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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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  • U.S. Futures Decidedly Lower; Europe Near Correction; Asia Ends Modestly Higher

    This morning. U.S. futures are below first and second support, following lower a European sell-off, where the DAX is currently down -2.20%. Asian equities markets closed higher, with the Nikkei 225 rallying +0.92%, but from oversold.

    Today's market focus is the resumption of the recent sell-off, following disclosure overnight of a 2nd ebola infection of a health care provider in Dallas. Economic reporting added to the negative market impetus, with a much weaker than expected October Empire manufacturing report. Positive earnings reports have been largely ignored. For example, Bank of America reported a stronger than expected quarter. U.S. Treasury 10-year yields are sharply lower. The dollar is modestly weaker. Commodities are mostly lower, with energy particularly weak. Thursday's Nikkei 225 December 2014 (NKZ4) equity futures are moderately weaker, notably given the index's oversold condition.

    Tuesday, on greater and above average volume, major U.S. equity indexes rallied early, but sold off through the afternoon to a mixed close. The S&P 500 (SPX), Nasdaq, and NYSE composite closed up +0.16%, +0.32%, and +0.19%, respectively. The DJ Industrials (DJI) fell -0.04%. Other notable indexes also closed mixed. The TRAN rallied +2.61%. The Russell 2000 (RTY) rose +1.17%. The Nasdaq Internet (QNET) index rose +0.70%, but the Nasdaq Biotech (NBI) index fell -0.57%.

    This week, the major indexes are down at least -1.15%. Last week, major indexes closed down at least -2.74%. In October, indexes are down at least -4.27%, compared to September, when indexes closed off at least -0.32%. In 2014, the SPX and Nasdaq are up +1.43% and +0.89%, respectively, while the DJI and NYSE composite are down -1.54% and -1.21%.

    The TRAN closed -8.73% off its September 18th record high, while the RTY, QNET, and NBI are down -12.2%, -14.3%, and -7.61%, respectively, from their recent record highs.

    NYSE volume rose +7.39% to 1.15x its 20-day moving average.

    Trading desks point to headlines that the European policy response to the economic slowdown has been both inadequate and poorly coordinated. Petroleum weakness, according to the WSJ, could add to deflationary pressures in both Europe and Japan, though this would appear more likely a net positive to both. There is now conversation regarding a possible cut in bank interest on excess reserves (IOER). Focus is on the rapid fall in U.S. sovereign yields, which this morning are down more than 17.0 bps, and off remarkably given yesterday's nearly 2.20% close.

    The overall nebulous narrative continues to worsen with "pain", "forced selling", and "giving up the year", dominating trading. That narrative combines a slowing of global economies, ebola panic, and the strength of sovereign bond markets, which is seen as a proxy for the ineffectualness of global policy makers.

    Nonetheless, on September 15, the 3Q2014 earnings season commenced and now 42 of 500 SPX companies have reported respective +6.41% and +1.22% adjusted EPS and revenues surprises. In 2Q2014, SPX companies reported respective +5.14% adjusted earnings and +1.50% revenues surprises.

    In the past 3 months, forward estimates have moved up. Respective estimates for 2014, 2015 and 2016 are now $120.27, $133.23, and $147.68, compared to $118.05, $131.36 and $145.70 at June-end, increases of +1.88%, +1.43% and +1.35%. Price earnings multiples remain elevated. With SPX equities trading at a 16.3x (compared to 16.3x the prior day) average 2014-15 earnings ($126.75), attention focuses on prospective 2014-15 earnings and valuations (16.3x times survey 2014-15 SPX average operating earnings suggests a 2069.78 SPX level in the next year, a +10.3% rise from yesterday's close).

    Technicals were little changed. Led by energy, most SPX market segments higher. Volatility rose, and the CBOE SPX volatility index (VIX) now suggests a 68% probability that the 30-day change in the SPX will be no greater than ±8.54%, compared to ±7.36% the prior session. Treasury bond markets strengthened, with the 10-year U.S. Treasury bond yield falling -8.31 bps to 2.1973%, compared to 2.2804% at the prior close.

    This morning, 10-year U.S. Treasury yields are down another -14.08 bps at 2.0565%, compared to the prior close. World sovereign bond markets are also stronger, with the German 10-year yield at 0.786%, compared to 0.838% the prior day. Spanish and Italian 10-year debt yields are higher at 2.065% and 2.358%, respectively, compared to 2.047% and 2.297% the prior day.

    U.S. options markets improved to bearish to bullish, compared to bearish to neutral the prior day. The CBOE SKEW fell -1.98% to 127.78, compared to 130.36 the prior day, above a neutral 115-120 range, and again above 130, a level that correlates well with short-term market tops. The SKEW set record 146.08 close on September 19.

    In pre-market futures trading, December SPX equity futures (SPZ4) price near the bottom of their 1850-1885 trading range. After a fair value adjustment of -3.65 points, the SPZ4 prices at 1850.75, down -20.85 points. The SPX opens -4.23% and -4.69% below its respective 20- and 50-day moving averages, and -4.31% below and -1.46% below its 200-day moving averages. Initial resistance is 1893.68. Initial support is 1866.76, then 1855.81.

    Market Outlook "In Correction". The SPX closed -6.65% off its September 18th record close, and -3.52% below its 1946.16 October 2nd close, the start of the current "in correction" market phase. The SPX closed -1.67% below the 1909.57 August 7th closing low, the low close in the July-August pullback.

    In Asia, equity markets closed higher, with somewhat greater strength in Japan, which opened oversold. The Nikkei 225 (NYSEARCA:NKY) rose +0.92% and closed near its late intraday high. In China, the Hang Seng (HSI) Index and Shanghai SE composite (SHCOMP) rose +0.40% and +0.60%, respectively. The NKY and HSI closed below their respectively 200-day moving averages. The NKY, HSI, and SHCOMP 50-day moving averages are above their respective 200-day moving averages. The HSI closed below its 200-day moving average. Today's volumes are unavailable.

    Economic reporting was light. Commentary focused on the recent world equity market weakness and currency and commodity price developments.

    This week, the NKY is down -1.48%, the HSI is up +0.22%, and the SHCOMP is down -0.04%. Last week, the NKY closed down -2.60%, while the HSI and SHCOMP closed up +0.10% and +1.14%, respectively. In October, the NKY is down -6.80%, while the HSI is down -2.27%, and the SHCOMP is up +0.41%. In September, the NKY and SHCOMP closed up +4.86% and +6.62%, respectively, while the HSI fell -7.31%.

    In 2014, the NKY is down -7.48%, the HSI is down -0.71%, and the SHCOMP is up +12.2%. 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, but the SHIBO 7-day fell -3 bps to 3.00%, compared to 3.03% 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 signaling oversold, in the lower end of a neutral range, while Hong Kong is in the lower end of a neutral range, and Shanghai is in the upper end of a neutral range. The NKY RSI rose to 33.78, compared to 28.99 the prior session, down from 77.29 on September 19th, but up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI eased to 37.56, compared to 35.17 the prior day and compared to 23.40 on September 30th, and an overbought 81.00 on July 31st. The SHCOMP's RSI rose to 63.77, compared to 60.84 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 15,073.52, compared to 14,936.51 the prior day, and -7.48% off its September 24th closing yearly high and -61.3% below its late-1989 38,915.87 high close. The index opened higher, but fell to a modestly lower 14,916.65 intraday low late in the morning session. The index improved through the afternoon t a late 15,084.61 intraday high. Most market segments closed higher. Leaders were telecommunications, consumer discretionary, and utilities, which rose at least +0.74%. Financials rose +0.60%. Laggards were health care and consumer staples, which rose at least +0.50%, and energy, which fell -0.57%.

    In China, in Shanghai, the SHCOMP closed at 2,373.67, compared to 2,359.48 at the prior close, +21.7% above the 1,950.01 June 27, 2013 close, last year's low. The index fell to a mid-morning 2,344.44 intraday low, but then reversed higher by mid-session and rose to a late 2,374.60 intraday high. Most market segments closed higher. Leaders were health care, utilities, and financials, which rose at least +0.94%. Laggards were telecommunications and industrials, which rose at least +0.07%, and energy, which closed down -0.10%.

