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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 Ease, U.S. Futures Extend

    This morning. Macro concerns continue to ease, and world equities are extending yesterday's gains, and U.S. futures are moderately higher and near the middle of their pre-session ranges. In Asia, equities closed higher, with better strength in Japan. In Europe, major indexes are moderately higher, with better strength in Frankfurt. The dollar is stronger compared to the euro. U.S. Treasury 10-year yields are lower. Commodities are mostly higher. Economic reporting is light worldwide. In the U.S., July inflation reports remain quiescent, while housing starts and building permits improved compared to June. Wednesday's Nikkei 225 September 2014 (NKU4) equity futures are unchanged.

    Since August 13, the U.S. equity market outlook is "confirmed uptrend".

    Monday, on lower and below average volume, U.S. equity indexes gapped higher to late morning intraday highs, then eased through mid-afternoon before strengthening into the close. The S&P 500 Index (SPX), DJ Industrials (DJI), Nasdaq, and NYSE composite rose +0.85%, +1.06%, +0.97%, and +0.84%, respectively. Last week, indexes closed up at least +0.66%, compared to prior week, when major indexes closed at least -2.18% lower. In August, indexes are at least +0.84% higher. In July, indexes closed off at least -0.87%. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +6.88%, +1.58%, +7.94%, and +4.67%, respectively.

    NYSE volume fell -20.2% to 0.94x its 20-day moving average.

    Other notable indexes rallied. The DJ Transports (TRAN) rose +1.74%. The Russell 2000 (RTY) rose +1.47%. The Nasdaq Internet (QNET) index rallied +1.17%, and the Nasdaq Biotech (NBI) index rose +1.03%. The TRAN, RTY, QNET, and NBI are down -0.74%, -4.16%, -5.60% and -2.48%, respectively, from their recent record highs.

    Trading desks report another quiet overnight trade with no clear catalysts for the higher trade, but rather a continuation of current themes: easing macro tensions, quiescent to supportive monetary policies worldwide, with better valuations following the recent slide, especially in Europe. Regarding yesterday's trade, trading desks complain that after early strength, activity eased to a straight line. Early trading was urgent, as wrong-sided traders repositioned. Views remain that Yellen will deliver a "dovish" speech Friday morning at the Fed's Jackson Hole meeting. The meeting agenda will be released Thursday after the close. More broadly, the SPX has moved back to the middle of its 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 470 of 500 SPX companies have reported with respective +5.19% and +1.56% 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 $119.51, $132.72, and $147.19, respectively compared to $118.05, $131.36 and $145.70 at June-end, respective increases of +1.24%, +1.04% and +1.02%. Price earnings multiples remain elevated. With SPX equities trading at a 17.2x (compared to 16.9x the prior day) average 2014-15 earnings ($126.12), attention focuses on prospective 2014-15 earnings and valuations (16.9x times survey 2014-15 SPX average operating earnings suggests a 2169.11 SPX level in the next year, a +10.0% rise from yesterday's close).

    Technicals were little changed. Led by industrials, most SPX market segments closed higher. SPX market breadth was positive, and up volume led down volume. Volatility fell, and the VIX now suggests a 68% probability that the 30-day change in the SPX will be less than ±4.27%. Treasury bond markets strengthened, with the 10-year Treasury yield falling to its lowest level since June 2013. On the day, the U.S. Treasury 10-year bond yield rose +5.30 bps to end at 2.3927%, compared to 2.3397% at the prior close.

    This morning, 10-year U.S. Treasury yields are down -2.31 bps at 2.3697%, compared to the prior close. World sovereign bond markets are stronger, with the German 10-year yield at 0.999%, near a record low. Spanish and Italian 10-year debt yields are lower at 2.444% and 2.613%, respectively, compared to 2.454% and +2.634% the prior day.

    U.S. options markets improve to neutral to bullish, compared to neutral the prior day. The CBOE SKEW rose +2.24% to 138.464, compared to 135.43 the prior day, moving above 130 for the 3rd 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 middle of their 1968-1974 trading range. After a fair value adjustment of +0.79 points, the SPU4 future prices at 1971.00, up +2.71 points. The SPX opens +1.03% above and +0.73% below its respective 20- and 50-day moving averages, and +2.72% below and +5.53% above its 200-day moving averages. Initial resistance is 1976.37. Initial support is 1962.74, then 1953.73.

    "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. 2Q2014 earnings continue to surprise positively, with financials' earnings leading other sectors. Monday, the SPX closed at 1971.74, up +1.96% 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 +11.6% to the July 3rd 4,458.65 multi-year record close.

    In Asia, equity markets closed higher, with better strength in Tokyo. The Nikkei 225 (NYSEARCA:NKY) closed up +0.83%. In China, the Hang Seng (HSI) Index rose +0.67%, and the Shanghai SE composite (SHCOMP) advanced +0.26%. 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 easing geopolitical tensions, overall economic trends, and currency developments.

    This week, the NKY, HSI, and SHCOMP are up +0.845, +0.67%, and +0.85%, respectively. Last week, the NKY, HSI, and SHCOMP closed up +3.65%, +2.56%, and +1.47%, respectively. In August, the NKY is down -1.09%, while the HSI and SHCOMP are up +1.48%, and +1.99%, 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 -5.17%, the HSI is up +7.79%, and the SHCOMP is up +6.11%. 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 -5 bps to 3.25%, compared to 3.30% 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 a neutral range, while the Hong Kong and Shanghai have again moved into overbought ranges. The NKY RSI rose to 55.92, compared to 51.62 the prior session, up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI rose to 73.18, compared to 70.28 the prior day and down from an overbought 81.00 on July 31st. The SHCOMP's RSI rose to 71.11, compared to 70.17 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 15,449.79, compared to 15,322.60 the prior day, -5.17% below its year-end 16,291.31 high and -60.3% below its late-1989 38,915.87 high close. The index set an early 15,476.05 intraday high, then traded narrowly around 15,450 through the session. All market segments closed at least +0.42% higher. Leaders were financials, telecommunications, and industrials, which rose at least +1.14%. Laggards were consumer staples, utilities, and technology.

