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Gary Townsend - Founding member and Chairman, GBT Capital Management, LLC, a macro long/short fund based in Chevy Chase, Maryland. Also, 2007-2013, a founding partner, CEO and Portfolio Manager of Hill-Townsend Capital LLC, a long/short equity financial sector fund. Mr. Townsend has 35 years... More
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  • Macro Concerns Again Emerge, U.S. Futures Moderately Lower; Asia, Europe Also Dip

    This morning. World equities closed moderately lower in Asia and in Europe mid-afternoon are moderately lower, but better than in early afternoon. U.S. futures are moderately lower, but near the bottom of their pre-session trading range. The dollar is stronger. U.S. Treasury 10-year yields are lower. Commodities are mostly higher. Economic reporting focuses on the latest U.S. weekly employment claims (unchanged) and upward revised 2Q2014 GDP (to +4.2% from +4.0% prior). Friday's Nikkei 225 September 2014 (NKU4) equity futures are moderately lower.

    Since August 13, the U.S. equity market outlook is "confirmed uptrend". Yesterday, the S&P 500 index (SPX) closed fractionally higher, but at a 2nd consecutive day record, +3.32% above the August 12th 1933.75 close. The Nasdaq opens -0.07% below its April 11, 2001 record high.

    Wednesday, on lower and below average volume, U.S. equity indexes closed fractionally mixed. The S&P 500 Index (SPX), DJ Industrials (DJI), and NYSE composite rose +0.01%, +0.09%, and +0.11%, respectively, while the Nasdaq closed down -0.02%. This week, indexes are at least +0.59% higher, compared to last week, indexes when closed at least +1.40% higher. In August, indexes are at least +2.90% higher. In July, indexes closed off at least -0.87%. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +8.21%, +3.29%, +9.41%, and +6.13%, respectively.

    NYSE volume fell -2.90% to 0.81x its 20-day moving average.

    Other notable indexes closed mixed. The DJ Transports (TRAN) rose +0.08%. The Russell 2000 (RTY) fell -0.21%. The Nasdaq Internet (QNET) index fell -0.86%, and the Nasdaq Biotech (NBI) index fell -0.29%. The TRAN, RTY, and QNET are down -0.48%, -2.97%, and -5.76%, and -0.29%., respectively, from their recent record highs.

    Trading desks report a busier overnight, with somewhat heightened macro concerns as Ukraine charged renewed Russian "invasion" and a broadening of "fronts", despite observations that an actual Russian invasion would likely entail much greater movement of men and material than is actually evident. Flows remain holiday weak and end-of-summer light. In yesterday's trade, the SPX managed to hold above 2000 with a fractional gain, setting a new record. The SPX is well above the top its recent 1950-1985 trading range. Sentiment remains skeptical that the SPX will manage a clear upside breakout.

    The 2Q2014 earnings season began June 18th and is now largely complete as 490 of 500 SPX companies have reported with respective +5.08% and +1.53% adjusted EPS and revenues surprises. Financials (84 of 84 reporting) lead with respective +9.47% and +2.38% EPS and revenue surprises. In 1Q2014, 499 of 499 SPX companies reported with respective +5.91% EPS and +0.20% revenue surprises.

    Forward estimates have moved up. Respective estimates for 2014, 2015 and 2016 are now $119.40, $132.58, and $147.06, respectively compared to $118.05, $131.36 and $145.70 at June-end, respective increases of +1.15%, +0.93% and +0.93%. Price earnings multiples remain elevated. With SPX equities trading at a 17.5x (compared to 17.5x the prior day) average 2014-15 earnings ($125.99), attention focuses on prospective 2014-15 earnings and valuations (17.5x times survey 2014-15 SPX average operating earnings suggests a 2199.12 SPX level in the next year, a +9.95% rise from yesterday's close).

    Technicals were little changed. Led by utilities, SPX market segments closed mixed. SPX market breadth was positive, and up volume led down volume. Volatility rose, and the CBOE SPX volatility index (VIX) now suggests a 68% probability that the 30-day change in the SPX will be less than ±4.08%. Treasury bond markets strengthened, with the 10-year U.S. Treasury bond yield falling -3.89 bps to 2.3573%, compared to 2.3962% at the prior close.

    This morning, 10-year U.S. Treasury yields are -2.12 bps lower at 2.3361%, compared to the prior close, the lowest yield since May 2013. World sovereign bond markets are stronger, too, with the German 10-year yield at 0.880%, compared to 0.910% the prior day. Spanish and Italian 10-year debt yields are lower at 2.191% and 2.422%, respectively, compared to 2.147% and +2.390% the prior day.

    U.S. options markets are unchanged at neutral to bullish, compared to neutral to bullish the prior day. The CBOE SKEW rose +1.40% to 135.41 compared to 133.54 the prior day, above 130 for the 6th consecutive session, a level that correlates well with short-term market tops. The SKEW closed at a record 143.60 on June 20th.

    In pre-market futures trading, September SPX equity futures (SPM4) price near the bottom of their 1988-1998 trading range. After a fair value adjustment of +0.82 points, the SPU4 future prices at 1989.00,down -0.82 points. The SPX opens +2.25% above and +1.81% above its respective 20- and 50-day moving averages, and +3.74% and +6.59% above its 200-day moving averages. Initial resistance 2002.77. Initial support is 1996.83, then 1993.55.

    "Confirmed Uptrend" Market Outlook. Based on Nasdaq's August 13th follow-through, the U.S. equity outlook improved to "confirmed uptrend", concluding a brief "in correction" that commenced on August 6th, which followed a period of "uptrend under pressure" that began on July 8th. Since August 13th, there have been no subsequent distributions.

    2Q2014 earnings continue to surprise positively, with financials' earnings leading other sectors. Wednesday, the SPX closed at a record 2000.12, up +3.43% compared to its August 12th 1933.75 close.

    On May 27th, the market outlook improved to "confirmed uptrend", ending a period of market "in correction" that began on April 4th. The SPX closed July 24th at a record 1987.01, +8.99% above the 1815.69 close on April 11th, the recent low. On February 3rd, the Nasdaq closed at its 3,996.96 year-to-date low, but then recovered +14.4% to the August 26th 4,570.64 multi-year record close.

    In Asia, equity markets closed moderately lower. The Nikkei 225 (NYSEARCA:NKY) fell -0.48%. In China, the Hang Seng (HSI) Index fell -0.71%, and the Shanghai SE composite (SHCOMP) fell -0.62%. The NKY, HSI, and SHCOMP 50-day moving averages are above their respective 200-day moving averages. Today's volumes are unavailable.

    Commentary focused on U.S. economic reports, currency and commodity developments. Economic reporting was light.

    This week, the NKY, HSI, and SHCOMP are down -0.51%, -1.48%, and -2.01%, respectively. Last week, the NKY, HSI, and SHCOMP closed up +1.44%, +0.63%, and +0.63%, respectively. In August, the NKY is down -1.03%, the HSI is down -0.06%, and the SHCOMP is down -0.26%. In July, the NKY closed up +3.03%, the HSI rose +6.75%, and the SHCOMP rallied +7.48%.

    In 2014, the NKY is down -5.10%, the HSI is up +6.16%, and the SHCOMP is up +3.77%. In 2013, the NKY rose +56.7%. The HSI closed up +2.87%. The SHCOMP closed down -6.75%.

    In China, short-term interbank lending rates remain volatile, and the SHIBO 7-day rose +15 bps to 3.50%, compared to 3.35% the prior day, up from a 2.26% low on March 11th, but down from the February 7th 5.41% recent high.

    Regional relative strength indexes (RSI) have Tokyo, Hong Kong, and Shanghai in a neutral range. The NKY RSI rose to 53.21, compared to 56.73 the prior session, up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI fell to 53.35, compared to 59.60 the prior day and down from an overbought 81.00 on July 31st. The SHCOMP's RSI fell to 51.37, compared to 55.77 the prior day. On July 28th, the index's RSI set a record 81.72. On June 27, 2013, the index's RSI fell to a low of 15.27, which was also last year's low index close.

    In Japan, the NKY closed at 15,459.86, compared to 15,534.82 the prior day, -5.10% below its year-end 16,291.31 high and -60.3% below its late-1989 38,915.87 high close. The index fell to an early 15,423.90 intraday low, then improved to 15,470 where the index found resistance through the afternoon. Most market segments closed lower. Leaders were health care and materials, which rose at least +0.08%, and energy, which fell -0.28%. Financials closed off -0.56%. Laggards were utilities, telecommunications, and consumer discretionary, which fell at least -0.67%.

    In China, in Shanghai, the SHCOMP closed at 2,195.82, compared to 2,209.47 at the prior close, +12.6% above the 1,950.01 June 27, 2013 close, last year's low. The index opened modestly higher and set an early 2,219.47 intraday high, but reversed lower by mid-session and weakened to a mid-afternoon 2,194.93 low. A late afternoon rally failed. Most market segments lower. Leaders were energy, which rose +0.61%, and consumer staples and health care, which fell at least -0.46%. Laggards were industrials, financials, and materials, which fell at least -0.88%.

    In Europe, major equity indexes opened lower and trended lower to early afternoon lows, but then improved to narrow moderate losses. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -0.82%, -0.25%, -0.52%, and -1.19%, respectively. The Spanish IBEX 35 is down -0.97%. The Italian FTSE MIB down -1.37%. Compared to their recent highs, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -4.42%, -1.18%, -4.93%, and -5.92%, respectively.

    Commentary focuses on the significance of the Russian "invasion" and the seeming certainty of fresh monetary stimulus when the ECB meets in September's first week. Economic reporting is light. Other foci are currency and commodity price developments. The euro is weaker compared to the dollar.