    In Europe, major equity indexes are moderately lower, with greater weakness in Milan, and near their intraday lows. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -1.56%, -1.16%, -1.58%, and -1.25%, respectively. The Spanish IBEX 35 is down -1.49%. The Italian FTSE MIB is down -2.15%. Compared to their recent highs, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -10.9%, -6.39%, -6.32%, and -8.76%, respectively.

    Economic reporting is light. Commentary focuses on recessionary and deflationary prospects, and 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 an oversold 26.93, compared to 30.64 at the prior close, below the lower end of 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 -10.9% below its recent June 18th 3,314.80 multi-year high and -43.7% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,000.99 close, the index initially traded narrowly, but quickly weakened and has trended lower through mid-afternoon to the currently 2,938.23 intraday low. All market segments are at least -0.41% lower. Leaders are consumer staples, materials, and consumer discretionary. Laggards are technology, financials, and energy, which are down at least -2.32%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -5.71%, -3.22%, -6.01%, and -5.22%, respectively. Last week, Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -2.68%, -1.83%, -2.57%, and -3.11%, respectively. In October, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -8.41%, -4.60%, -8.87%, and -8.01%, respectively. In September, indexes closed mixed, with the Euro Stoxx50 and CAC 40 up +1.58% and +0.80%, respectively, while the FTSE 100 and DAX up are down -2.89% and -0.51%, respectively.

    In 2014, the indexes are lower. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -4.97%, -6.39%, -6.32%, and -8.76%, respectively. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.

    3Q2014 SPX Earnings. The current earnings season began on September 15th, and 42 of 500 SPX companies have reported with respective +6.41% and +1.22% earnings and revenue surprises. Materials (2 of 30) lead with respective +60.1% EPS and +7.37% revenue surprises, followed by financials, (8 of 84), with respective +9.94% EPS and +1.98% revenues surprises.

    In 2Q2014 498 SPX firms reported respective +5.14% EPS and +1.53% revenue surprises. Financials (84 of 84 reporting) led with a 9.39% EPS surprise and +2.24% revenue surprise.

    Valuation. The SPX trades at 17.0x actual 2013 earnings ($110.15), 15.6x estimated 2014 earnings ($120.27), 14.1x estimated 2015 earnings ($133.23), and 12.7x estimated 2016 earnings ($147.68). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +9.18%, +10.8%, and 10.8%, respectively.

    The KBW Bank Index (BKX) trades at 13.3x actual 2013 adjusted EPS ($5.16), 12.4x estimated 2014 earnings ($5.50), 11.5x estimated 2015 earnings ($5.94), and 10.3x 2016 earnings ($6.66). Analysts expect 2014, 2015, 2016 EPS will grow +6.58%, +7.99%, and +12.1%, respectively.

    Composite, index, and equity options. Options markets are bearish to bullish, compared to bearish to neutral the prior session. Composite options are neutral, index options are bullish, and equity options are bearish. The composite put/call ratio is 1.05, compared to 1.54 the prior day, and better than 5- and 10-period moving averages of 1.15 and 1.10, respectively. The index put/call ratio is 0.88, compared to 1.06 the prior day, and better than its 5- and 10-period moving averages of 1.03 and 1.02, respectively. The equity put/call ratio closed the day at 1.21, compared to 1.60 the prior day, and worse than its 5- and 10-period moving averages of 1.21 and 1.10, respectively.

    NYSE Volume, Breadth Indicators. Volume rose +7.39% to 972.36 million shares, compared to 905.47 million shares the prior day, 1.15x the 845.68 million share 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led by +673 (compared to -1,114 the prior day), or 1.56:1. Up volume was 1.74:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.09050%, compared to 0.09040% the prior day. USD 3-month LIBOR is 0.23000%, down from 0.22910% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 14.36 bps, compared to 14.76 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 9.60 bps, compared to 8.70 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 -10.270, compared to -9.403 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, and below the lower end of a normal -10 bps and -40 bps range.

    · German 10-year debt yields 0.798%, compared to 0.838% the prior day.

    · French 10-year debt yields 1.012%, compared to 1.051 the prior day.

    · Japanese 10-year debt yields are 0.491%, compared to 0.500% the prior day.

    · Spanish and Italian 10-year debt yields are higher, but remain near multi-year lows. Spanish 10-year debt yields are 2.117%, compared to 2.047% the prior day. Italian 10-year debt yields are at 2.385%, compared to 2.297% 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 0.344% and 2.160%, respectively, compared to 0.368% and 2.197% Tuesday. The yield curve narrowed -1.27 bps, with the 2- to 10-year spread at +1.817%, compared to 1.830% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.817% on October 15th, to a high of +2.648% on December 31, 2013.

    · The U.S. dollar is weaker compared to euro, Japanese yen, and British pound. The dollar trades at US$85.823, compared to US$85.817 intraday low and US$85.822 the prior day, and better compared to its $83.867 50-day, US$82.212 100-day, and US$81.184 200-day averages. The euro trades at US$1.2670, compared to a US$1.2676 intraday high and US$1.2658 the prior day. The euro trades worse compared to its US$1.2979 50-day and US$1.3268 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥106.94, compared to ¥107.05 the prior day. The yen trades worse than its 50-day moving average ¥106.07, but better than its September 30th 109.65 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index rose to 19.40, compared to 19.10 the prior session, with consecutive positive readings since August 21st. The index is better compared to its respective +18.90 5-day and +19.10 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 mixed, with lower energy, lower precious metals, higher aluminum and copper, and mostly lower agriculture prices.

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) fell -7.51% to 22.79, compared to 24.64 at the prior close. The VIX is +40.6% above the 16.20 20-day moving average. Its 30-day high is 24.64. Its 30-day low is 11.52. 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 24.86, up +6.34% compared to 23.38 at the prior day close. The V2X index trades +30.3% above its 19.07 20-day moving average, -3.80% below the 25.85 30-day high, and +72.2% above the 14.44 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 21.09, down -3.79% compared to 21.92 at the prior close. The VHSI index trades +19.1% above its 17.72 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) fell -1.98% to 127.78, compared to 130.36 the prior session, above a neutral reading (115-120), but below 130, a level that correlates well with short-term market tops. The record high was 146.08 on September 19, 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 +5.6%, compared to +3.8 prior.

    · At 8:30, October Empire manufacturing was 6.17, compared to 20.25 survey and 27.54 prior.

    · September MoM advance retail sales were -0.3%, compared to -0.1% survey and +0.6% prior.

    · September MoM retail sales ex auto and gas were -0.1%, compared to +0.4% survey and +0.5% prior.

    · At 10:00, August business inventories, with +0.4% survey and prior.

    Overseas Economic Reporting and News:

    · Japan - August final MoM industrial production fell -1.9%, compared to -1.5% prior. YoY industrial production fell -3.3%, compared to -1.5% prior. August MoM capacity utilization fell -1.7%, compared to -0.8% prior. September final YoY machine tool orders rose 34.7%, compared to 34.8% prior.

    · United Kingdom - ILO unemployment rate was 6.0%, compared to +6.1% survey and 6.2% prior.

    Notable Company Ratings/News:

    · BAC - Reported adjusted EPS of $0.400, compared to $0.319 survey, and $21.229 billion revenues, compared to $21.355 billion survey.

    · PNC - Reported adjusted EPS of $1.72, compared to $1.704 survey, and $3.831 billion revenues, compared to $3.793 billion survey.

    Tuesday's Trade. On greater and above average 15-day volume, U.S. equities ended mixed. Since October 2nd, the U.S. equity market outlook remains "in correction". Indexes suggested a higher open and traded moderately higher to mid-session highs. Indexes trended lower through the afternoon, with the SPX and DJI reversing lower in the final hour before improving again into the close. The SPX Nasdaq, and NYSE composite rose +0.16%, +0.32%, and +0.19%, respectively, while the DJI fell -0.04%. Last week, major indexes closed at least -2.74% lower. In October, indexes are at least -4.27% lower. In September, indexes closed down at least -0.32%. In 2014, indexes are mixed. Market breadth was positive, with gainers 1.56x losing stocks. Most SPX market segments closed higher. Leaders were industrials, utilities, and consumer discretionary, which rose +0.67%. Laggards were consumer staples, health care, and energy, which fell at least -0.07%.