    In China, in Shanghai, the SHCOMP closed at 2,245.33, compared to 2,239.47 at the prior close, +15.1% above the 1,950.01 June 27, 2013 close, last year's low. The index traded narrowly around breakeven through the morning session, then fell to an early afternoon 2,228.04 intraday low, then reversed higher in the final hour to end near the 2,245.83 intraday high. Most market segments closed higher. Leaders were energy, technology, and consumer discretionary, which rose at least +0.61%. Laggards included financials, utilities, and telecommunications, which fell at least -0.09%.

    In Europe, major equity indexes are extending yesterday's rally, but indexes are off their early morning highs. The Euro Stoxx 50, FTSE 100, CAC 40, and DAX are up +0.44%, +0.45%, +0.38%, and +0.89%, respectively. The Spanish IBEX 35 is up +0.24%. The Italian FTSE MIB is down -0.08%. Compared to their recent highs, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -6.88%, -1.78%, -7.67%, and -7.20%, respectively.

    Economic reporting is light. Commentary focuses on earnings, credit developments, and currency and commodity price developments. Notably absent is much attention to Russian/Ukrainian developments. The euro continues to weaken compared to the dollar.

    European bourses have recently underperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 46.90, compared to 44.69 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 -6.88% below its recent June 18th 3,314.80 multi-year high and -41.2% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,073.45 close, the index rallied to an early 3,095.15 intraday high, then eased back to 3,086, which has proven support through mid-afternoon. The index currently trades at 3,086.93. Most market segments are higher. Leaders are consumer discretionary, technology, and industrials, which are up at least +0.83%. Laggards are telecommunications and consumer staples, which are up at least +0.03%, and utilities, which is down -0.30%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +1.75%, +1.24%, +1.71%, and +2.59%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +0.89%, +1.85%, +0.64%, and +0.92%, respectively. In August, the FTSE 100 is up +0.63%, the CAC 40 is unchanged, and the Euro Stoxx50 and DAX are down -0.93% and -0.85%, 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 FTSE 100 is up +0.34%, while the Euro Stoxx50, CAC 40, and DAX are down -0.72%, -1.16%, -2.35%, 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 470 of 500 SPX reporting firms having reported, with respective +5.19% EPS and +1.56% revenue surprises. Financials (84 of 84 reporting) lead with a 9.47% EPS surprise and +2.38% 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 17.9x estimated 2013 earnings ($110.15), 16.5x estimated 2014 earnings ($119.51), 14.9x estimated 2015 earnings ($132.72), and 13.4x estimated 2016 earnings ($147.19). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +8.50%, +11.1%, and 10.9%, respectively.

    The KBW Bank Index (BKX) trades at 13.5x 2013 adjusted EPS ($5.16), 12.7x estimated 2014 earnings ($5.51), 11.8x estimated 2015 earnings ($5.94), and 10.5x 2016 earnings ($6.63). Analysts expect 2014, 2015, 2016 EPS will grow +6.85%, +7.79%, and +11.7%, respectively.

    Composite, index, and equity options. Options markets improved to neutral to bullish, compared to neutral the prior session. Composite options are bullish, index options are neutral, and equity options are neutral. The composite put/call ratio is 0.97, compared to 1.00 the prior day, and better than 5- and 10-period moving averages of 0.97 and 1.00, respectively. The index put/call ratio is 1.04, compared to 1.19 the prior day, and better than its 5- and 10-period moving averages of 1.09 and 1.09, respectively. The equity put/call ratio closed the day at 0.80, compared to 0.91 the prior day, and better than its 5- and 10-period moving averages of 0.89 and 0.95, respectively.

    NYSE Volume, Breadth Indicators. Volume fell -20.2% to 604.96 million shares, compared to Friday's options expiration spurred 757.86 million shares, 0.94x the 646.29 million share 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led by +1,787 (compared to -71 the prior day), or 3.76:1. Up volume was 4.31:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.09150%, compared to 0.09110% the prior day. USD 3-month LIBOR is 0.23210%, down from 0.23110% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 13.910 bps, compared to 14.110 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 15.600 bps, compared to 15.450 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 -15.013 bps, compared to -14.250 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 0.999%, compared to 1.014% the prior day.

    · French 10-year debt yields 1.276%, compared to 1.244% the prior day.

    · Japanese 10-year debt yields are 0.504%, compared to 0.502% the prior day.

    · Spanish and Italian 10-year debt yields are lower and near multi-year lows. Spanish 10-year debt yields are 2.444%, compared to 2.454% the prior day. Italian 10-year debt yields are at 2.613%, compared to 2.634% 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 0.415% and 2.371%, respectively, compared to 0.415% and 2.393% Monday. The yield curve narrowed -2.190 bps, with the 2- to 10-year spread at +1.955%, compared to 1.977% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.921% on July 29, 2014, to a high of +2.648% on December 31, 2013.

    · The U.S. dollar is stronger compared to the euro, Japanese yen, and British pound. The dollar trades at US$81.718, compared to US$81.717 intraday high and US$81.576 the prior day, and better compared to its $80.733 50-day, US$80.366 100-day, and US$80.395 200-day averages. The euro trades at US$1.3348, compared to a US$1.3341 intraday low and US$1.3364 the prior day. The euro trades worse compared to its US$1.3514 50-day and US$1.3631 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥102.66, compared to ¥102.57 the prior day. The yen trades worse than its 50-day moving average ¥101.94, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index improved to -2.00, compared to -5.70 the prior day, its 3rd consecutive negative reading. The index is worse compared to its respective -1.46 5-day and -1.65 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 higher energy, higher precious metals, higher aluminum and copper, and lower agriculture prices.

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) fell -6.31% to 12.32, compared to 13.15 at the prior close. The VIX is -12.4% below the 14.07 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 16.71, down -1.87% compared to 17.03 at the prior day's close. The V2X index trades -8.12% below its 18.19 20-day moving average, -24.6% below the 22.15 30-day high, and +15.3% above the 14.15 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 14.69, down -3.04% compared to 15.15 at the prior close. The VHSI index trades -4.51% below its 15.30 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) rose +2.24% to 138.46, compared to 135.43 the prior session, above a neutral reading (115-120) and for a 2nd 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 MoM CPI ex food and energy rose +0.1%, compared to +0.2% survey and +0.1% revised prior.

    · July MoM housing starts, rose +15.7%, compared to +8.1% survey and -4.0% revised prior.

    · July MoM building permits rose +8.1%, compared to +2.8% survey and -3.2% revised prior.