    European bourses have recently underperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 55.83, compared to 60.43 at the prior close, in a neutral (30-70) range. On August 8th, its RSI closed at 28.17, well below its prior February 5th 33.57 low, which coincided with its prior 2014 low. The index's lowest recent RSI level was 25.77 on June 24, 2013, which marked the year's 2,494.54 closing low.

    The Euro Stoxx50 trades -4.42% below its recent June 18th 3,314.80 multi-year high and -39.6% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,194.45 close, the index fell to an early afternoon 3,154.72 intraday low, but subsequently improved modestly. The index currently trades at 3,165.90. All market segments are at least -0.30% lower. Leaders are health care, energy, and telecommunications. Laggards are industrials, financials, and consumer discretionary, which are down at least -1.15%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +2.26%, +0.53%, +2.80%, and +1.25%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +2.14%, +1.32%, +1.88%, and +2.71%, respectively. In August, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +1.70%, +1.24%, +2.97%, and +0.52%, respectively. In July, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -3.49%, -0.21%, -4.00%, and -4.33%, respectively.

    In 2014, the indexes are mixed. The Euro Stoxx50, FTSE 100, and CAC 40 are up +1.91%, +0.96%, and +1.77%, respectively, while the DAX is down -1.00%. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.

    2Q2014 SPX Earnings. The 2nd quarter earnings season began June 18th and is now largely complete, with 491 of 500 SPX reporting firms having reported, with respective +5.07% EPS and +1.53% revenue surprises. Financials (84 of 84 reporting) lead with a 9.47% EPS surprise and +2.39% revenue surprise.

    In 1Q2014, of 499 (of 499) reporting companies, 370 or +74.5% surprised positively on earnings, with an average +5.91% surprise average. Of reporting companies, 263 or 53.0% reported sales or revenues above estimates. The average sales/revenue surprise was +0.20%. Energy led with respective +10.0% and -1.01% earnings and revenue surprises. Financials had respective +5.67% and +0.26% earnings and revenue surprises. Consumer staples lagged with respective +0.34% and -0.66% earnings and revenue surprises.

    Valuation. The SPX trades at 18.2x estimated 2013 earnings ($110.15), 16.8x estimated 2014 earnings ($119.40), 15.1x estimated 2015 earnings ($132.58), and 13.6x estimated 2016 earnings ($147.06). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +8.40%, +11.0%, and 10.9%, respectively.

    The KBW Bank Index (BKX) trades at 13.8x 2013 adjusted EPS ($5.16), 13.0x estimated 2014 earnings ($5.51), 12.1x estimated 2015 earnings ($5.94), and 10.8x 2016 earnings ($6.64). Analysts expect 2014, 2015, 2016 EPS will grow +6.88%, +7.75%, and +11.7%, respectively.

    Composite, index, and equity options. Options markets are unchanged at neutral to bullish, compared to neutral to bullish the prior session. Composite options are bullish, index options are bullish, and equity options are neutral. The composite put/call ratio is 0.89, compared to 0.89 the prior day, and worse than 5- and 10-period moving averages of 0.84 and 0.88, respectively. The index put/call ratio is 0.91, compared to 0.87 the prior day, and better than its 5- and 10-period moving averages of 0.93 and 0.97, respectively. The equity put/call ratio closed the day at 0.88, compared to 0.76 the prior day, and worse than its 5- and 10-period moving averages of 0.83 and 0.86, respectively.

    NYSE Volume, Breadth Indicators. Volume fell -2.90% to 497.31 million shares, compared to 512.17 million shares the prior day, 0.81x the 617.65 million shares 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led by +271 (compared to +986 the prior day), or 1.20:1. Up volume was 1.22:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.09200%, compared to 0.09190% the prior day. USD 3-month LIBOR is 0.23810%, down from 0.23840% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 14.61 bps, compared to 14.56 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 15.52 bps, compared to 15.90 bps the prior day, and down from the December 27, 2011, high of 98.800 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.

    · The 3-month Euro basis swap curve is -15.790 bps, compared to -14.591 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, and within the lower end of a normal -10 bps and -40 bps range.

    · German 10-year debt yields 0.880%, compared to 0.910% the prior day.

    · French 10-year debt yields 1.280%, compared to 1.293% the prior day.

    · Japanese 10-year debt yields are 0.493%, compared to 0.498% the prior day.

    · Spanish and Italian 10-year debt yields are higher, but remain near multi-year lows. Spanish 10-year debt yields are 2.191%, compared to 2.147% the prior day. Italian 10-year debt yields are at 2.422%, compared to 2.390% the prior day. Spanish and Italian 10-year debt yields peaked at 7.62% and 7.26%, respectively, in July 2012 and November 2011.

    · U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.500% and 2.327%, respectively, compared to 0.512% and 2.357% Wednesday. The yield curve narrowed -1.820 bps, with the 2- to 10-year spread at +1.827%, compared to 1.846% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.861% on August 27, 2014, to a high of +2.648% on December 31, 2013.

    · The U.S. dollar is stronger compared to the euro and Japanese yen, but weaker compared to the British pound. The dollar trades at US$82.490, compared to US$82.540 intraday high and US$82.428 the prior day, and better compared to its $80.994 50-day, US$80.537 100-day, and US$80.447 200-day averages. The euro trades at US$1.3178, compared to a US$1.3171 intraday low and US$1.3193 the prior day. The euro trades worse compared to its US$1.3465 50-day and US$1.3591 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥103.72, compared to ¥103.88 the prior day. The yen trades worse than its 50-day moving average ¥102.22, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index improved to +27.80, its 5th consecutive positive reading, compared to +27.30 the prior day. The index is better compared to its respective +13.74 5-day and +5.48 10-day moving averages. From a +72.70 high on January 15th, the index subsequently trended lower and turned negative on February 19th and fell to a -45.90 124-week low on April 7th. The index turned briefly positive in the latter half of May, then turned negative on May 29th and remained negative through August 5th. After a lag, the CESIUSD correlates with EPS revisions.

    · Commodities prices are mostly higher, with higher energy, higher precious metals, mixed aluminum and copper, and higher agriculture prices.

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) rose +1.29% to 11.78, compared to 11.63 at the prior close. The VIX is -14.7% below the 13.81 20-day moving average. Its 30-day high is 17.57. Its 30-day low is 10.59. Its all-time closing low is 9.31 on December 22, 1993. The long-term average is 20.00.

    · The Euro Stoxx 50 volatility index (V2X) is 17.72, up +10.0% compared to the 16.11 prior day close. The V2X index trades -2.74% below its 18.22 20-day moving average, -20.0% below the 22.15 30-day high, and +20.1% above the 14.50 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 13.94, unchanged compared to 13.94 at the prior close. The VHSI index trades -9.08% below its 15.33 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) rose +1.40% to 135.41, compared to 133.54 the prior session, above a neutral reading (115-120) and for a 7th consecutive session, above 130, a level that correlates well with short-term market tops. The recent record high was 143.26 on June 20, 2014. Its recent low was 112.47 on May 25, 2013. Spikes in excess of 130 correlate well with short-term market tops, as occurred last December, ahead of market declines last January. The index rarely falls below 110, last on July 31, 2009. The index correlates with market tail risks, the cost of buying out-of-the-money, long-dated options, i.e., options not affected by expirations. A rise suggests that investors are buying more puts than calls, a bearish signal.

    U.S. Economic Reporting and News:

    · At 8:30, the latest weeks' respective initial and continuing jobless claims were 298K and 2527K, compared to 300K and 2510K survey, and 298K and 2500K revised prior.

    · Revised QoQ 2Q2014 GDP rose 4.2%, compared to 3.9% survey and +4.0% prior.

    · QoQ 2Q2014 personal consumption was +2.5%, compared to +2.4% survey and +2.5% revised prior.

    · QoQ 2Q2014 GDP price index rose +2.1%, compared to +2.0% survey and prior.

    · QoQ 2Q2014 core PCE rose 2.0%, compared to +2.0% survey and prior.

    · At 10:00, MoM pending home sales with +0.5% survey and -1.1% prior.

    · August Kansas City Fed manufacturing activity, with 7 survey and 9 prior.

    Overseas Economic Reporting and News:

    · Eurozone - August economic confidence is 100.6, compared to 101.5 survey and 102.1 revised prior.

    · United Kingdom - August Lloyds business barometer is 47, compared to 52 prior.

    Notable Company Ratings/News:

    · None.

    Wednesday's Trade. Equity indexes closed fractionally mixed on holiday light volume. For a 3rd consecutive session, the SPX closed at record high, but the Nasdaq closed lower and -0.07% below its March 2000 record high. Major indexes rallied modestly early, but quickly eased and traded narrowly through the session with some mid-afternoon weakness. A final hour rally salvaged the mixed close. The SPX, DJI, and NYSE composite rose +0.01%, +0.09%, and +0.11%, respectively, while the Nasdaq closed down -0.02%. This week, indexes are at least +0.59% higher, compared to the prior week, when indexes closed up at least +1.40%. In August, indexes are at least +2.90% higher. In July, indexes closed down at least -1.51%. In 2014, indexes are up at least +3.29%. Market breadth was positive, with gainers 1.20x losing stocks. SPX market segments closed mixed. Leaders were utilities, telecommunications, and consumer discretionary, which rose at least +0.10%. Laggards were technology, energy, and financials, which fell at least -0.06%.

