 30-yr Bonds dropped 1 basis points to 3.69%.

The VIX this past week (a measure of market sentiment and volatility) rose to 14.66 due to the uncertainty surrounding the FOMC Minutes on both tapering and the federal funds rate.

Top Headlines

To view details of headlines, go online to CNBC.

In the U.S., States, cities coping with bad bond bets; 'Hurdle pretty high' on taper: Williams; Cashin: Why ‘the Fed is flying blind’; Housing starts reel amid January freeze; Bad weather: Economy's 'get out of jail free' card; Real solutions to America's jobs problem; Did stimulus work? Five years later debate rages on; US Fed issues new capital rule for foreign banks; NY manufacturing cools in February after surge; Home builders burned by the deep freeze; Welcome to the good news/bad news economy; Jobless Americans left hanging as Congress breaks; Consumer sentiment steady amid fear of the future; US cold snap's latest victim: Industrial output; Jan. import prices tick up as inflation stays tame; California budget only seems OK: Kashkari; All of that snow is dragging down US growth; US inventories in upside surprise after grim data; Congress finally out of way...for awhile: Corker; Data setback: US claims spike, retail sales tumble; Bad jobs reports won't change tapering: Yellen; and Yellen just added pressure on emerging markets.

In Europe, Spain upgrade welcome: Economy Minister; Ukraine rebels demand early election; G-20 mulls ambitious target for global growth; 'Quiet billionaires' shaping Ukraine; Gucci loses shine but Kering CEO ‘not worried’; Europe not ‘giving in’ with US deal: EU trade head; Schaeuble urges emerging countries to 'do homework'; UK consumers rein in spending after Christmas splurge; No straightforward European recovery: UBS's Axel Weber; Italy's Renzi: On track to form government by weekend; London financial giants fear march of the populists; UK's Osborne warns of 'unbalanced' economy; Recovery in euro zone business activity loses steam; EU imposes sanctions as Kiev returns to flames; Nespresso takes a sip of US coffee market; BAE warns US budget cuts to hit bottom line; Air France-KLM net loss widens on tax charge; Ex-Murdoch editor Brooks launches hacking defense; UK judge finds Ecclestone paid bribes; Deutsche Bank settles Kirch case in milestone deal; Boom in UK IPOs led by ‘bricks and clicks’; Bonkers for Banksy: A bundle for street art; Pope talks poverty, eyes finance branch overhaul; and UK unemployment unexpectedly rises to 7.2%.

In Asia, Obama meets with Dalai Lama, upsetting China; Beijing official detained in China graft probe; The strategic mineral China covets; Singapore to tax sin instead of the wealthy; Weak data take zing out of Chinese stocks; This pricey housing market is rich's top choice; Jack Lew: China is able to manage shadow banking; Australian Finance Minister: 'We could do better'; Jobless youth in China: Crisis in the making?; Big trader seeks to make millions on China; Can China protect its prized 7% growth level?; Bitcoin investor fury at Mt Gox delays; What India needs to do to stamp out poverty; China factory activity shrinks for a second month; Singapore revises growth for fourth quarter upwards; Japan posts record trade deficit in January; Thai tourism bane becoming a boon for rivals; Singapore, Hong Kong housing faces ‘double whammy’; China aims for 100% bank liquidity coverage ratio by 2018; Peugeot confirms tie-up with Dongfeng, reports loss; Emerging Asia’s wealth to overtake US by 2015; China, Japan headed down opposite policy paths; Is China’s love for Treasuries waning?; and Election year for emerging markets: What to expect.

Weekly Review

On Monday, the markets were closed for Presidents' Day.

On Tuesday, despite poor reports from the Empire State and the Housing market index, the Dow dropped fractionally to 16,130. Oil rose over $2 to $102.50.

On Wednesday, with a lack of consensus in the FOMC Minutes increasing uncertainty over policy, the Dow dropped 0.6% to 15,963.

On Thursday, despite soft economic news, the Dow rose 0.6% to 16,133. Gold rose over $10 to $1,325.

On Friday, with light trading and a downbeat Existing Home Sales report, the Dow dropped fractionally to 16,103.

Next Week's Calendar

The economic calendar for next week is moderate: on Monday – nothing; on Tuesday – S&P Case-Shiller HPI, Consumer Confidence; on Wednesday – New Home Sales, EIA Petroleum Status Report, FedSpead; on Thursday – Weekly Jobless Claims, Durable Goods Orders, Janet Yellen speaks; and Friday – GDP, Chicago PMI, Consumer Sentiment, Pending Home Sales, FedSpeak.

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 160.81. If the DIA drops, then the next level of support will be at 153.12 (weekly chart); the next level of major resistance is 165.51 (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 and strengthening, and the Stochastic moving up below the midpoint.

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

SPY

The S&P500 (SPY) closed down at 183.89. If the SPY drops, then the next level of support will be at 173.71 (weekly chart); the next level of major resistance is 184.94 (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 above the midpoint.

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

QQQ

The Nasdaq 100 (QQQ) closed up at 89.93. If the QQQ drops, then the next level of support will be at 83.74 (weekly chart); the next level of major resistance is 90.01 (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 at the overbought area.

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

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