    Overseas Economic Reporting and News:

    · Japan - June final leading index was 105.9, compared to 105.5 prior.

    Notable Company Ratings/News:

    · None.

    Monday's Trade. The weekend's worst macro fears went unrealized, and the equity market's upturned resumed with strength, though volume eased. On lower and below average NYSE volume, major U.S. equity indexes rallied and closed near their session highs. The SPX, DJI, Nasdaq, and NYSE composite rose +0.85%, +1.06%, +0.97%, and +0.84%, respectively. Last week, indexes are up at least +0.66%. In August, indexes are at least +1.66% higher. In July, indexes closed down at least -1.51%. In 2014, indexes are up at least +1.58%. Market breadth was positive, with gainers 3.76x losing stocks. Most SPX market segments closed lower. Leaders were industrials, financials, and technology, which rose at least +1.06%. Laggards were energy, which rose +0.28%, and telecommunications and utilities, which fell at least -0.11%.

    Other notable indexes also rallied. The Russell 2000 (RTY) rose +1.47% and closed -4.16% below its March 4th record high. The Nasdaq Internet Index (QNET) rose +1.17% and is down -5.60% below its March 6th closing high. The Nasdaq Biotech Index (NBI) rose +1.03% and ended -2.48% below its February 25th record high.

    On options expiration, NYSE volume fell -20.2% to 604.96 million shares, compared to 757.86 million shares the prior day, 0.94x the 646.29 million share 20-day moving average volume. Bond markets weakened. In early trading, the U.S. 10-year yield fell to 2.3503%, butthen trended higher through the session to a late 2.3962% intraday high. The index ended at 2.3927%, up +5.30 bps from the 2.3397% prior close.

    From its prior day 1955.06 SPX close, September 2014 SPX futures (SPM4) suggested a sharply higher open. The index gapped higher to open above 1962 and improved to an early afternoon 1971.99 intraday high. The index eased somewhat in mid-afternoon, but found support at 1970 and improved into the close. The index closed at 1971.73, +83.5% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction, and -0.77% below its 1987.01 July 24th record close.

    From its prior day 8,264.12 close, the DJ Transportation index (TRAN) rallied strongly, gapping to nearly 8,300 at the open and rallying to 8,380 in early trading, then trading near that level through mid-afternoon before improving to end at the intraday high. The index closed at 8,405.63, -0.74% off its July 24th record close. Volume fell -21.6% to 11.745 million shares, compared to 14.981 million shares the prior session, and 0.94x the 15-day moving average volume. The TRAN closed +2.09% and +2.29% above its respective 20- and 50-day moving averages, and +5.30% and +10.1% above its respective 100- and 200-day moving averages.

    Market volatility fell, as the CBOE SPX volatility index (VIX) fell -6.31% to 12.32, compared to 13.15 at the prior close. The VIX opened at its 12.85 intraday high, fell to 12.40 by mid-morning, then moved narrowly until late in the session, when the VIX fell to a late 12.26 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 rose +2.24% to 138.46, compared to 135.43 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 improved. The SPX relative strength (RSI) rose to 58.47, compared to 52.54 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. The RSI compares to an overbought 71.26 on December 31st, when the SPX closed at an earlier record 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 gained +1.22%, +0.66%, +2.15%, and +0.97%, respectively. The prior week, the SPX, DJI, and Nasdaq closed up +0.33%, +0.37%, and +0.42%, respectively, but the NYSE composite closed off -0.01%. In August, the SPX, DJI, Nasdaq, and NYSE composite are up +2.13%, +1.66%, +3.17%, and +1.49%, 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 +6.88%, +1.58%, +7.94%, and +4.67%, 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 rallied +1.20% to 69.84, compared to 69.01 at the prior day's close, its best closing since July 30th and -4.21% below its 72.91 March 20th post-2008 closing high. The index gapped higher to open above 69.40 and rose to a mid-morning 69.93 intraday high, then eased back to mid-afternoon support at 69.70 before improving into the close. Volume fell -30.3% to 33.672 million shares, compared to 48.273 million shares the prior day, and 0.84x the 39.889 million share 15-day moving average.

    Large cap banks underperformed the regional banks, as the KBW regional banking index (KRX) rose +1.74%.

    Last week, the BKX closed up +0.26%, compared to a loss of -0.48% the prior week. In August, the BKX is down -0.43%, compared to July, when the BKX closed off -1.64%. In 2014, the BKX is up +0.84%, compared to the SPX's +6.68% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +18.0% 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 +114.5% 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 +83.5% in the same period. The BKX index closed -43.0% below its February 20, 2007, record 121.06 high. The BKX is up +270.6% 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 index recaptured its 200-day moving average, though its 20- and 50-day moving averages have a downward inclination. The average closed +0.06% and +0.99% above its respective 20- and 200-day moving averages, but -1.18% and -0.11% below its 50- and 100-day moving averages. The 20-day moving average fell -3 bps to 69.80. The 70.67 50-day moving average fell -2 bps. Its 69.92 100-day moving average fell -2 bps, and the 200-day moving average rose +3 bps to 69.16. The 20-day closed (by -0.87 points) below the 50-day, and the negative gap was uchanged. The 50-day moving average closed (by +1.52 points) above the 200-day moving average, and the gap narrowed -4 bps. The 100-day moving average closed (by +0.76 points) above the 200-day moving average, and the gap narrowed -5 bps.

    The directional movement indicator improved to -10.296, compared to -13.366 the prior day, its 13th consecutive negative reading since July 30th. Relative strength rose to 50.08, compared to 42.65 the prior day, in a neutral range, down from an overbought 73.14 on June 9th, but compares to up from the 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 70.13; next support is 69.36.

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

    Aug 19 8:37 AM | Link | Comment!
  • U.S. Futures Push Ahead As Macro Concerns Recede

    This morning. Friday's worst macro fears went unfulfilled this weekend, and U.S. futures are higher and near the top of their pre-session ranges. In Asia, equities closed higher, with better strength in China. In Europe, major indexes are rebounding from Friday's Ukrainian exaggeration, but are off their early best levels. The dollar is stronger compared to the euro. U.S. Treasury 10-year yields are higher. Commodities are mixed. Tuesday's Nikkei 225 September 2014 (NKU4) equity futures are modestly higher.