    Other notable indexes fell. The Russell 2000 (RTY) fell -0.21% and closed -2.97% below its March 4th record high. The Nasdaq Internet Index (QNET) fell -0.86%, down -5.76% below its March 6th closing high. The Nasdaq Biotech index (NBI) fell -0.29%, closing -0.29% its August 26th record high.

    NYSE volume fell -2.90% to 497.31 million shares, compared to 512.17 million shares the prior day, 0.81x the 617.65 million share 20-day moving average volume. Bond markets strengthened. From its prior day 2.3962% close, the U.S. 10-year yield trended lower through the session to a late 2.3555% intraday low. The index ended at 2.3343%, down -2.30 bps from the prior close.

    From its prior day 2000.02 SPX record close, September 2014 SPX futures (SPM4) suggested a modestly higher open. The index opened set an early 2002.14 intraday high but traded narrowly around breakeven through late afternoon, when the index weakened to a final hour 1996.20 intraday low. The index rallied through most of the final hour to enable a fraction gain. The index closed at a record 2000.12, +3.43% above the August 12th 1933.75 close (which marked the start of the current market uptrend), and +86.1% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day 8,421.31 close, the DJ Transportation index (TRAN) rose +0.08% and closed at 8,428.06, -0.48% below its July 23rd 8,468.54 record close. The index set an early 8,440.14 intraday high, but reversed lower to support at 8,410 by mid-morning. In early afternoon, the index reversed higher, and found resistance at 8,430 through the afternoon. Volume rose +1.06% to 8.524 million shares, compared to 8.435 million shares the prior session, and 0.79x the 15-day moving average volume. The TRAN closed +2.12% and +1.98% above its respective 20- and 50-day moving averages, and +4.79% and +9.69% above its respective 100- and 200-day moving averages.

    Market volatility fell, as the CBOE SPX volatility index (VIX) rose +1.29% to 11.78, compared to 11.63 at the prior close, its 6th consecutive close below 12.0. The VIX found resistance at 11.90 through the session, bot early and late, with a mid-morning 11.54 intraday low. The VIX's all-time closing low is 9.31, on December 22, 1993. Its record high is 89.53 in December 2008. Its lifetime average is 20.01. The CBOE put/call SKEW fell -0.48% to 1315.10, compared to 135.75 the prior session, above a neutral 115-120 range and above 130 for the first time since June 18th, a level that correlates well with short-term market tops. Its record 143.26 high came on June 20th.

    The market's technical factors were little changed. The SPX relative strength (RSI) rose to 66.18, compared to 66.15 the prior day, in a neutral range. The latest RSI compares to an oversold 32.85 on August 7th, an overbought 73.73 on June 9th, and an oversold 31.24 on February 3rd, its previous yearly low, when the SPX closed at 1741.89. The RSI compares to an overbought 71.26 on December 31st, when the SPX closed at an earlier record 1848.36 high, and compares to earlier oversold levels of 35.14 on August 27th and 39.19 on October 9th.

    This week, the SPX, DJI, Nasdaq, and NYSE composite are up +0.59%, +0.71%, +0.68%, and +0.83%, respectively, compared to last week, when the SPX, DJI, Nasdaq, and NYSE composite closed up +1.71%, +2.03%, +1.65%, and +1.40%, respectively. In August, the SPX, DJI, Nasdaq, and NYSE composite are up +3.60%, +3.37%, +4.57%, and +2.90%, respectively. In July, the SPX, DJI, Nasdaq, and NYSE composite closed down up -1.51%, -1.56%, -0.87%, and -2.30%, respectively.

    In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +8.21%, +3.29%, +9.41%, and +6.13%, respectively. In 2013, the SPX, DJI, Nasdaq, and NYSE composite closed up +29.6%, +26.5%, +38.2%, +23.2%, respectively. All closed at least +5.91% higher in 2012.

    KBW Bank Index (BKX). On lower and below 15-day average volume, the BKX fell -0.54% to 71.52, compared to 71.91 at the prior day's close, its 6th consecutive close above 70. The index closed -1.91% below its 72.91 March 20th post-2008 closing high. The index opened higher set an early 71.99 intraday high, but immediately reversed lower, trending lower through most of the session to a final hour 71.39 intraday low. Volume fell -4.16% to 32.870 million shares, compared to 34.297 million shares the prior day, and 0.90x the 36.696 million share 15-day moving average.

    Large cap banks outperformed the regional banks, as the KBW regional banking index (KRX) fell -0.76%.

    This week, the BKX is up +0.60%, compared to last week, when the BKX closed up +3.01%. In August, the BKX is up +1.97%, compared to July, when the BKX closed off -1.64%. In 2014, the BKX is up +3.26%, compared to the SPX's +8.21% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +20.8% better than the June 24, 2013, 59.19 close, its worst since May 13, 2013. The index crossed above 50 on December 17, 2012, 60 on May 15, 2013, and 70 on January 8, 2014, but then dropped back below 70 on January 24th, which persisted until March 6th. On April 10th, the BKX fell below 70.00 and then eased consistently to the May 15th 66.81 closing low, its lowest close since early February. On June 5th, the BKX rose back above 70, but then again surrendered that level on August 1st.

    The BKX closed +121.1% above the 32.56 intraday low on October 4, 2011, the bottom of that year's correction. Large-cap bank stocks have outperformed the broader market's rebound, with the SPX up +86.1% in the same period. The BKX index closed -40.9% below its February 20, 2007, record 121.06 high. The BKX is up +284.1% from its 18.62 March 6, 2009, closing low, its low at the end of the 2008-09 financial panic.

    Technical indicators were little changed. The index closed +2.49% and +1.20% above its respective 20- and 50-day moving averages, and +2.40% and +3.07% above its 50- and 100-day moving averages. The 20-day moving average rose +1 bp to 69.78. The 70.67 50-day moving average was unchanged. Its 69.85 100-day moving average was unchanged, and the 200-day moving average rose +3 bps to 69.39. The 20-day closed (by -0.89 points) below the 50-day, and the negative gap was unchanged. The 50-day moving average closed (by +1.29 points) above the 200-day moving average, and the gap narrowed -2 bps. The 100-day moving average closed (by +0.46 points) above the 200-day moving average, and the gap narrowed -3 bps.

    The directional movement indicator worsened to +5.869, compared to +9.402 the prior day, its 5th consecutive positive reading. Relative strength fell to 60.34, compared to 64.53 the prior day, in a neutral range, down from an overbought 73.14 on June 9th, but comparing to recent lows of 32.95 on February 3rd and 31.08 on November 14, 2012, which is also the date of the BKX's 2012 closing low. Next resistance is 71.88; next support is 71.28.

    SPX, DJI, RTY, TRAN, CCMP, NYA, VIX, SKEW, NKY, EURUSD, USGG10YR, HSI, SHCOMP, SX5E, CAC, DAX, FTSE, JPY, GBP, EUR

    Aug 28 9:20 AM | Link | Comment!
  • U.S. Futures Ease Higher As Labor Day Looms; Asia And Europe Modestly Mixed

    This morning. World equities closed mixed in Asia and are modestly mixed mid-session in Europe. U.S. futures are modestly higher, but near the bottom of their pre-session trading range. The dollar is weaker. U.S. Treasury 10-year yields are slightly higher. Commodities are mostly higher. Economic reporting is light worldwide. Wednesday's Nikkei 225 September 2014 (NKU4) equity futures are modestly lower.

    Since August 13, the U.S. equity market outlook is "confirmed uptrend". Yesterday, the S&P 500 index (SPX) closed at a new record, +3.32% above the August 12th 1933.75 close. The Nasdaq opens -0.34% below its April 11, 2001 record high.

    Tuesday, on better, but below average volume, U.S. equity indexes rallied moderately, but closed off mid-morning highs. The SPX closed at a record high. The S&P 500 Index (SPX), DJ Industrials (DJI), Nasdaq, and NYSE composite rose +0.11%, +0.17%, +0.29%, and +0.18%, respectively. This week, indexes are at least +0.58% higher, compared to last week, indexes when closed at least +1.40% higher. In August, indexes are at least +2.79% higher. In July, indexes closed off at least -0.87%. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +8.21%, +3.20%, +9.43%, and +6.01%, respectively.

    NYSE volume rose +3.74% to 0.82x its 20-day moving average.

    Other notable indexes closed mixed. The DJ Transports (TRAN) fell -0.39%. The Russell 2000 (RTY) rose +0.85%. The Nasdaq Internet (QNET) index rose +0.39%, and most notably, the Nasdaq Biotech (NBI) index rose +1.25% and closed at a new record high. The TRAN, RTY, and QNET are down -0.56%, -2.77%, and -4.93%, respectively, from their recent record highs.

    Trading desks report a quiet overnight, with little noteworthy either in Asia or Europe. Presidents Porosheko and Putin met to discuss Ukraine and agreed to seek a ceasefire plan. Putin warned Ukraine not to seek closer security ties with the West. Flows remain holiday weak and end of summer light. In yesterday's trade, the SPX managed to hold above 2000, a record and milestone close. The SPX is well above the top its recent 1950-1985 trading range. Sentiment remains skeptical that the SPX will manage a clear upside breakout.

    The 2Q2014 earnings season began June 18th and is now largely complete as 490 of 500 SPX companies have reported with respective +5.08% and +1.53% adjusted EPS and revenues surprises. Financials (84 of 84 reporting) lead with respective +9.47% and +2.38% EPS and revenue surprises. In 1Q2014, 499 of 499 SPX companies reported with respective +5.91% EPS and +0.20% revenue surprises.