    Other notable indexes closed mixed. The Russell 2000 (RTY) rose +1.17%, in correction -12.2% below its March 4th record high, and "death crossed" with its 50-day moving average -1.20% below its 200-day moving average. The Nasdaq Internet Index (QNET) rose +0.70%, down -14.3% below its March 6th closing high. The Nasdaq Biotech index (NBI) fell -0.57%, closing -7.61% below its August 26th record high.

    NYSE volume rose +7.39% to 972.36 million shares, compared to 905.47 million shares the prior day, 1.15x the 845.68 million share 20-day moving average volume. Bond markets strengthened. From its prior day 2.2804% close, the U.S. 10-year yield fell to a mid-morning 2.1736% in intraday low. The index ended at 2.1973%, down -8.31 bps from the prior close.

    From its prior day 1964.82 close, December 2014 SPX futures (SPZ4) suggested a moderately higher open. In early trading, the SPX rose to 1890, then improved to an early afternoon 1898.71 intraday high, but then eased through the afternoon, when in the final hour the index even reversed briefly lower to the day's 1871.79 intraday low. The index closed at 1877.70, -6.65% below the September 18th record 2011.36 close, and -3.52% below the October 2nd 1946.16 close (which marked the start of current market correction), and +74.7% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day 7,717.69 close, the DJ Transportation index (TRAN) rebounded +2.61% to 7,919.00, moving out of correction, -8.73% below its September 18th 8,676.19 record close. The index rallied to 7,850 in early trading, and rallied to a mid-session 7,988.14 intraday high, then eased through the afternoon, though it held its gains much better than did the DJI, which reversed lower late in the session. Volume fell -24.1% to 23.987 million shares, compared to 31.598 million shares the prior session, and 1.37x the 15-day moving average volume. The TRAN closed -4.97% and -5.30% below its respective 20- and 50-day moving averages, and -4.39% below and +0.44% above its respective 100- and 200-day moving averages.

    Market volatility rose, as the CBOE SPX volatility index (VIX) fell -7.51% to 22.79, compared to 24.64 at the prior close. In early trading, the index moved below 23.0 and fell to a mid-session 21.48 intraday low, then moved higher through the afternoon to a late 24.55 intraday high. The VIX's all-time closing high was 89.53 on December 31, 2008; its all-time low was 9.31, on December 22, 1993. Its lifetime average is 19.99, which implies a 68% probability that the 30-day change in the SPX will be no greater than ±6.93%. The CBOE put/call SKEW fell -1.98% to 127.78, compared to 130.36 the prior session, above a neutral 115-120 range, but below 130, a level that correlates well with short-term market tops. Its record 146.08 high came on September 19th.

    The market's technical factors worsened, as the SPX surrendered its 200-day moving average. The SPX relative strength (RSI) rose to 31.37, compared to 30.45 the prior day, lower than its 32.85 low on August 7th and lower than its 31.24 low on February 3rd, its prior low in 2014.

    This week, the SPX, DJI, Nasdaq, and NYSE composite are down -1.49%, -1.38%, -1.15%, and -1.04%, respectively. Last week, the SPX, DJI, Nasdaq, and NYSE composite closed down -3.14%, -2.74%, -4.45%, and -3.22%, respectively. In October, the SPX, DJI, Nasdaq, and NYSE composite are down -4.80%, -4.27%, -5.92%, and -4.83%, respectively. In September, the SPX, DJI, Nasdaq, and NYSE composite closed down -1.55%, -0.32%, -1.90%, and -3.11%, respectively.

    In 2014, the SPX and Nasdaq are up +1.59% and +1.21%, respectively, while the DJI and NYSE composite are down -1.58% and -2.06%. 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 increased and above 15-day average volume, the BKX managed to rise +0.35% to 68.66, compared to 68.42 at the prior day's close. On positive money center bank earnings reports, the index rose to 69.0 in early trading and rallied to a mid-afternoon 69.18 intraday high, but then eased and reversed lower in the final hour to a late 68.25 intraday low. The index improved in the final half hour to preserve the gain, its first in the past 4 sessions. Volume rose +29.2% to 72.773 million shares, compared to 56.313 million shares the prior day, 1.32x the 54.993 million share 15-day moving average.

    Large cap banks underperformed the regional banks, as the KBW regional banking index (KRX) rose +1.00%.

    This week, the BKX is down -0.41%, compared to last week, when the BKX closed down -3.96%. In October, the BKX is down -4.05%, compared to September, when the BKX closed up +0.10%. In 2014, the BKX is down -0.87%, compared to the SPX's +1.59% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +18.5% 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, falling to an August 7th 68.30 closing low. The index recaptured 70.0 on August 20th, rising to a 73.96 multi-year closing high, but subsequently fell back through 70.0 on October 9th.

    The BKX closed +110.9% 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 +74.7% in the same period. The BKX index closed -43.3% below its February 20, 2007, record 121.06 high. The BKX is up +268.7% 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, with the BKX below its 20-, 50-, 100-, and 200-day moving averages. The index closed -3.86% and -3.29% below its respective 20- and 50-day moving averages, and -3.11% and -2.06% below its 100- and 200-day moving averages. The 20-day moving average fell -19 bps to 71.442. The 71.00 50-day moving average fell -1 bp. Its 70.86 100-day moving average was unchanged, and the 70.11 200-day moving average bell -1 bps. The 20-day closed (by +0.42 points) above the 50-day, and the positive gap narrowed -18 bps. The 50-day moving average closed (by +0.89 bps) above the 200-day moving average, and the gap narrowed -1 bp. The 100-day moving average closed (by +0.76 points) above the 200-day moving average, and the gap widened +1 bp.

    The directional movement indicator improved to -18.524, compared to -18.532 the prior day, its 14th consecutive negative reading. Relative strength rose to 35.92 from an oversold 34.10 the prior day, slightly better than its 34.81 August 7th closing low, when the BKX closed at its worst level of the recent July-August downturn. The RSI also 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 69.14; next support is 68.21.

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

    Oct 15 9:26 AM | Link | Comment!
  • U.S. Futures Modestly Higher Ahead Of FOMC Minutes; Asia Ends Mixed, Europe Follows Suit

    This morning. World equity indexes are mostly lower, though U.S. equity futures are modestly higher. Asia closed mixed, with better strength in Shanghai, which reopened after a week-long holiday. Europe is mixed, with modest strength in Spain and Italy, and modest weakness elsewhere.

    Today's market focus is on yesterday's equity market distributions, which carried most major indexes below 100-day moving average support. There is little economic reporting, and the quarter's earnings reports are still few. U.S. Treasury 10-year yields are higher. The dollar is modestly higher. Commodities are mixed. Thursday's Nikkei 225 December 2014 (NKZ4) equity futures are modestly lower.

    Tuesday, on above average volume, major U.S. equity indexes gapped moderately lower through technical resistance, traded narrowly through mid-afternoon, then weakened through the final two hours to end near intraday lows. The S&P 500 (SPX), DJ Industrials (DJI), Nasdaq, and NYSE composite closed down -1.51%, -1.60%, -1.56%, and -1.53%, respectively. Other notable indexes fared even more poorly. The TRAN fell -2.50%. The Russell 2000 (RTY) fell -1.60%. The Nasdaq Internet (QNET) index fell -1.74%, and the Nasdaq Biotech (NBI) index fell -1.92%.

    This week, the major indexes are down at least -2.30%, compared to last week, when the major indexes closed down at least -0.96%. In October, indexes are down at least -1.89%, compared to September, when indexes closed off at least -0.32%. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +4.69%, +0.86%, +4.99%, and +0.81%, respectively.

    The TRAN closed -5.77% off its September 18th record high, while the RTY, QNET, and NBI are down -11.0%, -10.2%, and -3.60%, respectively, from their recent record highs.

    NYSE volume rose +13.7% to 1.03x its 20-day moving average.

    Trading desks opine that yesterday's dip through recent support to the lower end of the recent 1950-2010 trading range is "unexceptional", with the end of Fed quantitative easing securities purchases the possible source of the month's early weakness. Today's news highlight is this afternoon's FOMC minutes release. Germany is reported to be rethinking stimulus, though Merkel is pressing ahead with her balanced budget goal. A quieter day is expected today, at least ahead of FOMC minutes. Sentiment remains subdued and expectations remain that the equities aren't headed to new highs, but will continue their recent consolidation.