    Since August 13, the U.S. equity market outlook is "confirmed uptrend".

    Friday, on greater and above average volume, U.S. equity indexes closed modestly mixed, but much better than their late morning lows. Indexes advanced with strength until 10:30 am EDT, when reports that overnight, Ukraine had destroyed a column of Russian armored vehicles. "Confirmation" came in the form of a NATO statement, but this largely repeated the Ukrainian allegation, which Russia meanwhile described as a fiction. The significance of the report eased through the session's remainder. U.S. indexes found support by late morning, and recovered most losses by the session's end, with the Nasdaq actually recording a moderate gain. The Nasdaq rose +0.27%, while the S&P 500 Index (SPX) closed off fractionally, and the DJ Industrials (DJI) and NYSE composite fell -0.30% and -0.06%, respectively. Last week, indexes closed up at least +0.66%, compared to last week, when major indexes closed at least -2.18% lower. In August, indexes are at least +0.60% higher. In July, indexes closed off at least -0.87%. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +5.77%, +0.52%, +6.90%, and +3.80%, respectively.

    Spurred by options expiration and Ukrainian news, NYSE volume rose +46.7% to 1.18x its 20-day moving average.

    Other notable indexes closed mixed. The DJ Transports (TRAN) fell fractionally. The Russell 2000 (RTY) fell -0.15%. The Nasdaq Internet (QNET) index fell -0.06%, and the Nasdaq Biotech (NBI) index rose +0.91%. The TRAN, RTY, QNET, and NBI are down -2.41%, -5.54%, -6.69% and -3.48%, respectively, from their recent record highs.

    Trading desks report a quiet weekend, with generally improving macro positions in both Ukraine and the Levant, where Kurdish/Iraqi forces were reported as having recaptured the vital Mosul dam. Moreover, views are that Yellen will deliver a "dovish" speech Friday morning at the Fed's Jackson Hole meeting, which will include assurances that the Fed isn't "behind the curve" and will raise rates at an "appropriate" time. The meeting agenda will be released Thursday after the close. More broadly, the SPX managed its way Friday back within its 1950-1985 trading range. Sentiment remains doubtful that the SPX can manage a clear upside breakout.

    The 2Q2014 earnings season began June 18th and is now largely complete as 468 of 500 SPX companies have reported with respective +5.19% and +1.57% 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 $119.58, $132.81, and $147.07, respectively compared to $118.05, $131.36 and $145.70 at June-end, respective increases of +1.30%, +1.11% and +0.94%. Price earnings multiples remain elevated. With SPX equities trading at a 16.9x (compared to 16.9x the prior day) average 2014-15 earnings ($126.20), attention focuses on prospective 2014-15 earnings and valuations (16.9x times survey 2014-15 SPX average operating earnings suggests a 2128.12 SPX level in the next year, a +10.1% rise from yesterday's close).

    Technicals improved, as the SPX recaptured its 20-day moving average. Led by health care, most SPX market segments closed higher. SPX market breadth was positive, and up volume led down volume. Volatility fell, and the VIX now suggests a 68% probability that the 30-day change in the SPX will be less than ±4.30%. Treasury bond markets strengthened, with the 10-yeaar Treasury yield falling to its lowest level since June 2013. On the day, the U.S. Treasury 10-year bond yield fell -6.18 bps to end at 2.3397%, compared to 2.4015% at the prior close.

    This morning, 10-year U.S. Treasury yields are up +2.65 bps at 2.3662%, compared to the prior close. World sovereign bond markets are also stronger, with the German 10-year yield at 1.005%, near a record low. Spanish and Italian 10-year debt yields are lower at 2.423% and 2.607%, respectively, compared to 2.486% and +2.657% the prior day.

    U.S. options markets were unchanged at neutral, compared to neutral the prior day. The CBOE SKEW rose +2.24% to 135.43, compared to 132.46 the prior day, moving above 130 for the 2nd 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 1952-1959 trading range. After a fair value adjustment of -0.94 points, the SPU4 future prices at 1962.25, up +10.69 points. The SPX opens +0.17% above and -0.10% below its respective 20- and 50-day moving averages, and +1.91% below and +4.69% above its 200-day moving averages. Initial resistance is 1965.57. Initial support is 1943.03, then 1930.99.

    "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. 2Q2014 earnings continue to surprise positively, with financials' earnings leading other sectors. Friday, the SPX closed at 1955.06, up +1.10% 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 +11.6% to the July 3rd 4,458.65 multi-year record close.

    In Asia, equity markets closed higher, with better strength in Shanghai. The Nikkei 225 (NYSEARCA:NKY) closed up +0.03%. In China, the Hang Seng (HSI) Index rose fractionally, while the Shanghai SE composite (SHCOMP) advanced +0.57%. 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 Chinese July FDI, which disappointed, overall economic trends, and currency developments.

    Last week, the NKY, HSI, and SHCOMP closed up +3.65%, +2.56%, and +1.47%, respectively. The prior week, the NKY closed down -4.80%, while the HSI fell -0.82%, and the SHCOMP gained +0.42%. In August, the NKY is down -1.91%, while the HSI and SHCOMP are up +0.80%, and +1.72%, 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 -5.95%, the HSI is up +7.08%, and the SHCOMP is up +5.84%. 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 -5 bps to 3.30%, 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 in a neutral range, while the Hong Kong and Shanghai are in the upper end of neutral ranges. The NKY RSI rose to 51.62, compared to 51.47 the prior session, up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI fell to 70.28, compared to 70.27 the prior day and down from an overbought 81.00 on July 31st. The SHCOMP's RSI rose to 70.17, compared to 68.08 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 15,322.60, compared to 15,318.34 the prior day, -5.95% below its year-end 16,291.31 high and -60.6% below its late-1989 38,915.87 high close. The index set an early 15,365.35 intraday high, then reversed lower to a mid-morning 15,303.39 intraday low. The index traded narrowly higher through the session's remainder. Most market segments closed higher. Leaders were health care, energy, and consumer staples, which rose at least +0.38%. Laggards were industrials, consumer discretionary, and financials, which fell at least -0.28%.