    Forward estimates have moved up. Respective estimates for 2014, 2015 and 2016 are now $119.41, $132.59, and $147.10, respectively compared to $118.05, $131.36 and $145.70 at June-end, respective increases of +1.15%, +0.94% and +0.96%. Price earnings multiples remain elevated. With SPX equities trading at a 17.5x (compared to 17.4x the prior day) average 2014-15 earnings ($126.00), attention focuses on prospective 2014-15 earnings and valuations (17.5x times survey 2014-15 SPX average operating earnings suggests a 2199.09 SPX level in the next year, a +9.95% rise from yesterday's close).

    Technicals were little changed. Led by energy, most SPX market segments closed higher. SPX market breadth was positive, and up volume led down volume. Volatility fell, and the CBOE SPX volatility index (VIX) now suggests a 68% probability that the 30-day change in the SPX will be less than ±4.03%. Treasury bond markets weakened, with the 10-year U.S. Treasury bond yield rising +1.42 bps to 2.3962%, compared to 2.3820% at the prior close.

    This morning, 10-year U.S. Treasury yields are -1.38 bps lower at 2.3820%, compared to the prior close. World sovereign bond markets are mixed, with the German 10-year yield at 0.947%. Spanish and Italian 10-year debt yields are lower at 2.177% and 2.423%, respectively, compared to 2.260% and +2.479% the prior day.

    U.S. options markets are unchanged at neutral to bullish, compared to neutral to bullish the prior day. The CBOE SKEW rose +0.24% to 135.42 compared to 135.10 the prior day, above 130 for the 6th consecutive session, a level that correlates well with short-term market tops. The SKEW closed at a record 143.60 on June 20th.

    In pre-market futures trading, September SPX equity futures (SPM4) price near the bottom of their 1997-2001 trading range. After a fair value adjustment of -1.13 points, the SPU4 future prices at 1997.75, up +0.38 points. The SPX opens +2.32% above and +1.86% above its respective 20- and 50-day moving averages, and +3.81% and +6.65% above its 200-day moving averages. Initial resistance is 2003.84. Initial support is 1997.37, then 1994.77.

    "Confirmed Uptrend" Market Outlook. Based on Nasdaq's August 13th follow-through, the U.S. equity outlook improved to "confirmed uptrend", concluding a brief "in correction" that commenced on August 6th, which followed a period of "uptrend under pressure" that began on July 8th. Since August 13th, there have been no subsequent distributions.

    2Q2014 earnings continue to surprise positively, with financials' earnings leading other sectors. Tuesday, the SPX closed at a record 2000.02, up +3.43% compared to its August 12th 1933.75 close.

    On May 27th, the market outlook improved to "confirmed uptrend", ending a period of market "in correction" that began on April 4th. The SPX closed July 24th at a record 1987.01, +8.99% above the 1815.69 close on April 11th, the recent low. On February 3rd, the Nasdaq closed at its 3,996.96 year-to-date low, but then recovered +14.4% to the August 26th 4,570.64 multi-year record close.

    In Asia, equity markets closed mixed. The Nikkei 225 (NYSEARCA:NKY) rose +0.09%. In China, the Hang Seng (HSI) Index fell -0.62%, and the Shanghai SE composite (SHCOMP) rose +0.11%. The NKY, HSI, and SHCOMP 50-day moving averages are above their respective 200-day moving averages. Today's volumes are unavailable.

    Commentary focused on yesterday's strong U.S. economic reports, currency and commodity developments.

    This week, the NKY, HSI, and SHCOMP are down -0.03%, -0.77%, and -1.40%, respectively. Last week, the NKY, HSI, and SHCOMP closed up +1.44%, +0.63%, and +0.63%, respectively. In August, the NKY is down -0.55%, while the HSI and SHCOMP are up +0.65%, and +0.36%, respectively. In July, the NKY closed up +3.03%, the HSI rose +6.75%, and the SHCOMP rallied +7.48%.

    In 2014, the NKY is down -4.64%, the HSI is up +6.92%, and the SHCOMP is up +4.42%. In 2013, the NKY rose +56.7%. The HSI closed up +2.87%. The SHCOMP closed down -6.75%.

    In China, short-term interbank lending rates remain volatile, and the SHIBO 7-day rose +3 bps to 3.35%, compared to 3.32% the prior day, up from a 2.26% low on March 11th, but down from the February 7th 5.41% recent high.

    Regional relative strength indexes (RSI) have Tokyo, Hong Kong, and Shanghai in a neutral range. The NKY RSI rose to 56.73, compared to 56.24 the prior session, up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI fell to 59.60, compared to 65.87 the prior day and down from an overbought 81.00 on July 31st. The SHCOMP's RSI rose to 55.77, compared to 55.15 the prior day. On July 28th, the index's RSI set a record 81.72. On June 27, 2013, the index's RSI fell to a low of 15.27, which was also last year's low index close.

    In Japan, the NKY closed at 15,534.82, compared to 15,521.22 the prior day, -4.64% below its year-end 16,291.31 high and -60.1% below its late-1989 38,915.87 high close. The index rallied to an early 15,588.22 intraday high, then weakened and reversed lower to its early afternoon 15,465.99 intraday low. The index reversed higher by mid-afternoon, found resistance at 15,540 and traded narrowly through the close. Most market segments closed higher. Leaders were health care, materials, and telecommunications, which rose at least +0.28%. Financials rose +0.11%. Laggards were energy, utilities, and consumer staples, which fell at least -0.10%.

    In China, in Shanghai, the SHCOMP closed at 2,209.47, compared to 2,207.11 at the prior close, +13.3% above the 1,950.01 June 27, 2013 close, last year's low. The index opened higher, but reversed lower by mid-morning, when it set its 2,204.22 intraday low. The index immediately rose higher to a late morning 2,216.62 intraday high, then eased back to breakeven by mid-afternoon. Most market segments higher. Leaders were telecommunications, technology, and consumer discretionary, which rose at least +0.51%. Laggards were financials, utilities, and consumer staples, which fell at least -0.13%.

    In Europe, major equity indexes opened lower and traded to early morning lows, but then improved to modestly mixed in mid-afternoon. The FTSE 100 is up +0.04%, while the Euro Stoxx50, CAC 40, and DAX are down -0.13%, -0.08%, and -0.11%, respectively. The Spanish IBEX 35 is up +0.23%. The Italian FTSE MIB up +0.05%. Compared to their recent highs, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -3.67%, -1.00%, -4.54%, and -4.72%, respectively.

    Commentary focuses on the seeming certainty of fresh monetary stimulus when the ECB meets in September. Economic reporting is light. Other foci are currency and commodity price developments. The euro is slightly stronger compared to the dollar.

    European bourses have recently underperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 60.43, compared to 61.23 at the prior close, in a neutral (30-70) range. On August 8th, its RSI closed at 28.17, well below its prior February 5th 33.57 low, which coincided with its prior 2014 low. The index's lowest recent RSI level was 25.77 on June 24, 2013, which marked the year's 2,494.54 closing low.

    The Euro Stoxx50 trades -3.68% below its recent June 18th 3,314.80 multi-year high and -39.2% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,197.54 close, the index fell to an early 3,186.57 intraday low, but improved to its mid-session 3,197.76 intraday high before easing again by mid-afternoon. The index currently trades at 3,193.23. Most market segments are lower. Leaders are telecommunications and financials, which are up at least +0.40%, and technology, which is down -0.01%. Laggards are energy, consumer staples, and consumer discretionary, which are down at least -0.70%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +3.04%, +0.70%, +3.21%, and +2.52%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +2.14%, +1.32%, +1.88%, and +2.71%, respectively. In August, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +2.48%, +1.41%, +3.37%, and +1.78%, respectively. In July, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -3.49%, -0.21%, -4.00%, and -4.33%, respectively.

    In 2014, the indexes are mixed. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +2.70%, +1.12%, and +2.18%, and +0.23%, respectively. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.

    2Q2014 SPX Earnings. The 2nd quarter earnings season began June 18th and is now largely complete, with 490 of 500 SPX reporting firms having reported, with respective +5.08% EPS and +1.53% revenue surprises. Financials (84 of 84 reporting) lead with a 9.47% EPS surprise and +2.39% revenue surprise.

    In 1Q2014, of 499 (of 499) reporting companies, 370 or +74.5% surprised positively on earnings, with an average +5.91% surprise average. Of reporting companies, 263 or 53.0% reported sales or revenues above estimates. The average sales/revenue surprise was +0.20%. Energy led with respective +10.0% and -1.01% earnings and revenue surprises. Financials had respective +5.67% and +0.26% earnings and revenue surprises. Consumer staples lagged with respective +0.34% and -0.66% earnings and revenue surprises.

    Valuation. The SPX trades at 18.2x estimated 2013 earnings ($110.15), 16.7x estimated 2014 earnings ($119.41), 15.1x estimated 2015 earnings ($132.59), and 13.6x estimated 2016 earnings ($147.10). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +8.40%, +11.0%, and 10.9%, respectively.

    The KBW Bank Index (BKX) trades at 13.8x 2013 adjusted EPS ($5.16), 13.0x estimated 2014 earnings ($5.51), 12.1x estimated 2015 earnings ($5.94), and 10.8x 2016 earnings ($6.64). Analysts expect 2014, 2015, 2016 EPS will grow +6.88%, +7.75%, and +11.7%, respectively.