    On September 15, the 3Q2014 earnings season commenced and now 24 of 500 SPX companies have reported respective +2.47% and +0.62% adjusted EPS and revenues surprises. In 2Q2014, SPX companies reported respective +5.08% adjusted earnings and +1.52% revenues surprises.

    In the past 3 months, forward estimates have moved up. Respective estimates for 2014, 2015 and 2016 are now $120.43, $133.67, and $148.00, compared to $118.05, $131.36 and $145.70 at June-end, increases of +2.02%, +1.76% and +1.58%. Price earnings multiples remain elevated. With SPX equities trading at a 16.8x (compared to 17.1x the prior day) average 2014-15 earnings ($127.05), attention focuses on prospective 2014-15 earnings and valuations (16.8x times survey 2014-15 SPX average operating earnings suggests a 2136.77 SPX level in the next year, a +10.4% rise from yesterday's close).

    Technicals were worsened, as the SPX and Nasdaq surrendered their respective 100-day moving averages. Led by industrials, all SPX market segments closed at least -0.10% lower. Volatility rose, and the CBOE SPX volatility index (VIX) now suggests a 68% probability that the 30-day change in the SPX will be no greater than ±5.96%, compared to ±5.36% the prior session. Treasury bond markets strengthened, with the 10-year U.S. Treasury bond yield falling -8.05 bps to 2.3391%, compared to 2.4196% at the prior close.

    This morning, 10-year U.S. Treasury yields are up +2.23 bps at 2.3614%, compared to the prior close. World sovereign bond markets are stronger, with the German 10-year yield at 0.893%, compared to 0.906% the prior day. Spanish and Italian 10-year debt yields are lower at 2.138% and 2.360%, respectively, compared to 2.142% and 2.345% the prior day.

    U.S. options markets worsened to bearish to neutral, compared to neutral the prior day. The CBOE SKEW fell -4.81% to 120.85, compared to 126.96 the prior day, above a neutral 115-120 range, but below 130, a level that correlates well with short-term market tops. The SKEW set record 146.08 close on September 19.

    In pre-market futures trading, December SPX equity futures (SPZ4) price near the middle of their 1926-1934 trading range. After a fair value adjustment of -0.35 points, the SPZ4 prices at 1931.50, up +3.85 points. The SPX opens -2.32% and -1.95% below its respective 20- and 50-day moving averages, and -1.32% below and +31.65% above its 200-day moving averages. Initial resistance is 1953.35. Initial support is 1925.86, then 1916.62.

    Market Outlook "In Correction". Last Friday's rally requires an adequate follow-on to re-confirm a market uptrend. The SPX closed -3.79% off its September 18th record close, and -0.57% below its 1946.16 October 2nd close, the start of the current "in correction" market phase. The SPX's recent closing low was 1909.57 on August 7th.

    In Asia, equity markets closed mixed, but with better strength in Shanghai, which reopened after a multi-day holiday. The Nikkei 225 (NYSEARCA:NKY) fell -1.19%, but improved at the close from mid-morning intraday lows. In China, the Hang Seng (HSI) Index fell -0.68%. The Shanghai SE composite (SHCOMP) rose +0.80%, reversing positively from mid-morning intraday lows. The NKY, HSI, and SHCOMP 50-day moving averages are above their respective 200-day moving averages. For a 7th consecutive session, the HSI closed above its 200-day moving average. Today's volumes are unavailable.

    Economic reporting was light. Commentary focused on the Bank of Japan's pledge to continue to increase the monetary base, the diminution of pro-democracy protests in Hong Kong, and currency and commodity price developments.

    This week, the NKY is down -0.72%, while the HSI and SHCOMP are up +0.86% and +0.86%, respectively. Last week, the NKY and HSI closed down -3.21% and -2.59%, respectively, while the SHCOMP rose +0.69%. In October, the NKY is down -3.57%, while the HSI and SHCOMP are up +1.44% and +0.80%. In September, the NKY and SHCOMP closed up +4.86% and +6.62%, respectively, while the HSI fell -7.31%.

    In 2014, the NKY is down -4.27%, the HSI is down -0.18%, and the SHCOMP is up +12.6%. 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 +5 bps to 2.90%, compared to 2.85% 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 in the lower end of a neutral range, while Hong Kong is improving from oversold, and Shanghai has moved again above the upper end of a neutral range. The NKY RSI eased to 42.04, compared to 47.11, compared to 50.31 the prior session, down from 77.29 on September 19th, but up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI eased to 34.90, compared to 37.30 the prior day and 23.40 on September 30th, and down from an overbought 81.00 on July 31st. The SHCOMP's RSI rose to 70.13, compared to 67.17 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 15,595.98, compared to 15,783.83 the prior day, and -4.75% off its September 24th closing yearly high and -59.9% below its late-1989 38,915.87 high close. The index opened lower, but found support at 15,520 in early trading. The index traded narrowly through mid-session, then improved to a late 15,643.63 intraday high before weakening again at the close. All market segments closed at least -0.32% lower. Leaders were consumer staples, utilities, and health care. Financials fell -0.93%. Laggards were technology, consumer discretionary, and industrials, which fell at least -1.27%.

    In China, in Shanghai, the SHCOMP closed at 2,385.79, compared to 2,363.87 at the prior close, +22.2% above the 1,950.01 June 27, 2013 close, last year's low. The index opened higher, but reversed lower to an early 2,354.34 intraday low, but then reversed higher by mid-morning and rallied through the afternoon to end at the intraday high. Most market segments closed higher. Leaders were health care, industrials, and materials, which rose at least +0.97%. Financials rose +0.53%. Laggards were technology and telecommunications, which rose at least +0.30%, and energy, which ended unchanged.

    In Europe, major equity indexes are moderately lower, but Spain and Italy are modestly higher. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -0.41%, -0.29%, -0.60%, and -0.75%, respectively. The Spanish IBEX 35 is down -0.09%. The Italian FTSE MIB is down -0.03%. Compared to their recent highs, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -7.62%, -4.26%, -9.19%, and -10.3%, respectively.

    Commentary focuses on recessionary and deflationary prospects, and currency and commodity price developments. The euro is slightly weaker compared to the dollar.

    European bourses have recently underperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 35.29, compared to 36.44 at the prior close, moving into the lower end of 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 -7.62% below its recent June 18th 3,314.80 multi-year high and -41.7% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,082.10 close, the index opened lower but found support at 3,065, then rallied back to an early 3,087.11 intraday high. The rally was short-lived, reversing lower and falling to a mid-session 3,058.94 intraday low. Another rally attempt failed in early afternoon. The index currently trades at 3,068.61. Most market segments are lower. Leaders are financials, utilities, and telecommunications, which are up at least +0.03%. Laggards are materials, industrials, and technology, which are down at least -0.92%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -2.27%, -1.02%, -2.46%, and -1.99%, respectively. Last week, Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -2.68%, -1.83%, -2.57%, and -3.11%, respectively. In October, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -5.07%, -2.43%, -5.43%, and -4.88%, respectively. In September, indexes closed mixed, with the Euro Stoxx50 and CAC 40 up +1.58% and +0.80%, respectively, while the FTSE 100 and DAX up are down -2.89% and -0.51%, respectively.

    In 2014, the indexes are lower. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -1.50%, -4.26%, -2.79%, and -5.65%, respectively. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.

    3Q2014 SPX Earnings. The current earnings season began on September 15th, and 24 of 500 SPX companies have reported with respective +2.47% and +0.62% earnings and revenue surprises. Consumer discretionary leads with respective +9.14% and +1.04% revenue surprises.

    In 2Q2014 498 SPX firms reported respective +5.14% EPS and +1.53% revenue surprises. Financials (84 of 84 reporting) lead with a 9.47% EPS surprise and +2.45% revenue surprise.

    Valuation. The SPX trades at 17.6x actual 2013 earnings ($110.15), 16.1x estimated 2014 earnings ($120.43), 14.5x estimated 2015 earnings ($133.67), and 13.1x estimated 2016 earnings ($148.00). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +9.34%, +11.0%, and 10.7%, respectively.