    In China, in Shanghai, the SHCOMP closed at 2,239.47, compared to 2,226.73 at the prior close, +14.8% above the 1,950.01 June 27, 2013 close, last year's low. In early trading the index rallied to its 2,242.01 intraday high, but fell back to a late morning 2,228.13 intraday low before steadying, finding support and improving through the afternoon. Most market segments closed higher. Leaders were technology, consumer discretionary, and utilities, which rose at least +1.25%. Laggards included energy and telecommunications, which rose +0.11%, and financials, which fell -0.04%.

    In Europe, major equity indexes have rebounded from Friday's weakness, but are off their best early intraday highs. The Euro Stoxx 50, FTSE 100, CAC 40, and DAX are up +1.16%, +0.73%, +1.20%, and +1.48%, respectively. The Spanish IBEX 35 is up +1.12%. The Italian FTSE MIB is up +0.86%. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -7.43%, -2.28%, -8.13%, and -8.20%, respectively, from their recent highs.

    Economic reporting is light. Commentary focuses on Russian/Ukrainian developments, including Russian/Ukrainian talks on Russia's relief effort. 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 43.83, compared to 37.50 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 -7.43% below its recent June 18th 3,314.80 multi-year high and -41.6% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,033.52 close, the index has trended higher through the session with a mid-afternoon 3,089.32 intraday high. The index currently trades at 3,066.87. All market segments are at least +0.66% higher. Leaders are technology, health care, and materials, which are up at least +1.64%. Laggards are telecommunications, financials and utilities.

    Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +0.89%, +1.85%, +0.64%, and +0.92%, respectively, compared to the prior week, when the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -2.14%, -2.42%, -2.32%, and -4.23%, respectively. In August, the FTSE 100 is up +0.11%, while the Euro Stoxx50, CAC 40, and DAX are down -1.51%, -0.51%, and -1.92%, 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 lower. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -1.30%, -0.17%, -1.66%, -3.40%, 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 468 of 500 SPX reporting firms having reported, with respective +5.19% EPS and +1.57% revenue surprises. Financials (84 of 84 reporting) lead with a 9.47% EPS surprise and +2.38% 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 17.7x estimated 2013 earnings ($110.15), 16.4x estimated 2014 earnings ($119.51), 14.7x estimated 2015 earnings ($132.74), and 13.3x estimated 2016 earnings ($147.29). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +8.50%, +11.1%, and 11.0%, respectively.

    The KBW Bank Index (BKX) trades at 13.4x 2013 adjusted EPS ($5.16), 12.5x estimated 2014 earnings ($5.51), 11.6x estimated 2015 earnings ($5.94), and 10.4x 2016 earnings ($6.63). Analysts expect 2014, 2015, 2016 EPS will grow +6.80%, +7.81%, and +11.7%, 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 0.99, compared to 0.98 the prior day, and worse than 5- and 10-period moving averages of 0.94 and 1.03, respectively. The index put/call ratio is 1.19, compared to 1.05 the prior day, and worse than its 5- and 10-period moving averages of 1.01 and 1.14, respectively. The equity put/call ratio closed the day at 0.91, compared to 0.84 the prior day, and worse than its 5- and 10-period moving averages of 0.90 and 0.97, respectively.

    NYSE Volume, Breadth Indicators. Spurred by both options expiration and exaggerated Ukrainian news reports, volume rose +46.7% to 757.86 million shares, compared to 516.67 million shares the prior day, 1.18x the 643.12 million share 20-day moving average. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged by -71 (compared to +1,080 the prior day), or 0.95:1. Up volume was 0.75:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.09150%, compared to 0.09110% the prior day. USD 3-month LIBOR is 0.23210%, down from 0.23110% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 14.110 bps, compared to 14.110 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 15.450 bps, compared to 15.500 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 -13.720 bps, compared to -13.500 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 1.000%, compared to 0.953% the prior day.

    · French 10-year debt yields 1.226%, compared to 1.2131% the prior day.

    · Japanese 10-year debt yields are 0.502%, 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 2.455%, compared to 2.401% the prior day. Italian 10-year debt yields are at 2.639%, compared to 2.585% 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 higher, with 2- and 10-year maturities yielding 0.415% and 2.366%, respectively, compared to 0.407% and 2.340% Friday. The yield curve widened +1.850 bps, with the 2- to 10-year spread at +1.951%, compared to 1.932% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.921% on July 29, 2014, to a high of +2.648% on December 31, 2013.

    · The U.S. dollar is mixed, stronger compared to the euro and Japanese yen, but weaker compared to the British pound. The dollar trades at US$81.438, compared to US$81.620 intraday high and US$81.424 the prior day, and better compared to its $80.713 50-day, US$80.349 100-day, and US$80.391 200-day averages. The euro trades at US$1.3391, compared to a US$1.3382 intraday low and US$1.3401 the prior day. The euro trades worse compared to its US$1.3518 50-day and US$1.3636 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥102.47, compared to ¥102.36 the prior day. The yen trades worse than its 50-day moving average ¥101.93, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index worsened to -5.70, compared to -2.60 the prior day, its 2nd consecutive negative reading. The index is mixed compared to its respective -0.24 5-day and -2.75 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 +5.88% to 13.15, compared to 12.42 at the prior close. The VIX is -6.69% below the 14.09 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 17.98, down -11.7% compared to 20.36 at the prior day's close. The V2X index trades -1.34% below its 18.22 20-day moving average, -18.8% below the 22.15 30-day high, and +27.1% above the 14.15 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 15.15, up +1.20% compared to 14.97 at the prior close. The VHSI index trades -0.97% below its 15.30 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) rose +2.24% to 135.43, compared to 132.46 the prior session, above a neutral reading (115-120) and for a 2nd 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 10:00, August NAHB housing market index, with 53 survey and prior.

    Overseas Economic Reporting and News:

    · China - July YoY foreign direct investment fell -17.0%, compared to +0.8% survey and +0.2% prior.

    Notable Company Ratings/News:

    · None.

    Friday's Trade. The day turned on a 10:30 am exaggerated report that Ukraine had attacked a Russian military convoy that had moved overnight onto its territory. On greater and above average NYSE volume, major U.S. equity indexes closed mixed, but improved from mid-session intraday lows. The Nasdaq rose +0.27%, while the SPX, DJI, and NYSE composite fell -0.006%, -0.30%, and -0.06%, respectively. Last week, indexes are up at least +0.66%. In August, indexes are at least +0.60% higher. In July, indexes closed down at least -1.51%. In 2014, indexes are up at least +0.52%. Market breadth was negaative, with gainers 0.95x losing stocks. Most SPX market segments closed lower. Leaders were energy, utilities, and materials, which rose at least +0.21%. Laggards were industrials, telecommunications, and financials, which fell at least -0.28%.