    Composite, index, and equity options. Options markets are unchanged at neutral to bullish, compared to neutral to bullish the prior session. Composite options are bullish, index options are bullish, and equity options are neutral. The composite put/call ratio is 0.79, compared to 0.88 the prior day, and better than 5- and 10-period moving averages of 0.83 and 0.89, respectively. The index put/call ratio is 0.87, compared to 0.84 the prior day, and better than its 5- and 10-period moving averages of 1.05 and 0.98, respectively. The equity put/call ratio closed the day at 0.76, compared to 0.91 the prior day, and better than its 5- and 10-period moving averages of 0.85 and 0.87, respectively.

    NYSE Volume, Breadth Indicators. Volume rose +3.74% to 512.17 million shares, compared to 493.72 million shares the prior day, 0.82x the 626.81 million shares 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led by +986 (compared to +697 the prior day), or 1.97:1. Up volume was 1.99:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.09190%, compared to 0.09200% the prior day. USD 3-month LIBOR is 0.23840%, down from 0.23490% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 14.59 bps, compared to 14.54 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 15.90 bps, compared to 16.40 bps the prior day, and down from the December 27, 2011, high of 98.800 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.

    · The 3-month Euro basis swap curve is -14.758 bps, compared to -13.750 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, and within the lower end of a normal -10 bps and -40 bps range.

    · German 10-year debt yields 0.910%, compared to 0.939% the prior day.

    · French 10-year debt yields 1.283%, compared to 1.253% the prior day.

    · Japanese 10-year debt yields are 0.498%, compared to 0.503% the prior day.

    · Spanish and Italian 10-year debt yields are lower and near multi-year lows. Spanish 10-year debt yields are 2.086%, compared to 2.172% the prior day. Italian 10-year debt yields are at 2.364%, compared to 2.413% the prior day. Spanish and Italian 10-year debt yields peaked at 7.62% and 7.26%, respectively, in July 2012 and November 2011.

    · U.S. Treasury yields are mixed, with 2- and 10-year maturities yielding 0.512% and 2.373%, respectively, compared to 0.492% and 2.396% Tuesday. The yield curve narrowed -4.300 bps, with the 2- to 10-year spread at +1.861%, compared to 1.904% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.861% on August 27, 2014, to a high of +2.648% on December 31, 2013.

    · The U.S. dollar is weaker compared to the euro, Japanese yen and British pound. The dollar trades at US$82.502, compared to US$82.495 intraday low and US$82.650 the prior day, and better compared to its $80.952 50-day, US$80.476 100-day, and US$80.440 200-day averages. The euro trades at US$1.3182, compared to a US$1.3189 intraday high and US$1.3167 the prior day. The euro trades worse compared to its US$1.3473 50-day and US$1.3598 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥103.90, compared to ¥104.06 the prior day. The yen trades worse than its 50-day moving average ¥102.19, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index improved to +27.30, its 4th consecutive positive reading, compared to +5.20 the prior day. The index is better compared to its respective +7.82 5-day and +2.67 10-day moving averages. From a +72.70 high on January 15th, the index subsequently trended lower and turned negative on February 19th and fell to a -45.90 124-week low on April 7th. The index turned briefly positive in the latter half of May, then turned negative on May 29th and remained negative through August 5th. After a lag, the CESIUSD correlates with EPS revisions.

    · Commodities prices are mostly higher, with higher energy, higher precious metals, mixed aluminum and copper, but mostly lower agriculture prices.

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) fell -0.60% to 11.63, compared to 11.70 at the prior close. The VIX is -16.3% below the 13.89 20-day moving average. Its 30-day high is 17.57. Its 30-day low is 10.59. Its all-time closing low is 9.31 on December 22, 1993. The long-term average is 20.00.

    · The Euro Stoxx 50 volatility index (V2X) is 15.60, down -1.87% compared to the 15.90 prior day close. The V2X index trades -14.7% below its 18.29 20-day moving average, -29.6% below the 22.15 30-day high, and +5.73% above the 14.50 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 13.94, up +0.14% compared to 13.92 at the prior close. The VHSI index trades -10.0% below its 15.49 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) fell -1.39% to 133.54, compared to 135.42 the prior session, above a neutral reading (115-120) and for a 6th consecutive session, above 130, a level that correlates well with short-term market tops. The recent record high was 143.26 on June 20, 2014. Its recent low was 112.47 on May 25, 2013. Spikes in excess of 130 correlate well with short-term market tops, as occurred last December, ahead of market declines last January. The index rarely falls below 110, last on July 31, 2009. The index correlates with market tail risks, the cost of buying out-of-the-money, long-dated options, i.e., options not affected by expirations. A rise suggests that investors are buying more puts than calls, a bearish signal.

    U.S. Economic Reporting and News:

    · The latest week's MBA mortgage applications rose +2.8%, compared to the +1.4% prior.

    Overseas Economic Reporting and News:

    · France - August production outlook was -20, compared to -19 revised prior. August business confidence is 91, compared to 93 survey and prior.

    · Italy - August consumer confidence was 101.9, compared to 104.0 survey and 104.4 revised prior.

    Notable Company Ratings/News:

    · None.

    Tuesday's Trade. Led by energy and health care, equities added to the prior day's gains, on slightly better, but light volume. For a 2nd consecutive session, the SPX closed at record high. The Nasdaq closed -0.05% below its March 2000 record high. Major indexes rallied early, then eased through the afternoon to end with modest gains. The SPX, DJI, Nasdaq, and NYSE composite rose +0.11%, +0.17%, +0.29%, and +0.18%, respectively. This week, indexes are at least +0.58% higher, compared to the prior week, when indexes closed up at least +1.40%. In August, indexes are at least +2.79% higher. In July, indexes closed down at least -1.51%. In 2014, indexes are up at least +3.20%. Market breadth was positive, with gainers 1.97x losing stocks. Most SPX market segments closed higher. Leaders were energy, health care, and financials, which rose at least +0.26%. Laggards were consumer staples, industrials, and utilities, which fell at least -0.07%.

    Other notable indexes rose, with the Nasdaq Biotech Index (NBI) at closing at a new yearly and record high. The Russell 2000 (RTY) rose +0.85% and closed -2.77% below its March 4th record high. The Nasdaq Internet Index (QNET) rose +0.39%, down -4.93% below its March 6th closing high. The NBI rose +1.25%, closing above its prior February 25th record high.

    NYSE volume rose +3.74% to 512.17 million shares, compared to 493.72 million shares the prior day, 0.82x the 626.81 million share 20-day moving average volume. Bond markets weakened. From its prior day 2.3750% close, the U.S. 10-year yield trended lower to a mid-morning 2.3661% intraday low, then reversed higher by late morning to a late session 2.3980% intraday high. The index ended at 2.3962%, up +1.42 bps from the prior close.

    From its prior day 1997.92 SPX record close, September 2014 SPX futures (SPM4) suggested a moderately higher open. The index opened above 1999 and rallied to a late morning 2,005.04 intraday high before easing through the afternoon. The index closed at a record 2000.02, +3.43% above the August 12th 1933.75 close (which marked the start of the current market uptrend), and +86.1% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day 8,421.31 close, the DJ Transportation index (TRAN) fell -0.39% and closed at 8,454.25, -0.17% below its July 23rd 8,468.54 record close. The index set an early 8,467.48 intraday high, but immediately reversed lower to 8,430 by mid-morning. The index briefly reversed higher late in the morning session, but trended lower through the afternoon session to a late 8,417.68 intraday low. Volume fell -6.69% to 8.435 million shares, compared to 9.040 million shares the prior session, and 0.76x the 15-day moving average volume. The TRAN closed +2.13% and +1.99% above its respective 20- and 50-day moving averages, and +4.82% and +9.71% above its respective 100- and 200-day moving averages.

    Market volatility fell, as the CBOE SPX volatility index (VIX) fell -0.60% to 11.63, compared to 11.70 at the prior close, its 5th consecutive close below 12.0. The VIX set an early 11.33 intraday low, then moved higher to a mid-morning 11.93 intraday high. The index eased back to 11.60 in early afternoon, then moved narrowly to the close. The VIX's all-time closing low is 9.31, on December 22, 1993. Its record high is 89.53 in December 2008. Its lifetime average is 20.01. The CBOE put/call SKEW fell -0.48% to 1315.10, compared to 135.75 the prior session, above a neutral 115-120 range and above 130 for the first time since June 18th, a level that correlates well with short-term market tops. Its record 143.26 high came on June 20th.

    The market's technical factors were little changed. The SPX relative strength (RSI) rose to 66.15, compared to 65.52 the prior day, in a neutral range. The latest RSI compares to an oversold 32.85 on August 7th, an overbought 73.73 on June 9th, and an oversold 31.24 on February 3rd, its previous yearly low, when the SPX closed at 1741.89. The RSI compares to an overbought 71.26 on December 31st, when the SPX closed at an earlier record 1848.36 high, and compares to earlier oversold levels of 35.14 on August 27th and 39.19 on October 9th.

    This week, the SPX, DJI, Nasdaq, and NYSE composite are up +0.58%, +0.62%, +0.71%, and +0.71%, respectively, compared to last week, when the SPX, DJI, Nasdaq, and NYSE composite closed up +1.71%, +2.03%, +1.65%, and +1.40%, respectively. In August, the SPX, DJI, Nasdaq, and NYSE composite are up +3.59%, +3.28%, +4.60%, and +2.79%, respectively. In July, the SPX, DJI, Nasdaq, and NYSE composite closed down up -1.51%, -1.56%, -0.87%, and -2.30%, respectively.

    In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +8.21%, +3.20%, +9.43%, and +6.01%, respectively. In 2013, the SPX, DJI, Nasdaq, and NYSE composite closed up +29.6%, +26.5%, +38.2%, +23.2%, respectively. All closed at least +5.91% higher in 2012.