    The KBW Bank Index (BKX) trades at 13.6x actual 2013 adjusted EPS ($5.16), 12.7x estimated 2014 earnings ($5.52), 11.8x estimated 2015 earnings ($5.94), and 10.5x 2016 earnings ($6.66). Analysts expect 2014, 2015, 2016 EPS will grow +6.89%, +7.63%, and +12.1%, respectively.

    Composite, index, and equity options. Options markets worsened to neutral to bearish, compared to neutral the prior session. Composite options are neutral, index options are neutral, and equity options are bearish. The composite put/call ratio is 0.99, compared to 0.97 the prior day, and better than 5- and 10-period moving averages of 1.04 and 1.03, respectively. The index put/call ratio is 1.09, compared to 1.28 the prior day, and worse than its 5- and 10-period moving averages of 1.14 and 1.05, respectively. The equity put/call ratio closed the day at 0.96, compared to 0.86 the prior day, and better than its 5- and 10-period moving averages of 1.00 and 1.05, respectively.

    NYSE Volume, Breadth Indicators. Volume rose +13.7% to 790.80 million shares, compared to 695.73 million shares the prior day, 1.03x the 770.89 million share 20-day moving average. Market breadth was negative, though up volume lagged down volume. Advancing stocks lagged by -1,729 (compared to -17 the prior day), or 0.28:1. Up volume was 0.22:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.09050%, compared to 0.08990% the prior day. USD 3-month LIBOR is 0.23260%, down from 0.23160% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 14.76 bps, compared to 14.76 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 10.90 bps, compared to 11.40 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 -9.410, compared to -8.880 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, and below the lower end of a normal -10 bps and -40 bps range.

    · German 10-year debt yields 0.893%, compared to 0.906% the prior day.

    · French 10-year debt yields 1.200%, compared to 1.200% the prior day.

    · Japanese 10-year debt yields are 0.503%, compared to 0.513% the prior day.

    · Spanish and Italian 10-year debt yields are higher, but remain near multi-year lows. Spanish 10-year debt yields are 2.138%, compared to 2.142% the prior day. Italian 10-year debt yields are at 2.360%, compared to 2.345% 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 0.504% and 2.346%, respectively, compared to 0.504% and 2.339% Tuesday. The yield curve widened +0.720 bps, with the 2- to 10-year spread at +1.842%, compared to 1.835% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.835% on October 7th, to a high of +2.648% on December 31, 2013.

    · The U.S. dollar is mixed, stronger compared to the Japanese yen, but weaker compared to the euro and British pound. The dollar trades at US$85.674, compared to US$85.553 intraday low and US$85.672 the prior day, and better compared to its $83.439 50-day, US$81.949 100-day, and US$81.062 200-day averages. The euro trades at US$1.2673, compared to a US$1.2685 intraday high and US$1.2669 the prior day. The euro trades worse compared to its US$1.3050 50-day and US$1.3315 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥108.08, compared to ¥108.03 the prior day. The yen trades worse than its 50-day moving average ¥105.60, but better than its September 30th 109.65 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index eased to 17.90, compared to 18.20 the prior session, with consecutive positive readings since August 21st. The index is mixed compared to its respective +15.64 5-day and +20.10 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 mixed, with lower energy, higher precious metals, mixed aluminum and copper, and mixed agriculture prices.

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) rose +11.3% to 17.20, compared to 15.46 at the prior close. The VIX is +19.7% above the 14.37 20-day moving average. Its 30-day high is 17.98. Its 30-day low is 11.33. 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 21.10, up +0.46% compared to 21.01 at the prior day close. The V2X index trades +17.6% above its 17.64 20-day moving average, -0.76% below the 21.27 30-day high, and +46.2% above the 14.44 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 18.40, up +1.88% compared to 18.06 at the prior close. The VHSI index trades +11.4% above its 16.51 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) fell -4.81% to 120.85, compared to 126.96 the prior session, above a neutral reading (115-120) and above 130, a level that correlates well with short-term market tops. The record high was 146.08 on September 19, 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 +3.8%, compared to -0.2% prior.

    · At 2:00, FOMC minutes from its September 16-17 meeting.

    Overseas Economic Reporting and News:

    · China -September HSBC services PMI was 53.5, compared to 54.1 prior. HSBC composite PMI was 52.3, compared to 52.8 prior.

    · France - September Bank of France business sentiment was 96, compared to 97 survey and prior.

    · Spain - August YoY industrial output NSA fell -1.8%, compared to +1.1% revised prior.

    · United Kingdom - September MoM Halifax house prices rose +0.6%, compared to +0.2% survey and +0.0% revised prior.

    Notable Company Ratings/News:

    · None.

    Tuesday's Trade. On lower volume, U.S. equities distributed. The U.S. equity market outlook remains "in correction" pending a clear follow-through to Friday's rally. Indexes were weak from the open, but found initial support below 100-day moving averages, then weakened late in the session to end at their intraday lows. The SPX, DJI, Nasdaq, and NYSE composite fell -1.51%, -1.60%, -1.56%, and -1.53%, respectively. This week, the major indexes are down at least -2.30%, compared to last week, when major indexes closed at least -0.60% lower. In October, indexes are at least -1.89% lower. In September, indexes closed down at least -0.32%. In 2014, indexes are up at least +0.86%. Yesterday, market breadth was negative, with gainers 0.28x losing stocks. All SPX market segments closed at least -0.10% lower. Leaders were utilities, consumer staples, and telecommunications, which fell at least -0.71%. Laggards were materials, financials, and industrials.

    Other notable indexes also distributed. The Russell 2000 (RTY) fell -1.68%, moving again into correction at -11.0% below its March 4th record high, and "death crossed" with its 50-day moving average -0.84% below its 200-day moving average. The Nasdaq Internet Index (QNET) fell -1.74%, down -10.2% below its March 6th closing high. The Nasdaq Biotech index (NBI) fell -1.92%, closing -3.60% below its August 26th record high.

    NYSE volume rose +13.7% to 790.80 million shares, compared to 695.73 million shares the prior day, 1.03x the 770.89 million share 20-day moving average volume. Bond markets strengthened. From its prior day 2.4340% close, the U.S. 10-year yield traded narrowly until late morning, when it set its 2.4502% intraday high. The index fell to an early afternoon 2.4017% intraday low. The index ended at 2.4196%, down -1.44 bps from the prior close.

    From its prior day 1964.82 close, December 2014 SPX futures (SPZ4) suggested a moderately lower open. The index fell somewhat more sharply than futures had indicated, through the 100-day moving average to early 1950 support. A mid-morning rally lifted the SPX to nearly to the 1959.49 100-day moving average, but failed, and the index fell back to 1950 support until mid-afternoon, when the index weakened again, trending lower through the final two hours to a late 1934.87 intraday low. The index closed at 1935.09, -3.79% below the September 18th record 2011.36 close, and -0.57% below the October 2nd 1946.16 close (which marked the start of just recent failed market uptrend), and +80.1% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day 8,384.63 close, the DJ Transportation index (TRAN) fell -2.50% to close at 8,175.31, -5.77% below its September 18th 8,676.19 record close. The index gapped lower and found initial support at 8,250, where it traded narrowly until mid-afternoon, when the index eased further and trended lower through the final two hours to a late 8,174.03 intraday low. Volume rose +29.4% to 16.020 million shares, compared to 12.380 million shares the prior session, and 1.07x the 15-day moving average volume. The TRAN closed -3.57% and -2.48% below its respective 20- and 50-day moving averages, and -1.25% below and +3.90% above its respective 100- and 200-day moving averages.

    Market volatility rose, as the CBOE SPX volatility index (VIX) climbed +11.3% to 17.20, compared to 15.46 at the prior close. The index opened at 16.20, where it moved narrowly until late afternoon, when the index climbed to a late 17.46 intraday high. 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 19.93, which implies a 68% probability that the 30-day change in the SPX will be no greater than ±6.90%. The CBOE put/call SKEW fell -4.81% to 120.85, compared to 126.96 the prior session, above a neutral 115-120 range, but below 130, a level that correlates well with short-term market tops. Its record 146.08 high came on September 19th.