    Other notable indexes closed higher. The Russell 2000 (RTY) fell -0.15%, and closed -5.54% below its March 4th record high. The Nasdaq Internet Index (QNET) fell -0.06% and is down -6.69% below its March 6th closing high. The Nasdaq Biotech Index (NBI) rose +0.91% and ended -3.48% below its February 25th record high.

    On options expiration, NYSE volume rose 46.7% to 757.86 million shares, compared to 516.67 million shares the prior day, 1.18x the 643.12 million share 20-day moving average volume. Bond markets strengthened. In early trading, the U.S. 10-year yield set an early 2.4104% intraday high, but eased lower to 2.38% through late morning before falling sharply after 10:30. The yield fell to a 2.3011% intraday low, then rose to 2.34% late in the day. The index ended at 2.3670%, down -6.18 bps from the 2.3397% prior close.

    From its prior day 1955.18 SPX close, September 2014 SPX futures (SPM4) suggested a moderately higher open. The index gapped higher to open above 1960 and improved to a mid-morning 1964.04, but reversed lower on Ukrainian "news", falling to a late morning 1941.50 intraday low. The index improved through the afternoon and briefly reversed higher late in the session, but ended with a fractional loss. The index closed at 1955.06, +81.9% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day 8,264.15 close, the DJ Transportation index (TRAN) ended fractionally lower, compared to the DJI's -0.30% loss, closing -2.41% off its July 24th record close. The index traded to an early 8,304.57 intraday high, but reversed lower by mid-morning and fell to a 8,193.95 intraday low. The index improved through the afternoon, but especially after mid-afternoon, briefly reversing higher late in the session. The index closed at 8,264.12. Volume rose +49.2% to 14.981 million shares, compared to 10.044 million shares the prior session, and 1.20x the 15-day moving average volume. The TRAN closed +0.40% and +0.62% above its respective 20- and 50-day moving averages, and +3.66% and +8.35% above its respective 100- and 200-day moving averages.

    Market volatility fell, as the CBOE SPX volatility index (VIX) rose +5.88% to 13.15, compared to 12.42 at the prior close. The VIX opened at its 11.89 intraday low, but moved higher to a late morning 14.94 intraday high before easing through the afternoon. 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 rose +2.24% to 135.43, compared to 132.46 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 improved. The SPX relative strength (RSI) eased to 52.54, compared to 52.59 the prior day, in the middle of 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. The RSI compares to an overbought 71.26 on December 31st, when the SPX closed at an earlier record 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 gained +1.22%, +0.66%, +2.15%, and +0.97%, respectively. The prior week, the SPX, DJI, and Nasdaq closed up +0.33%, +0.37%, and +0.42%, respectively, but the NYSE composite closed off -0.01%. In August, the SPX, DJI, Nasdaq, and NYSE composite are up +1.26%, +0.60%, +2.18%, and +0.65%, 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 +5.77%, +0.52%, +6.90%, and +3.80%, 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 greater and above 15-day average volume, the BKX fell -0.49% to 69.01, compared to 69.35 at the prior day's close, -5.35% below its 72.91 March 20th post-2008 closing high. The index gapped higher and rallied to its mid-morning 69.72 intraday high, but reversed lower with the market on Ukrainian reports and fell to a late morning 68.60 intraday low. The index improved late in the session. Volume rose +100.0% to 48.273 million shares, compared to 24.123 million shares the prior day, and 1.20x the 40.357 million share 15-day moving average.

    Large cap banks outperformed the regional banks, as the KBW regional banking index (KRX) fell -0.59%.

    Last week, the BKX closed up +0.26%, compared to a loss of -0.48% the prior week. In August, the BKX is down -1.61%, compared to July, when the BKX closed off -1.64%. In 2014, the BKX is down -0.36%, compared to the SPX's +5.77% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +16.6% 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 +112.0% 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 +81.9% in the same period. The BKX index closed -43.0% below its February 20, 2007, record 121.06 high. The BKX is up +270.6% 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 index surrendered its 200-day moving average and its 50-day moving average resumed a downward inclination. The average closed -1.18%, -2.38%, -1.33, and -0.18% below its 20-, 50-, 100-, and 200-day moving averages. The 20-day moving average fell -9 bps to 69.83. The 70.69 50-day moving average fell -3 bps. Its 69.94 100-day moving average fell -4 bps, and the 200-day moving average rose +2 bps to 69.11. The 20-day closed (by -0.86 points) below the 50-day, and the negative gap widened -6 bps. The 50-day moving average closed (by +1.56 points) above the 200-day moving average, and the gap fell -5 bps. The 100-day moving average closed (by +0.81 points) above the 200-day moving average, and the gap narrowed -5 bps.

    The directional movement indicator worsened to -13.366, compared to -9.078 the prior day, its 12th consecutive negative reading since July 30th. Relative strength eased to 42.65, compared to 45.21 the prior day, in a neutral range, down from an overbought 73.14 on June 9th, but compares to up from the 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 69.62; next support is 68.50.

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

    Aug 18 9:01 AM | Link | Comment!
  • U.S. Futures Up Moderately As Asia, Europe Extend Rallies

    This morning. U.S. futures are moderately higher and near the top of their pre-session ranges. In Asia, equities closed higher, with better strength in China. In Europe, major indexes have shrugged off Germany's 2Q2014 economic contraction, rallied, and trade near their intraday highs. The dollar is weaker compared to the euro. U.S. Treasury 10-year yields are lower. Commodities are mostly lower. Monday's Nikkei 225 September 2014 (NKU4) equity futures are modestly higher.

    Thursday, on lower and below average volume, U.S. equity indexes closed moderately higher. The S&P 500 Index (SPX), DJ Industrials (DJI), Nasdaq, and NYSE composite rose +0.43%, +0.37%, +0.43%, and +0.43%, respectively. This week, indexes are up at least +0.96%, compared to last week, when major indexes closed at least -2.18% lower. In August, indexes are at least +0.71% higher. In July, indexes closed off at least -0.87%. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +5.78%, +0.83%, +6.62%, and +3.87%, respectively.