    KBW Bank Index (BKX). On lower, but and above 15-day average volume, the BKX rose +0.29% to 71.91, compared to 71.70 at the prior day's close, its 5th consecutive close above 70. The index closed -1.37% below its 72.91 March 20th post-2008 closing high. The index opened higher and rose to a mid-morning 72.15 intraday high, then eased back to 71.90 by early afternoon, which proved support through the close. Volume fell -15.6% to 34.297 million shares, compared to 40.615 million shares the prior day, and 0.92x the 37.312 million share 15-day moving average.

    Large cap banks outperformed the regional banks, as the KBW regional banking index (KRX) rose +0.82%.

    This week, the BKX is up +1.15%, compared to last week, when the BKX closed up +3.01%. In August, the BKX is up +2.79%, compared to July, when the BKX closed off -1.64%. In 2014, the BKX is up +3.83%, compared to the SPX's +8.09% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +21.5% better than the June 24, 2013, 59.19 close, its worst since May 13, 2013. The index crossed above 50 on December 17, 2012, 60 on May 15, 2013, and 70 on January 8, 2014, but then dropped back below 70 on January 24th, which persisted until March 6th. On April 10th, the BKX fell below 70.00 and then eased consistently to the May 15th 66.81 closing low, its lowest close since early February. On June 5th, the BKX rose back above 70, but then again surrendered that level on August 1st.

    The BKX closed +120.9% above the 32.56 intraday low on October 4, 2011, the bottom of that year's correction. Large-cap bank stocks have outperformed the broader market's rebound, with the SPX up +86.1% in the same period. The BKX index closed -40.6% below its February 20, 2007, record 121.06 high. The BKX is up +285.1% from its 18.62 March 6, 2009, closing low, its low at the end of the 2008-09 financial panic.

    Technical indicators were little changed. The index closed +3.06% and +1.76% above its respective 20- and 200-day moving averages, and +2.95% and +3.68% above its 50- and 100-day moving averages. The 20-day moving average rose +5 bps to 69.77. The 70.67 50-day moving average rose +4 bps. Its 69.85 100-day moving average fell -1 bp, and the 200-day moving average rose +4 bps to 69.36. The 20-day closed (by -0.89 points) below the 50-day, and the negative gap narrowed -2 bps. The 50-day moving average closed (by +1.31 points) above the 200-day moving average, and the gap was unchanged. The 100-day moving average closed (by +0.49 points) above the 200-day moving average, and the gap narrowed -4 bps.

    The directional movement indicator improved to +9.402, compared to +8.134 the prior day, its 4th consecutive positive reading. Relative strength rose to 64.53, compared to 63.26 the prior day, in a neutral range, down from an overbought 73.14 on June 9th, but compares to recent lows of 32.95 on February 3rd and 31.08 on November 14, 2012, which is also the date of the BKX's 2012 closing low. Next resistance is 72.14; next support is 71.69.

    SPX, DJI, RTY, TRAN, CCMP, NYA, VIX, SKEW, NKY, EURUSD, USGG10YR, HSI, SHCOMP, SX5E, CAC, DAX, FTSE, JPY, GBP, EUR

    Aug 27 9:06 AM | Link | Comment!
  • U.S. Equity Futures Up Small; Asia Mixed

    This morning. World equities closed lower in Asia, but in Europe rallied strongly after mid-session on confidence that the ECB will provide fresh monetary policy stimulus following its September meeting. U.S. futures are modestly higher, but below first resistance and near the middle of their pre-session trading range. The dollar is mixed. U.S. Treasury 10-year yields are slightly higher. Commodities are mostly higher. Economic reporting focuses on July U.S. durable goods and shipments and housing prices. Wednesday's Nikkei 225 September 2014 (NKU4) equity futures are modestly lower.

    Since August 13, the U.S. equity market outlook is "confirmed uptrend". Yesterday, the S&P 500 index (SPX) closed at a new record, +3.32% above the August 12th 1933.75 close. The Nasdaq opens -0.34% below its April 11, 2001 record high.

    Monday, on lower and below average volume, U.S. equity indexes rallied moderately, but closed off mid-morning highs. The SPX and NYSE composite closed at record highs. The S&P 500 Index (SPX), DJ Industrials (DJI), Nasdaq, and NYSE composite rose +0.48%, +0.44%, +0.41%, and +0.53%, respectively. Last week, indexes closed at least +1.40% higher, compared to the prior week, when indexes closed up at least +0.66%. In August, indexes are at least +2.60% higher. In July, indexes closed off at least -0.87%. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +8.09%, +3.02%, +9.12%, and +5.82%, respectively.

    NYSE volume fell -5.27% to 0.78x its 20-day moving average.

    Other notable indexes closed mixed. The DJ Transports (TRAN) rose +0.29%. The Russell 2000 (RTY) rose +0.42%. The Nasdaq Internet (QNET) index fell -0.03%, and the Nasdaq Biotech (NBI) index rose +2.41%. The TRAN, RTY, QNET, and NBI are down -0.17%, -3.59%, -5.31% and -0.13%, respectively, from their recent record highs.

    Trading desks report a quiet overnight , with weakness in Asia, but better strength in Europe, especially after a meh morning. Presidents Porosheko and Putin meet today to discuss Ukraine. Economic reporting is generally light. Flows remain holiday week, end of summer light. In yesterday's trade, the SPX managed to more above 2000 by late morning, but couldn't hold that level in the afternoon. The SPX is well above the top its recent 1950-1985 trading range. Sentiment remains skeptical that the SPX can manage a clear upside breakout.

    The 2Q2014 earnings season began June 18th and is now largely complete as 488 of 500 SPX companies have reported with respective +5.08% and +1.53% adjusted EPS and revenues surprises. Financials (84 of 84 reporting) lead with respective +9.47% and +2.38% EPS and revenue surprises. In 1Q2014, 499 of 499 SPX companies reported with respective +5.91% EPS and +0.20% revenue surprises.

    Forward estimates have moved up. Respective estimates for 2014, 2015 and 2016 are now $119.40, $132.58, and $147.10, respectively compared to $118.05, $131.36 and $145.70 at June-end, respective increases of +1.15%, +0.93% and +0.96%. Price earnings multiples remain elevated. With SPX equities trading at a 17.4x (compared to 17.4x the prior day) average 2014-15 earnings ($125.99), attention focuses on prospective 2014-15 earnings and valuations (17.4x times survey 2014-15 SPX average operating earnings suggests a 2196.74 SPX level in the next year, a +9.95% rise from yesterday's close).

    Technicals were little changed. Led by financials, all SPX market segments closed at least +0.02% higher. SPX market breadth was positive, and up volume led down volume. Volatility rose, and the CBOE SPX volatility index (VIX) now suggests a 68% probability that the 30-day change in the SPX will be less than ±4.05%. Treasury bond markets strengthened, with the 10-year U.S. Treasury bond yield falling -2.04 bps to 2.3820%, compared to 2.4024% at the prior close.

    This morning, 10-year U.S. Treasury yields are +0.09 bps higher at 2.3829%, compared to the prior close. World sovereign bond markets are mixed, with the German 10-year yield at 0.947%. Spanish and Italian 10-year debt yields are lower at 2.177% and 2.423%, respectively, compared to 2.260% and +2.479% the prior day.

    U.S. options markets are unchanged at neutral to bullish, compared to neutral to bullish the prior day. The CBOE SKEW rose +0.24% to 135.42 compared to 135.10 the prior day, above 130 for the 6th consecutive session, a level that correlates well with short-term market tops. The SKEW closed at a record 143.60 on June 20th.

    In pre-market futures trading, September SPX equity futures (SPM4) price near the top of their 1992-1999 trading range. After a fair value adjustment of +0.17 points, the SPU4 future prices at 1997.00, up +1.83 points. The SPX opens +2.29% above and +1.82% above its respective 20- and 50-day moving averages, and +3.76% and +6.61% above its 200-day moving averages. Initial resistance is 2002.67. Initial support is 1992.46, then 1986.99.

    "Confirmed Uptrend" Market Outlook. Based on Nasdaq's August 13th follow-through, the U.S. equity outlook improved to "confirmed uptrend", concluding a brief "in correction" that commenced on August 6th, which followed a period of "uptrend under pressure" that began on July 8th. Since August 13th, there have been no subsequent distributions.

    2Q2014 earnings continue to surprise positively, with financials' earnings leading other sectors. Monday, the SPX closed at a record 1997.92, up +3.32% compared to its August 12th 1933.75 close.

    On May 27th, the market outlook improved to "confirmed uptrend", ending a period of market "in correction" that began on April 4th. The SPX closed July 24th at a record 1987.01, +8.99% above the 1815.69 close on April 11th, the recent low. On February 3rd, the Nasdaq closed at its 3,996.96 year-to-date low, but then recovered +14.0% to the August 25th 4,557.35 multi-year record close.

    In Asia, equity markets closed lower and near their intraday lows, with greater weakness in Shanghai. The Nikkei 225 (NYSEARCA:NKY) fell -0.59%. In China, the Hang Seng (HSI) Index fell -0.37%, and the Shanghai SE composite (SHCOMP) fell -0.99%. The NKY, HSI, and SHCOMP 50-day moving averages are above their respective 200-day moving averages. Today's volumes are unavailable.

    Commentary focused on currency and commodity developments and, in China, concern that new IPOs may divert funds from existing securities.

    This week, the NKY, HSI, and SHCOMP are down -0.12%, -0.15%, and -1.50%, respectively. Last week, the NKY, HSI, and SHCOMP closed up +1.44%, +0.63%, and +0.63%, respectively. In August, the NKY is down -0.64%, while the HSI and SHCOMP are up +1.28%, and +0.25%, respectively. In July, the NKY closed up +3.03%, the HSI rose +6.75%, and the SHCOMP rallied +7.48%.