    The market's technical factors worsened, as the SPX surrendered its 100-day moving average, the DJI surrendered its 50- and 100-day moving averages, the Nasdaq surrendered its 100-day moving average, and the NYSE composite closed below its 200-day moving average. The SPX relative strength (RSI) fell to 36.72, compared to 44.83 the prior day, moving into the lower end of a neutral range. The RSI compares to 36.82 on October 1st, 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.

    This week, the SPX, DHI, Nasdaq, and NYSE composite are down -2.41%, -2.30%, -2.41%, and -2.04%, respectively. Last week, the SPX, DJI, Nasdaq, and NYSE composite closed down -0.75%, -0.60%, -0.81%, and -1.51%, respectively. In October, the SPX, DJI, Nasdaq, and NYSE composite are down -1.89%, -1.90%, -2.41%, and -2.04%, respectively. In September, the SPX, DJI, Nasdaq, and NYSE composite closed down -1.55%, -0.32%, -1.90%, and -3.11%, respectively.

    In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +4.69%, +0.86%, +4.99%, and +0.81%, 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 higher, but below 15-day average volume, the BKX fell -1.82% to 70.22, compared to 71.52 at the prior day's close. The index gapped lower to open below 71.20 and found support at 70.80 in early session through mid-afternoon. The index weakened through the final two hours to a late 70.21 intraday low. Volume rose +23.4% to 50.896 million shares, compared to 41.254 million shares the prior day, 1.04x the 53.108 million share 15-day moving average.

    Large cap banks underperformed the regional banks, as the KBW regional banking index (KRX) fell -1.73%.

    This week, the BKX is down -2.57%, compared to last week, when the BKX closed down -0.40%. In October, the BKX is down -1.87%, compared to September, when the BKX closed up +0.10%. In 2014, the BKX is up +1.39%, compared to the SPX's +4.69% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +18.6% 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 +115.7% 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 +80.1% in the same period. The BKX index closed -42.0% below its February 20, 2007, record 121.06 high. The BKX is up +277.1% from its 18.62 March 6, 2009, closing low, its low at the end of the 2008-09 financial panic.

    Technical indicators worsened, as the BKX surrendered both its 50- and 100-day moving averages. The index closed -2.67% and -1.20% below its respective 20- and 50-day moving averages, and -0.77% below and +0.18% above its 100- and 200-day moving averages. The 20-day moving average fell -4 bps to 72.15. The 71.07 50-day moving average fell -2 bps. Its 70.76 100-day moving average rose +3 bps, and the 200-day moving average rose +1 bp to 70.09. The 20-day closed (by 1.08 points) above the 50-day, and the positive gap narrowed -2 bps. The 50-day moving average closed (by +0.98 points) above the 200-day moving average, and the gap narrowed -3 bps. The 100-day moving average closed (by +0.67 points) above the 200-day moving average, and the gap rose +2 bps.

    The directional movement indicator worsened to -12.592, from -2.456 the prior day, its 8th consecutive negative reading. Relative strength fell to 39.32, compared to 47.99 the prior day, in the lower end of a neutral range, down from an overbought 72.57 on September 19th and 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 70.95; next support is 69.85.

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

    Oct 08 9:13 AM | Link | Comment!
  • European Equities Weaken On German Industrial Production; U.S. Futures Off Moderately; Asia Ends Mixed

    This morning. World equity indexes are mostly lower, and U.S. equity futures are similarly weaker. Asia closed mixed, with modest strength in Hong Kong (China remains closed for multi-day holiday), but Europe is moderately lower though slightly better than intraday lows on economic recession fears. Today's market focus is German August industrial production, which fell -4.0% compared to the prior month, its worst decline in years. U.S. Treasury 10-year yields are lower. The dollar is mixed. Commodities are also mixed. Wednesday's Nikkei 225 December 2014 (NKZ4) equity futures are modestly lower.

    Monday, on mixed, but below average volume, major U.S. equity indexes initially rallied, with the SPX rising to early resistance at its 1975.00 50-day moving average, then falling on profit taking back to support at its 1959 100-day moving average by mid-afternoon. The NYSE composite ended with a modest +0.11% gain, but the S&P 500 (SPX), DJI, and Nasdaq fell -0.16%, -0.11%, and -0.47%, respectively. Nasdaq distributed on higher volume. Other notable indexes fared more poorly. The TRAN fell -1.15%. The Russell 2000 (RTY) fell -0.91%. The Nasdaq Internet (QNET) index fell -0.32%, and the Nasdaq Biotech (NBI) index fell -1.22%.

    Last week, the major indexes closed down at least -0.60%, compared to last week, when the major indexes closed down at least -0.96%. In October, indexes are down at least -0.30%, compared to September, when indexes closed off at least -0.32%. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +6.30%, +2.51%, +6.66%, and +2.38%, respectively.

    The TRAN closed -3.36% off its September 18th record high, while the RTY, QNET, and NBI are down -9.43%, -8.61%, and -1.71%, respectively, from their recent record highs.

    NYSE volume fell -14.4% to 0.91x its 20-day moving average.

    Trading desks report that equity markets fulfilled yesterday's modest expectations with a quiet trading day that largely concluded where it began, though the RTY was again for sale after Friday's rally. Another quiet day is expected today, ahead of earnings this evening and a minimal economic calendar. Sentiment remains subdued and expectations remain that the equities aren't headed to new highs, but will continue their recent consolidation.

    On September 15, the 3Q2014 earnings season commenced and now 22 of 499 SPX companies have reported respective +2.30% and +0.88% adjusted EPS and revenues surprises. In 2Q2014, SPX companies reported respective +5.08% adjusted earnings and +1.52% revenues surprises.

    In the past 3 months, forward estimates have moved up. Respective estimates for 2014, 2015 and 2016 are now $120.43, $133.72, and $148.68, compared to $118.05, $131.36 and $145.70 at June-end, increases of +2.02%, +1.80% and +2.04%. Price earnings multiples remain elevated. With SPX equities trading at a 17.1x (compared to 17.1x the prior day) average 2014-15 earnings ($127.08), attention focuses on prospective 2014-15 earnings and valuations (17.1x times survey 2014-15 SPX average operating earnings suggests a 2170.00 SPX level in the next year, a +10.4% rise from yesterday's close).

    Technicals were little changed. Led by telecommunications, SPX market segments closed mixed. Volatility rose, and the CBOE SPX volatility index (VIX) now suggests a 68% probability that the 30-day change in the SPX will be no greater than ±5.36%, compared to ±5.04% the prior session. Treasury bond markets strengthened, with the 10-year U.S. Treasury bond yield falling -1.44 bps to 2.4196%, compared to 2.4340% at the prior close.

    This morning, 10-year U.S. Treasury yields are down -1.14 bps at 2.4080%, compared to the prior close. World sovereign bond markets are slightly weaker, with the German 10-year yield at 0.914%, compared to 0.906% the prior day. Spanish and Italian 10-year debt yields are lower at 2.167% and 2.146%, respectively, compared to 2.355% and 2.332% the prior day.

    U.S. options markets are unchanged at neutral, compared to neutral the prior day. The CBOE SKEW rose +3.62% to 126.96, compared to 122.53 the prior day, above a neutral 115-120 range, but below 130, a level that correlates well with short-term market tops. The SKEW set record 146.08 close on September 19.

    In pre-market futures trading, December SPX equity futures (SPZ4) price near the middle of their 1945-1957 trading range. After a fair value adjustment of +1.37 points, the SPZ4 prices at 1952.50, down -4.77 points. The SPX opens -0.95% and -0.49% below its respective 20- and 50-day moving averages, and +0.23% and +3.25% above its 200-day moving averages. Initial resistance is 1975.63. Initial support is 1956.22, then 1947.62.

    Market Outlook "In Correction". Last Friday's rally requires an adequate follow-on to re-confirm a market uptrend. The SPX closed -2.31% off its September 18th record close, and +0.96% above its 1946.16 October 2nd close, the start of the current "in correction" market phase.

