Dow Ends Winning Streak, Asian Markets Range Bound

U.S. markets were rather quiet Friday. The Dow Jones and S&P 500 are near record highs but broke winning streaks. Investors are looking at the rising interest rates and wondering about increased borrowing costs in the economy and trying to figure out if that is good or bad. Higher rates alone are not something to fear though.

If the economy can handle the rise in borrowing costs, then 2014 will be off to a fast start. Still, do not let your profits ride and take some off the table. Equities are at record highs thanks to earnings that are at record highs. We often say that stocks and earning are disconnected. Question is, would earnings be this high if economic policy was not so accommodative? The Fed is still in it with QE. How much of these earnings are real business growth and how much of these earnings have been propped up by the Fed’s QE program? We are going to find out real soon now that the Fed is winding down its asset purchase program.

STOCKS

After the DJIA had its best gains over a six trading day sprint, the blue chip index lost 1.47 points to 16,478.41 on Friday. The S&P 500 was pretty flat and lost 1.47 points to close at 1,841.10. Consumer staples led winners and consumer spending lagged out of the indexes 10 components. The Nasdaq Composite lost 10.59 points to close the week at 4,156.59.

Both the Dow and S&P 500 are within sight of record highs. For Friday, winners barely edged out losers in weak volume. Nearly 424 million shares traded. The Composite volume was a shade over 2 billion.

Asian markets are fairly quiet and range bound today. The Nikkei is leading the region as the yen is hitting new highs against the Dollar.

The Nikkei has now extended its winning streak to nine straight sessions. We even touched, briefly, a six year high at 16,269 points. This is coming after the USD/JPY rose to a five year high at 105.41. The yen is currently at 105.296 at the time of this report and the Nikkei is within a stones throw of a six year high as we are currently at 15,262.

The Shanghai Composite is flat, up 1.29 points after hitting a high at 2,112 earlier in the day. This mark has not been seen in over a week. There is news that Beijing will deal “severely” with companies that perform poorly in 2014, and this has hurt sentiment.

The Australian ASX 200 is around 10 points shy of a new one month high. The AUD/USD is near a three and a half year low near 0.8823 which is helping sentiment.

CURRENCIES

USD/JPY (105.296) is near the target of 105.50 as we touched a five year high earlier today near 105.40. Our next target is 108.50 with a break above that testing 109.00. We only see weakness below 102.50.

The GBP/USD (1.6470) touched 1.6550 and briefly set a two year high at 1.6577. As long as 1.62 holds expect a further rally to 1.6750. AUD/USD (0.8852) failed at 0.8975 and moved lower as we expected. While below that level there is little hope of seeing 0.90 or 0.91. Our target of 0.8750 remains valid.

COMMODITIES

Copper (3.3785) is near the key level of 3.3990. This level is holding for now but if it breaks we can extend this climb to 3.45. Looks like we can range trade for awhile from 3.35 up towards 3.40/41 before making a big move in either direction.

Gold (1209.50) is testing resistance at 1210. If this level holds we can range trade from 1180 to 1210 for a bit. A break higher targets 1225 then 1250.

Silver (19.865) is moving lower but without any volatility. We are range bound from 19.00 toward 20.00 for now.

Today’s Outlook

Today is a fairly quiet day on the economic calendar. Tomorrow sees the S&P Case-Shiller house price index as well as the CPI and consumer confidence numbers.