    In 2014, the NKY is down -4.16%, the HSI is up +7.98%, and the SHCOMP is up +5.35%. In 2013, the NKY rose +56.7%. The HSI closed up +2.87%. The SHCOMP closed down -6.75%.

    In China, short-term interbank lending rates remain volatile, and the SHIBO 7-day fell -3 bps to 3.32%, compared to 3.35% the prior day, up from a 2.26% low on March 11th, but down from the February 7th 5.41% recent high.

    Regional relative strength indexes (RSI) have Tokyo, Hong Kong, and Shanghai in a neutral range. The NKY RSI fell to 56.24, compared to 60.53 the prior session, up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI fell to 65.87, compared to 69.93 the prior day and down from an overbought 81.00 on July 31st. The SHCOMP's RSI fell to 55.15, compared to 62.80 the prior day. On July 28th, the index's RSI set a record 81.72. On June 27, 2013, the index's RSI fell to a low of 15.27, which was also last year's low index close.

    In Japan, the NKY closed at 15,521.22, compared to 15,613.25 the prior day, -4.73% below its year-end 16,291.31 high and -60.1% below its late-1989 38,915.87 high close. The index opened modestly lower, but weakened below 15,540 by mid-morning and then trended narrowly lower to a late 15,519.42 intraday low. All market segments closed at least -0.06% lower. Leaders were health care, utilities, and industrials. Laggards were consumer discretionary, financials, and telecommunications, which fell at least -0.81%.

    In China, in Shanghai, the SHCOMP closed at 2,207.11, compared to 2,229.27 at the prior close, +13.2% above the 1,950.01 June 27, 2013 close, last year's low. The index set an early 2,232.69 intraday high, but reversed lower late in the morning session, and trended lower through the afternoon to a late 2,200.64 intraday low. All market segments closed at least -0.32% lower. Leaders were utilities, financials, and energy. Laggards were consumer discretionary, materials, and technology, which fell at least -1.71%.

    In Europe, major equity indexes opened lower and traded modestly lower, but sideways through the morning session, then rallied strongly to mid-afternoon intraday highs. The Euro Stoxx 50, FTSE 100 CAC 40, and DAX are up +0.49%, +0.44%, +0.68%, and +0.29%, respectively. The Spanish IBEX 35 is up +0.79%. The Italian FTSE MIB up +0.53%. Compared to their recent highs, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -4.06%, -1.29%, -4.96%, and -5.12%, respectively.

    Commentary focuses on the seeming certainty of fresh monetary stimulus when the ECB meets in September. Economic reporting is light. Other foci are currency and commodity price developments. The euro is slightly stronger compared to the dollar.

    European bourses have recently underperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 59.47, compared to 57.76 at the prior close, in a neutral (30-70) range. On August 8th, its RSI closed at 28.17, well below its prior February 5th 33.57 low, which coincided with its prior 2014 low. The index's lowest recent RSI level was 25.77 on June 24, 2013, which marked the year's 2,494.54 closing low.

    The Euro Stoxx50 trades -4.06% below its recent June 18th 3,314.80 multi-year high and -39.4% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,165.47 close, the index found support at 3,155 through mid-session, when the index weakened to its 3,151.78 intraday low. The index reversed higher in early afternoon, and rallied to its 3,185.55 intraday high in mid-afternoon. The index currently trades at 3,181.46 intraday high. Most market segments are higher. Leaders are financials, energy, and health care, which are up at least +0.63%. Laggards are consumer staples and technology, which are up +0.04%, and utilities, which is down -0.48%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +2.64%, +0.42%, +2.76%, and +2.11%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +2.14%, +1.32%, +1.88%, and +2.71%, respectively. In August, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +2.08%, +1.13%, +2.93%, and +1.37%, respectively. In July, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -3.49%, -0.21%, -4.00%, and -4.33%, respectively.

    In 2014, the indexes are mixed. The Euro Stoxx50, FTSE 100, and CAC 40 are up +2.29%, +0.85%, and +1.73%, respectively, while the DAX is down -0.17%. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.

    2Q2014 SPX Earnings. The 2nd quarter earnings season began June 18th and is now largely complete, with 488 of 500 SPX reporting firms having reported, with respective +5.08% EPS and +1.53% revenue surprises. Financials (84 of 84 reporting) lead with a 9.47% EPS surprise and +2.39% revenue surprise.

    In 1Q2014, of 499 (of 499) reporting companies, 370 or +74.5% surprised positively on earnings, with an average +5.91% surprise average. Of reporting companies, 263 or 53.0% reported sales or revenues above estimates. The average sales/revenue surprise was +0.20%. Energy led with respective +10.0% and -1.01% earnings and revenue surprises. Financials had respective +5.67% and +0.26% earnings and revenue surprises. Consumer staples lagged with respective +0.34% and -0.66% earnings and revenue surprises.

    Valuation. The SPX trades at 18.1x estimated 2013 earnings ($110.15), 16.7x estimated 2014 earnings ($119.40), 15.1x estimated 2015 earnings ($132.58), and 13.5x estimated 2016 earnings ($147.10). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +8.40%, +11.0%, and 11.0%, respectively.

    The KBW Bank Index (BKX) trades at 13.8x 2013 adjusted EPS ($5.16), 13.0x estimated 2014 earnings ($5.51), 12.1x estimated 2015 earnings ($5.94), and 10.8x 2016 earnings ($6.64). Analysts expect 2014, 2015, 2016 EPS will grow +6.88%, +7.75%, and +11.7%, respectively.

    Composite, index, and equity options. Options markets are unchanged at neutral to bullish, compared to neutral to bullish the prior session. Composite options are bullish, index options are bullish, and equity options are neutral. The composite put/call ratio is 0.88, compared to 0.93 the prior day, and worse than 5- and 10-period moving averages of 0.86 and 0.92, respectively. The index put/call ratio is 0.84, compared to 0.91 the prior day, and worse than its 5- and 10-period moving averages of 0.84 and 0.96, respectively. The equity put/call ratio closed the day at 0.91, compared to 0.94 the prior day, and worse than its 5- and 10-period moving averages of 0.88 and 0.89, respectively.

    NYSE Volume, Breadth Indicators. Volume fell -5.27% to 493.72 million shares, compared to 521.17 million shares the prior day, 0.78x the 632.58 million shares 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led by +697 (compared to -756 the prior day), or 1.59:1. Up volume was 2.31:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.09190%, compared to 0.09200% the prior day. USD 3-month LIBOR is 0.23840%, down from 0.23490% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 14.54 bps, compared to 14.34 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 16.40 bps, compared to 15.10 bps the prior day, and down from the December 27, 2011, high of 98.800 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.

    · The 3-month Euro basis swap curve is -13.902 bps, compared to -13.684 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, and within the lower end of a normal -10 bps and -40 bps range.

    · German 10-year debt yields 0.948%, compared to 0.982% the prior day.

    · French 10-year debt yields 1.266%, compared to 1.233% the prior day.

    · Japanese 10-year debt yields are 0.511%, compared to 0.510% the prior day.

    · Spanish and Italian 10-year debt yields are lower and near multi-year lows. Spanish 10-year debt yields are 2.260%, compared to 2.382% the prior day. Italian 10-year debt yields are at 2.479%, compared to 2.576% the prior day. Spanish and Italian 10-year debt yields peaked at 7.62% and 7.26%, respectively, in July 2012 and November 2011.

    · U.S. Treasury yields are mixed, with 2- and 10-year maturities yielding 0.500% and 2.382%, respectively, compared to 0.492% and 2.402% Monday. The yield curve narrowed -2.860 bps, with the 2- to 10-year spread at +1.882%, compared to 1.911% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.882% on August 26, 2014, to a high of +2.648% on December 31, 2013.

    · The U.S. dollar is mixed, weaker compared to the euro, but stronger compared to the Japanese yen and British pound. The dollar trades at US$82.530, compared to US$82.434 intraday low and US$82.549 the prior day, and better compared to its $80.912 50-day, US$80.475 100-day, and US$80.443 200-day averages. The euro trades at US$1.3196, compared to a US$1.3215 intraday high and US$1.3192 the prior day. The euro trades worse compared to its US$1.3482 50-day and US$1.3605 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥103.92, compared to ¥104.05 the prior day. The yen trades worse than its 50-day moving average ¥102.10, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index improved to +5.20, its 3rd consecutive positive reading, compared to +4.40 the prior day. The index is better compared to its respective +2.00 5-day and +0.27 10-day moving averages. From a +72.70 high on January 15th, the index subsequently trended lower and turned negative on February 19th and fell to a -45.90 124-week low on April 7th. The index turned briefly positive in the latter half of May, then turned negative on May 29th and remained negative through August 5th. After a lag, the CESIUSD correlates with EPS revisions.

    · Commodities prices are mostly higher, with higher energy, higher precious metals, higher aluminum and copper, and mostly higher agriculture prices.

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) rose +2.01% to 11.70, compared to 11.47 at the prior close. The VIX is -16.3% below the 13.97 20-day moving average. Its 30-day high is 17.57. Its 30-day low is 10.59. Its all-time closing low is 9.31 on December 22, 1993. The long-term average is 20.00.