    In Asia, equity markets closed mixed, but with better strength in Hong Kong. Chinese mainland equity markets remain closed. The Nikkei 225 (NYSEARCA:NKY) fell -0.67%, after reversing modest morning gains. In China, the Hang Seng (HSI) Index rose +0.46%. The Shanghai SE composite (SHCOMP) is closed for a multi-day holiday. The NKY, HSI, and SHCOMP 50-day moving averages are above their respective 200-day moving averages. For a 2nd consecutive session, the HSI closed above its 200-day moving average. Today's volumes are unavailable.

    Economic reporting was light. Commentary focused on the Bank of Japan's pledge to continue to increase the monetary base, the diminution of pro-democracy protests in Hong Kong, and currency and commodity price developments.

    This week, the NKY and HSI are up +0.48% and +1.55%, respectively. Last week, the NKY and HSI closed down -3.21% and -2.59%, respectively, while the SHCOMP rose +0.69%. In October, the NKY is down -2.41%, while the HSI is up +1.55%. In September, the NKY and SHCOMP closed up +4.86% and +6.62%, respectively, while the HSI fell -7.31%.

    In 2014, the NKY is down -3.12%, while the HSI and SHCOMP are up +0.50% and +11.7%, respectively. 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 last Tuesday, the SHIBO 7-day fell -5 bps to 2.85%, compared to 2.90% 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 in the middle of a neutral range, Hong Kong improving from oversold, and Shanghai in the upper end of a neutral range. The NKY RSI eased to 47.11, compared to 50.31 the prior session, down from 77.29 on September 19th, but up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI improved to 37.30, compared to 34.48 the prior day and 23.40 on September 30th, and down from an overbought 81.00 on July 31st. Last Tuesday, the SHCOMP's RSI rose to 67.17, compared to 67.16 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 15,783.83, compared to 15,890.95 the prior day, and -3.12% off its September 24th closing yearly high and -59.4% below its late-1989 38,915.87 high close. The index opened lower, but found support at 15,800 and rallied to its 15,913.52 intraday high just before mid-session. The index fell through the afternoon to a late 15,755.57 intraday low. Most market segments closed lower. Leaders were telecommunications, utilities, and consumer staples, which rose at least +0.06%. Financials fell -0.20%. Laggards were materials, consumer discretionary, and industrials, which fell at least -1.05%.

    In China, in Shanghai, the SHCOMP closed September 39th at 2,363.87, compared to 2,357.71, compared to 2,347.72 at the prior close, +21.2% above the 1,950.01 June 27, 2013 close, last year's low. The index traded narrowly around 2,360 through the session, with an early 2,354.27 intraday low and late 2,365.46 intraday high. Most market segments closed higher. Leaders were technology, health care, and consumer discretionary, which rose at least +0.34%. Financials rose +0.18%. Laggards were utilities, which rose +0.01%, and consumer staples and telecommunications, which fell at least -0.08%.

    In Europe, major equity indexes moved lower following well under survey August industrial production and fell to late morning lows, which were tested again in mid-afternoon. Indexes are moderately lower, with greater weakness in Spain. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -1.05%, -0.38%, -1.07%, and -0.62%, respectively. The Spanish IBEX 35 is down -1.46%. The Italian FTSE MIB is down -1.03%. Compared to their recent highs, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -6.15%, -5.32%, -7.60%, and -8.93%, respectively.

    Commentary focuses on recessionary and deflationary prospects, and currency and commodity price developments. The euro is slightly weaker compared to the dollar.

    European bourses have recently underperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 38.47, compared to 42.28 at the prior close, moving into the lower end of 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 -6.15% below its recent June 18th 3,314.80 multi-year high and -40.7% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,138.67 close, the index opened lower and fell to a late morning 3,098.52 intraday low, then improved to 3,110 in early afternoon before retesting the earlier lows. The index currently trades at 3,104.00. Most market segments are lower. Leaders are materials, which is up +0.03%, and consumer discretionary and telecommunications, which are down at least -0.14%. Laggards are financials, industrials, and utilities, which are down at least -1.27%.

    This week, the FTSE 100 is up +0.19%, while the Euro Stoxx50, CAC 40, and DAX are down -0.87%, -0.92%, and -0.43%, respectively. Last week, Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -2.68%, -1.83%, -2.57%, and -3.11%, respectively. In October, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -3.71%, -1.24%, -3.94%, and -3.35%, respectively. In September, indexes closed mixed, with the Euro Stoxx50 and CAC 40 up +1.58% and +0.80%, respectively, while the FTSE 100 and DAX up are down -2.89% and -0.51%, respectively.

    In 2014, the indexes are lower. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -0.09%, -3.09%, -1.25%, and -4.14%, respectively. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.

    3Q2014 SPX Earnings. The current earnings season began on September 15th, and 22 of 499 SPX companies have reported with respective +2.30% and +0.88% earnings and revenue surprises. Consumer discretionary leads with respective +9.70% and +1.22% revenue surprises.

    In 2Q2014 498 SPX firms reported respective +5.14% EPS and +1.53% revenue surprises. Financials (84 of 84 reporting) lead with a 9.47% EPS surprise and +2.45% revenue surprise.

    Valuation. The SPX trades at 17.8x actual 2013 earnings ($110.15), 16.3x estimated 2014 earnings ($120.43), 14.7x estimated 2015 earnings ($133.72), and 13.2x estimated 2016 earnings ($148.68). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +9.33%, +11.0%, and 11.2%, respectively.

    The KBW Bank Index (BKX) trades at 13.9x actual 2013 adjusted EPS ($5.16), 13.0x estimated 2014 earnings ($5.51), 12.0x estimated 2015 earnings ($5.94), and 10.8x 2016 earnings ($6.65). Analysts expect 2014, 2015, 2016 EPS will grow +6.87%, +7.73%, and +12.0%, respectively.

    Composite, index, and equity options. Options markets are unchanged at neutral , compared to neutral the prior session. Composite options are neutral, index options are neutral, and equity options are neutral. The composite put/call ratio is 0.97, compared to 0.91 the prior day, and better than 5- and 10-period moving averages of 1.06 and 1.03, respectively. The index put/call ratio is 1.28, compared to 1.04 the prior day, and worse than its 5- and 10-period moving averages of 1.20 and 1.05, respectively. The equity put/call ratio closed the day at 0.86, compared to 0.86 the prior day, and better than its 5- and 10-period moving averages of 1.02 and 1.05, respectively.

    NYSE Volume, Breadth Indicators. Volume fell -14.4% to 695.73 million shares, compared to 812.43 million shares the prior day, 0.91x the 761.48 million share 20-day moving average. Market breadth was negative, though up volume led down volume. Advancing stocks lagged by -17 (compared to +1,095 the prior day), or 0.99:1. Up volume was 1.22:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.08990%, compared to 0.08950% the prior day. USD 3-month LIBOR is 0.23160%, down from 0.23120% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 14.66 bps, compared to 14.61 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 11.40 bps, compared to 12.10 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 -9.250, compared to -9.840 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, and below the lower end of a normal -10 bps and -40 bps range.

    · German 10-year debt yields 0.914%, compared to 0.906% the prior day.

    · French 10-year debt yields 1.189%, compared to 1.205% the prior day.

    · Japanese 10-year debt yields are 0.513%, compared to 0.523% the prior day.

    · Spanish and Italian 10-year debt yields are higher, but remain near multi-year lows. Spanish 10-year debt yields are 2.167%, compared to 2.146% the prior day. Italian 10-year debt yields are at 2.355%, compared to 2.332% 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 0.528% and 2.412%, respectively, compared to 0.532% and 2.420% Monday. The yield curve narrowed -0.320 bps, with the 2- to 10-year spread at +1.885%, compared to 1.888% 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 mixed, stronger compared to the euro and British pound, but slightly weaker compared to the Japanese yen. The dollar trades at US$86.052, compared to US$86.103 intraday high and US$85.928 the prior day, and better compared to its $83.362 50-day, US$81.897 100-day, and US$81.036 200-day averages. The euro trades at US$1.2589, compared to a US$1.2584 intraday low and US$1.2655 the prior day. The euro trades worse compared to its US$1.3062 50-day and US$1.3324 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥108.66, compared to ¥108.78 the prior day. The yen trades worse than its 50-day moving average ¥105.50, but better than its September 30th 109.65 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index eased to 18.20, compared to 18.30 the prior session, with consecutive positive readings since August 21st. The index is mixed compared to its respective +15.64 5-day and +20.42 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 mixed, with lower energy, lower precious metals, higher aluminum and copper, and mixed agriculture prices.