    NYSE volume fell -7.56% to 0.80x its 20-day moving average.

    Other notable indexes also rose. The DJ Transports (TRAN) rose +0.66%. The Russell 2000 (RTY) rose +0.14%. The Nasdaq Internet (QNET) index rose to +0.28%, and the Nasdaq Biotech (NBI) index rose +1.50%. The TRAN, RTY, QNET, and NBI are down -2.41%, -5.40%, -6.63% and -4.35%, respectively, from their recent record highs.

    Trading desks report a quiet overnight, but with global equity markets as Russian/Ukrainian tensions ease and Japanese, German, Italian economic contraction appears trumped by expected dovish comments from Yellen next week and continued aggressive monetary ease from all monetary authorities. With regard to yesterday's trade, despite a soft weekly unemployment report, the SPX moved back within its 1950-1985 trading range. Sentiment remains gloomy.

    The 2Q2014 earnings season began June 18th and is now largely complete as 468 of 500 SPX companies have reported with respective +5.19% and +1.57% 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 $119.58, $132.81, and $147.07, respectively compared to $118.05, $131.36 and $145.70 at June-end, respective increases of +1.30%, +1.11% and +0.94%. Price earnings multiples remain elevated. With SPX equities trading at a 16.9x (compared to 16.9x the prior day) average 2014-15 earnings ($126.20), attention focuses on prospective 2014-15 earnings and valuations (16.9x times survey 2014-15 SPX average operating earnings suggests a 2128.12 SPX level in the next year, a +10.1% rise from yesterday's close).

    Technicals improved, as the SPX recaptured its 20-day moving average. Led by health care, most SPX market segments closed higher. SPX market breadth was positive, and up volume led down volume. Volatility fell, and the VIX now suggests a 68% probability that the 30-day change in the SPX will be less than ±4.30%. Treasury bond markets strengthened. On the day, the U.S. Treasury 10-year bond yield fell -1.51 bps to end at 2.4015%, compared to 2.4166% at the prior close.

    This morning, 10-year U.S. Treasury yields are down -1.06 bps at 2.3909%, compared to the prior close. World sovereign bond markets are also stronger, with the German 10-year yield at 1.005%, near a record low. Spanish and Italian 10-year debt yields are lower at 2.423% and 2.607%, respectively, compared to 2.486% and +2.657% the prior day.

    U.S. options markets improved to neutral, compared to bearish to bullish the prior day. The CBOE SKEW rose +4.36% to 132.46, compared to 126.93 the prior day, moving above 130 for the 1st time in 7 sessions, 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 1952-1959 trading range. After a fair value adjustment of -1.98 points, the SPU4 future prices at 1943.50, up +0.73 points. The SPX opens +0.12% above and -0.08% below its respective 20- and 50-day moving averages, and +1.97% below and +4.75% above its 200-day moving averages. Initial resistance is 1957.80. Initial support is 1949.98, then 1944.79.

    "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. 2Q2014 earnings continue to surprise positively, with financials' earnings leading other sectors.

    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 +11.6% to the July 3rd 4,458.65 multi-year record close.

    In Asia, equity markets closed higher, with better strength in China. The Nikkei 225 (NYSEARCA:NKY) closed up +0.02%. In China, the Hang Seng (HSI) Index rose +0.62%, and the Shanghai SE composite (SHCOMP) closed up +0.92%. 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 earnings, economic reports, and currency developments.

    This week, the NKY, HSI, and SHCOMP closed up +3.65%, +2.56%, and +1.47%, respectively. Last week, the NKY closed down -4.80%, while the HSI fell -0.82%, and the SHCOMP gained +0.42%. In August, the NKY is down -1.94%, while the HSI and SHCOMP are up +0.80%, and +1.14%, 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 -5.97%, the HSI is up +7.07%, and the SHCOMP is up +5.23%. 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 -1 bp to 3.35%, compared to 3.36% 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 a neutral range, while the Hong Kong and Shanghai are in the upper end of neutral ranges. The NKY RSI rose to 51.47, compared to 51.35 the prior session, up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI fell to 70.28, compared to 67.50 the prior day and down from an overbought 81.00 on July 31st. The SHCOMP's RSI rose to 70.28, compared to 64.39 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 15,318.34, compared to 15,314.57 the prior day, -5.97% below its year-end 16,291.31 high and -60.6% below its late-1989 38,915.87 high close. The index set an opening 15,328.34 intraday high, but dropped immediately to the 15,276.99 intraday low. The index gradually improved and reversed modestly higher by mid-afternoon, then traded narrowly to the close. All market segments closed at least +0.27% higher. Leaders were technology, health care, and financials, which rose at least +0.37%. Laggards were materials, telecommunications and energy, which fell at least -0.42%.

    In China, in Shanghai, the SHCOMP closed at 2,226.73, compared to 2,206.47 at the prior close, +14.2% above the 1,950.01 June 27, 2013 close, last year's low. In early trading the index eased to its 2,203.52 intraday low, then rallied through the morning session to an early afternoon 2,230.83 intraday high. All market segments closed at least +0.62% higher. Leaders were telecommunications, consumer discretionary, and technology, which rose at least +1.03%. Financials rose +0.92%. Laggards included health care, energy , and utilities.

    In Europe, major equity indexes have rallied through the session and in mid-afternoon trade near their intraday highs. The Euro Stoxx 50, FTSE 100, CAC 40, and DAX are up +0.98%, +0.73%, +1.01%, and +0.88%, respectively. The Spanish IBEX 35 is up +0.97%. The Italian FTSE MIB is down -0.29%. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -6.83%, -2.83%, -7.63%, and -7.41%, respectively, from their recent highs.