    · The Euro Stoxx 50 volatility index (V2X) is 16.45, down -4.54% compared to the 17.23 prior day close. The V2X index trades -10.2% below its 18.33 20-day moving average, -25.7% below the 22.15 30-day high, and +13.5% above the 14.50 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 14.24, up +1.71% compared to 14.00 at the prior close. The VHSI index trades -8.66% below its 15.59 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) rose +0.24% to 135.42, compared to 135.10 the prior session, above a neutral reading (115-120) and for a 5th consecutive session, above 130, a level that correlates well with short-term market tops. The recent record high was 143.26 on June 20, 2014. Its recent low was 112.47 on May 25, 2013. Spikes in excess of 130 correlate well with short-term market tops, as occurred last December, ahead of market declines last January. The index rarely falls below 110, last on July 31, 2009. The index correlates with market tail risks, the cost of buying out-of-the-money, long-dated options, i.e., options not affected by expirations. A rise suggests that investors are buying more puts than calls, a bearish signal.

    U.S. Economic Reporting and News:

    · At 8:30, July durable goods orders rose 22.6%, compared to +8.0% survey and +2.7% revised prior.

    · July durables ex-transportation fell -0.8%, compared to +0.5% survey and +3.0% revised prior.

    · Capital goods shipments, non-defense, ex-aircraft rose +1.5%, compared to +0.7% survey and +0.9% revised prior.

    · Capital goods orders, non-defense, ex-aircraft fell -0.5%, compared to +0.2% survey and +5.4% revised prior.

    · At 9:00, June FHFA MoM house price index, with +0.3% survey and +0.4% prior.

    · June S&P/CS 20 city YoY composite, with +8.30% survey and +9.34% prior.

    · At 10:00, August consumer confidence index, with 89.0 survey and 90.9 prior.

    · August Richmond Fed manufacturing index, with 6 survey and 7 prior.

    Overseas Economic Reporting and News:

    · Japan - August small business confidence was 47.7, compared to 49.5 survey and 48.7 prior.

    Notable Company Ratings/News:

    · None.

    Monday's Trade. Led by financials, equities added to last week's gains, and closed with moderate gains, though volume was extraordinarily light. The SPX and NYSE composite closed at record highs. On lower and below average NYSE volume, major U.S. equity indexes rallied to mid-morning intraday highs, then eased mid-day to moderate the day's gains. The SPX, DJI, Nasdaq, and NYSE composite rose +0.48%, +0.44%, +0.41%, and +0.53%, respectively. Last week, indexes are at least +1.40% higher, compared to the prior week, when indexes closed up at least +0.66%. In August, indexes are at least +2.60% higher. In July, indexes closed down at least -1.51%. In 2014, indexes are up at least +3.02%. Market breadth was positive, with gainers 1.59x losing stocks. All SPX market segments closed at least +0.02% higher. Leaders were financials, energy, and health care, which rose at least +0.72%. Laggards were industrials, consumer discretionary, and technology.

    Other notable indexes were mixed. The Russell 2000 (RTY) rose +0.42% and closed -3.59% below its March 4th record high. The Nasdaq Internet Index (QNET) fell -0.03%, down -5.31% below its March 6th closing high. The Nasdaq Biotech Index (NBI) rose +2.41% and ended -0.13% below its February 25th record high.

    NYSE volume fell -5.27% to 493.72 million shares, compared to 521.17 million shares the prior day, 0.78x the 632.58 million share 20-day moving average volume. Bond markets strengthened. From its prior day 2.4024% close, the U.S. 10-year yield trended lower to a mid-morning 2.3750% intraday low, then reversed higher to a late morning 2.4086% intraday high. The index moved lower into the close. The index ended at 2.3820%, down -2.04 bps from the prior close.

    From its prior day 1986.51 SPX close, September 2014 SPX futures (SPM4) suggested a moderately higher open. The index opened above 1996 and rallied to a mid-morning 2,001.95 intraday high before easing into the afternoon. The index traded back to support at 1996 in early afternoon, then improved to 1998, which proved resistance through the close. The index closed at 1997.92, +0.28% above the August 21st prior 1992.37 record close, and +85.9% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day 8,429.91 close, the DJ Transportation index (TRAN) rose +0.29% and closed at 8,454.25, -0.17% below its July 23rd 8,468.54 record close. The index set an early 8,474.05 intraday high, then fell back to 8,450 through early afternoon. By mid-afternoon, the index had slipped to its 8,432.18 intraday low, but improved through the final 3 hours to end with a moderate gain. Volume fell -13.4% to 9.040 million shares, compared to 10.441 million shares the prior session, and 0.78x the 15-day moving average volume. The TRAN closed +2.66% and +2.49% above its respective 20- and 50-day moving averages, and +5.33% and +10.2% above its respective 100- and 200-day moving averages.

    Market volatility fell, as the CBOE SPX volatility index (VIX) rose +2.01% to 11.70, compared to 11.47 at the prior close, its 4th consecutive close below 12.0. The VIX set an early 11.77 intraday high, then moved lower to a late morning 11.24 intraday low. The index moved narrowly around 11.50 through the afternoon, then rose late in the session. The VIX's all-time closing low is 9.31, on December 22, 1993. Its record high is 89.53 in December 2008. Its lifetime average is 20.01. The CBOE put/call SKEW fell -0.48% to 1315.10, compared to 135.75 the prior session, above a neutral 115-120 range and above 130 for the first time since June 18th, a level that correlates well with short-term market tops. Its record 143.26 high came on June 20th.

    The market's technical factors were little changed. The SPX relative strength (RSI) rose to 65.52, compared to 62.59 the prior day, in a neutral range. The latest RSI compares to an oversold 32.85 on August 7th, an overbought 73.73 on June 9th, and an oversold 31.24 on February 3rd, its previous yearly low, when the SPX closed at 1741.89. The RSI compares to an overbought 71.26 on December 31st, when the SPX closed at an earlier record 1848.36 high, and compares to earlier oversold levels of 35.14 on August 27th and 39.19 on October 9th.

    Last week, the SPX, DJI, Nasdaq, and NYSE composite closed up +1.71%, +2.03%, +1.65%, and +1.40%, respectively. The prior week, the SPX, DJI, Nasdaq, and NYSE composite gained +1.22%, +0.66%, +2.15%, and +0.97%, respectively. In August, the SPX, DJI, Nasdaq, and NYSE composite are up +3.48%, +3.10%, +4.29%, and +2.60%, respectively. In July, the SPX, DJI, Nasdaq, and NYSE composite closed down up -1.51%, -1.56%, -0.87%, and -2.30%, respectively.

    In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +8.09%, +3.02%, +9.12%, and +5.82%, respectively. In 2013, the SPX, DJI, Nasdaq, and NYSE composite closed up +29.6%, +26.5%, +38.2%, +23.2%, respectively. All closed at least +5.91% higher in 2012.

    KBW Bank Index (BKX). On lower, but and above 15-day average volume, the BKX rose +0.86% to 71.70, compared to 71.09 at the prior day's close, its 4th consecutive close above 70. The index closed -1.66% below its 72.91 March 20th post-2008 closing high. The index opened higher and rose to a late morning 71.98 intraday high, then eased and traded narrowly around 71.80 until easing further late in the session. Volume fell -5.65% to 40.615 million shares, compared to 43.048 million shares the prior day, and 1.07x the 37.885 million share 15-day moving average.

    Large cap banks outperformed the regional banks, as the KBW regional banking index (KRX) rose +0.19%.

    This week, the BKX is up +3.90%, compared to last week, when the BKX closed up +0.26%. In August, the BKX is up +2.22%, compared to July, when the BKX closed off -1.64%. In 2014, the BKX is up +3.52%, compared to the SPX's +8.09% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +21.1% better than the June 24, 2013, 59.19 close, its worst since May 13, 2013. The index crossed above 50 on December 17, 2012, 60 on May 15, 2013, and 70 on January 8, 2014, but then dropped back below 70 on January 24th, which persisted until March 6th. On April 10th, the BKX fell below 70.00 and then eased consistently to the May 15th 66.81 closing low, its lowest close since early February. On June 5th, the BKX rose back above 70, but then again surrendered that level on August 1st.

    The BKX closed +120.2% above the 32.56 intraday low on October 4, 2011, the bottom of that year's correction. Large-cap bank stocks have outperformed the broader market's rebound, with the SPX up +85.9% in the same period. The BKX index closed -40.8% below its February 20, 2007, record 121.06 high. The BKX is up +285.1% from its 18.62 March 6, 2009, closing low, its low at the end of the 2008-09 financial panic.

    Technical indicators were improved as the 20-day moving average regained an upward slope. The index closed +2.84% and +1.51% above its respective 20- and 200-day moving averages, and +2.64% and +3.44% above its 50- and 100-day moving averages. The 20-day moving average rose +3 bps to 69.72. The 70.63 50-day moving average rose +2 bps. Its 69.86 100-day moving average fell -1 bp, and the 200-day moving average rose +4 bps to 69.32. The 20-day closed (by -0.91 points) below the 50-day, and the negative gap narrowed -1 bp. The 50-day moving average closed (by +1.31 points) above the 200-day moving average, and the gap narrowed -2 bps. The 100-day moving average closed (by +0.54 points) above the 200-day moving average, and the gap narrowed -4 bps.

    The directional movement indicator improved to +8.134, compared to +5.347 the prior day, its 3rd consecutive positive reading. Relative strength rose to 63.26, compared to 59.31 the prior day, in a neutral range, down from an overbought 73.14 on June 9th, but compares to recent lows of 32.95 on February 3rd and 31.08 on November 14, 2012, which is also the date of the BKX's 2012 closing low. Next resistance is 72.01; next support is 71.35.

    Aug 26 9:02 AM | Link | Comment!
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