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) rose +6.25% to 15.46, compared to 14.55 at the prior close. The VIX is +9.00% above the 14.18 20-day moving average. Its 30-day high is 17.98. Its 30-day low is 11.24. 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 20.35, up +2.99% compared to 19.76 at the prior day close. The V2X index trades +17.1% above its 17.38 20-day moving average, -3.83% below the 21.16 30-day high, and +41.0% above the 14.44 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 18.06, down -5.99% compared to 19.21 at the prior close. The VHSI index trades +10.7% above its 16.32 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) rose +3.62% to 126.96, compared to 122.53 the prior session, above a neutral reading (115-120) and above 130, a level that correlates well with short-term market tops. The record high was 146.08 on September 19, 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 10:00, August JOLTS job openings, with 4700 survey and 4673 prior.

    · October IBD/TIPP economic optimism, with 45.1 survey and 45.2 prior.

    · August consumer credit, with $20.0 billion survey and $26.0 billion prior.

    Overseas Economic Reporting and News:

    · Japan - August preliminary leading index CI was 104.0, compared to 104.0 survey and 105.4 prior. August preliminary coincident index rose 108.5, compared to 108.6 survey and 109.9 prior.

    · Germany - August MoM industrial production fell -4.0%, compared to -1.5% survey and +1.6% revised prior. YoY industrial production fell -2.8%, compared to -0.5% survey and +2.7% revised prior.

    · United Kingdom - August MoM industrial production was +0.0%, compared to +0.0% survey and +0.4% revised prior. YoY industrial production rose +2.5%, compared to +2.6% survey and +2.2% revised prior. August MoM manufacturing production rose +0.1%, compared to +0.1% survey and +0.3% prior.

    Notable Company Ratings/News:

    · YUM - Reports 3Q2014 earnings after the close, with $0.83 adjusted EPS and $3.367 billion revenue survey.

    Monday's Trade. On lower volume, U.S. equities ended mixed, with greater Nasdaq weakness. The U.S. equity market outlook remains "in correction" pending a clear follow-through to Friday's rally. Initially, indexes rallied, but found early resistance, then reversed lower to mid-afternoon intraday lows before easing higher to the close. The SPX, DJI, and Nasdaq fell -0.16%, -0.10%, and -0.47%, respectively, while the NYSE composite rose +0.11%. Last week, the major indexes closed at least -0.60% lower, compared to the prior week, when the major indexes closed at least -0.96% lower. In October, indexes are at least -0.30% lower. In September, indexes closed down at least -0.32%. In 2014, indexes are up at least +2.51%. Yesterday, market breadth was modestly negative, with gainers 0.99x losing stocks. Most SPX market segments closed lower. Leaders were telecommunications, energy, and consumer staples, which rose at least +0.07%. Financials fell -0.15%. Laggards were industrials, health care, and consumer discretionary, which fell at least -0.33%.

    Other notable indexes also closed lower. The Russell 2000 (RTY) fell -0.91%, out of correction at -9.43% below its March 4th record high, but still "death crossed" with its 50-day moving average -0.75% below its 200-day moving average. The Nasdaq Internet Index (QNET) fell -0.322%, down -8.61% below its March 6th closing high. The Nasdaq Biotech index (NBI) fell -1.22%, closing -1.71% below its August 26th record high.

    NYSE volume fell -14.4% to 695.73 million shares, compared to 812.43 million shares the prior day, 0.91x the 761.48 million share 20-day moving average volume. Bond markets strengthened. From its prior day 2.4340% close, the U.S. 10-year yield traded narrowly until late morning, when it set its 2.4502% intraday high. The index fell to an early afternoon 2.4017% intraday low. The index ended at 2.4196%, down -1.44 bps from the prior close.

    From its prior day 1967.90 close, September 2014 SPX futures (SPM4) suggested a moderately higher open. The index rallied to an early 1977.84 intraday high, but found resistance at the 50-day moving average and fell through breakeven by late morning to support at the 1959.49 100-day moving average in early afternoon, when it touched the 1958.43 intraday low. The index closed at 1964.82, -2.31% below the September 18th record 2011.36 close, and +0.96% above the October 2nd 1946.16 close (which marked the start of just recent failed market uptrend), and +82.8% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day 8,305.81 close, the DJ Transportation index (TRAN) rallied +2.12% to close at 8,481.99, -2.24% below its September 18th 8,676.19 record close. The index gapped higher to open above 8,350, and rallied to 8,450 in early trading, then trended higher to a late afternoon 8,494.55 intraday high. Volume fell -1.09% to 16.156 million shares, compared to 19.767 million shares the prior session, and 1.09x the 15-day moving average volume. The TRAN closed -0.26% below and +1.13% above its respective 20- and 50-day moving averages, and +2.57% and +7.94% above its respective 100- and 200-day moving averages.

    Market volatility rose, as the CBOE SPX volatility index (VIX) climbed +6.25% to 15.46, compared to 14.55 at the prior close. The index opened lower, and set an early 14.05 intraday low, but rose as equity markets weakened after mid-morning. The index rose to an early afternoon 15.77 intraday high, then eased lower 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 19.91, which implies a 68% probability that the 30-day change in the SPX will be no greater than ±6.90%. The CBOE put/call SKEW rose +3.62% to 126.96, compared to 122.53 the prior session, above a neutral 115-120 range, but below 130, a level that correlates well with short-term market tops. Its record 146.08 high came on September 19th.

    The market's technical factors were little changed. The SPX relative strength (RSI) fell to 44.83, compared to 45.80 the prior day, moving toward the middle of a neutral range. The RSI compares to 36.82 on October 1st, 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.

    Last week, the SPX, DJI, Nasdaq, and NYSE composite closed down -0.75%, -0.60%, -0.81%, and -1.51%, respectively, compared to the prior week, when the SPX, DJI, Nasdaq, and NYSE composite closed down -1.37%, -0.93%, -1.48%, and -1.74%, respectively. In October, the SPX, DJI, Nasdaq, and NYSE composite are down -0.38%, -0.30%, -0.86%, and -0.52%, respectively. In September, the SPX, DJI, Nasdaq, and NYSE composite closed down -1.55%, -0.32%, -1.90%, and -3.11%, respectively.

    In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +6.30%, +2.51%, +6.66%, and +2.38%, 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 higher and above 15-day average volume, the BKX fell -0.36% to 71.52, compared to 71.78 at the prior day's close. The index gapped higher and set an early 72.16 intraday high, but immediately weakened and reversed lower by late morning, falling to an early afternoon 71.44 intraday low. Volume fell -28.1% to 41.254 million shares, compared to 57.369 million shares the prior day, 0.79x the 52.245 million share 15-day moving average.

    Large cap banks outperformed the regional banks, as the KBW regional banking index (KRX) fell -0.92%.

    Last week, the BKX closed down -0.40%, compared to the prior week, when the BKX fell -2.20%. In October, the BKX is down -0.06%, compared to September, when the BKX closed up +0.10%. In 2014, the BKX is up +3.26%, compared to the SPX's +6.30% 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 +119.7% 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 +82.8% 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 improved, as the BKX recaptured its 50-day moving average. The index closed -0.93% below and +0.61% above its respective 20- and 50-day moving averages, and +1.12% and +2.05% above its 100- and 200-day moving averages. The 20-day moving average fell -2 bps to 72.19. The 71.09 50-day moving average was unchanged. Its 70.73 100-day moving average rose +4 bps, and the 200-day moving average rose +2 bps to 70.08. The 20-day closed (by 1.10 points) above the 50-day, and the positive gap narrowed -2 bps. The 50-day moving average closed (by +1.01 points) above the 200-day moving average, and the gap narrowed -2 bps. The 100-day moving average closed (by +0.65 points) above the 200-day moving average, and the gap rose +2 bps.

    The directional movement indicator improved to -2.456, compared to -5.150 the prior day, its 7th consecutive negative reading. Relative strength improved to 47.99, compared to 50.04 the prior day, in a neutral range, down from an overbought 72.57 on September 19th and 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 71.97; next support is 71.25.

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

    Oct 07 9:09 AM | Link | Comment!
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