    Economic reporting is light. Commentary focuses on easing Russian/Ukrainian concerns. 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 45.77, compared to 40.51 at the prior close, in a neutral (30-70) range. Last Friday, 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 -6.83% below its recent June 18th 3,314.80 multi-year high and -41.2% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,058.16 close, the index has trended higher through the session with a mid-afternoon 3,089.32 intraday high. The index currently trades at 3,086.86. All market segments are at least +0.38% higher. Leaders are materials, industrials, and utilities, which are up at least +1.25%. Laggards are consumer discretionary, technology, and energy.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +2.71%, +2.54%, +2.41%, and +3.29%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -2.14%, -2.42%, -2.32%, and -4.23%, respectively. In August, the FTSE 100 and CAC 40 are up +0.06% and +0.04%, respectively, while the Euro Stoxx50 and DAX are down -0.87% and -1.08%, 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 lower. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -0.67%, -0.22%, -1.12%, -2.58%, 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 468 of 500 SPX reporting firms having reported, with respective +5.19% EPS and +1.57% revenue surprises. Financials (84 of 84 reporting) lead with a 9.47% EPS surprise and +2.38% 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 17.8x estimated 2013 earnings ($110.15), 16.4x estimated 2014 earnings ($119.54), 14.7x estimated 2015 earnings ($132.80), and 13.3x estimated 2016 earnings ($147.42). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +8.53%, +11.1%, and 11.0%, respectively.

    The KBW Bank Index (BKX) trades at 13.4x 2013 adjusted EPS ($5.16), 12.6x estimated 2014 earnings ($5.51), 11.7x estimated 2015 earnings ($5.94), and 10.5x 2016 earnings ($6.63). Analysts expect 2014, 2015, 2016 EPS will grow +6.79%, +7.82%, and +11.7%, respectively.

    Composite, index, and equity options. Options markets improved to neutral, compared to bearish to bullish the prior session. Composite options are neutral, index options are neutral, and equity options are neutral. The composite put/call ratio is 0.98, compared to 0.94 the prior day, and worse than 5- and 10-period moving averages of 0.96 and 1.05, respectively. The index put/call ratio is 1.05, compared to 0.89 the prior day, and worse than its 5- and 10-period moving averages of 1.03 and 1.13, respectively. The equity put/call ratio closed the day at 0.84, compared to 0.96 the prior day, and better than its 5- and 10-period moving averages of 0.91 and 1.01, respectively.

    NYSE Volume, Breadth Indicators. Volume fell -7.56% to 516.67 million shares, compared to 558.95 million shares the prior day, 0.80x the 643.10 million share 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led by +1,080 (compared to +1,472 the prior day), or 2.10:1. Up volume was 1.82:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.09030%, compared to 0.09010% the prior day. USD 3-month LIBOR is 0.23360%, down from 0.23310% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 14.360 bps, compared to 14.060 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 15.500 bps, compared to 14.900 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 -13.212 bps, compared to -13.250 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 1.005%, compared to 1.017% the prior day.

    · French 10-year debt yields 1.242%, compared to 1.268% the prior day.

    · Japanese 10-year debt yields are 0.503%, compared to 0.506% the prior day.

    · Spanish and Italian 10-year debt yields are lower and near multi-year lows. Spanish 10-year debt yields are 2.423%, compared to 2.486% the prior day. Italian 10-year debt yields are at 2.607%, compared to 2.657% 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 0.416% and 2.391%, respectively, compared to 0.416% and 2.402% Thursday. The yield curve narrowed -1.030 bps, with the 2- to 10-year spread at +1.975%, compared to 1.986% the prior day. In the past year, the 2- and 10-year spread varied from a low of +0.690% on July 29, 2014, to a high of +2.648% on December 31, 2013.

    · The U.S. dollar is mixed, weaker compared to the euro and British pound, but stronger compared to the Japanese yen. The dollar trades at US$81.489, compared to US$81.479 intraday low and US$81.588 the prior day, and better compared to its $80.699 50-day, US$80.336 100-day, and US$80.390 200-day averages. The euro trades at US$1.3387, compared to a US$1.3392 intraday high and US$1.3349 the prior day. The euro trades worse compared to its US$1.3522 50-day and US$1.3640 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥102.57, compared to ¥102.45 the prior day. The yen trades worse than its 50-day moving average ¥101.94, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index worsened to -2.60, compared to -0.30 the prior day, its 2nd consecutive negative reading. The index is mixed compared to its respective +1.50 5-day and -3.43 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 mixed energy, lower precious metals, lower aluminum and copper, and mostly lower agriculture prices.

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) -3.72% to 12.42, compared to 12.90 at the prior close. The VIX is -11.5% below the 14.04 20-day moving average. Its 30-day high is 17.57. Its 30-day low is 10.28. 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 16.07, down -7.08% compared to 17.30 at the prior day's close. The V2X index trades -10.8% below its 18.03 20-day moving average, -27.4% below the 22.15 30-day high, and +18.0% above the 13.62 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 14.97, down -3.11% compared to 15.45 at the prior close. The VHSI index trades -1.61% below its 15.22 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) rose +4.36% to 132.46, compared to 126.93 the prior session, above a neutral reading (115-120) and, after its 4 consecutive readings under 130, back above that level, which 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, August empire manufacturing was 14.69, compared to 20.00 survey and 25.60 revised prior.

    · July MoM PPI ex food and energy rose +0.2%, compared to +0.2% survey and +0.2% revised prior.

    · At 9:15, July MoM industrial production, with +0.3% survey and +0.2% prior.

    · July capacity utilization, with 79.2% survey and 79.1% prior.

    · July manufacturing production, with +0.4% survey and +0.1% prior.

    · At 9:55, August preliminary University of Michigan confidence, with 82.5 survey and 81.8 prior.

    Overseas Economic Reporting and News:

    · United Kingdom - 2Q2014 preliminary GDP rose +0.08%, compared to +0.8% and +0.8% prior.

    Notable Company Ratings/News:

    · None.

    Thursday's Trade. On lower and below average NYSE volume, major U.S. equity indexes closed moderately higher, but near their intraday highs. The SPX, DJI, Nasdaq, and NYSE composite rose +0.43%, +0.37%, +0.43%, and +0.43%, respectively. This week, indexes are up at least +0.96%. In August, indexes are at least +0.71% higher. In July, indexes closed down at least -1.51%. In 2014, indexes are up at least +0.45%. Market breadth was positive, with gainers 2.10x losing stocks. Most SPX market segments closed higher. Leaders were health care, utilities, and consumer discretionary, which rose at least +0.77%. Financials rose +0.54%. Laggards were technology and materials, which rose at least +0.08%, and energy, which fell -0.50%.

    Other notable indexes closed higher. The Russell 2000 (RTY) rose +0.14%, and closed -5.40% below its March 4th record high. The Nasdaq Internet Index (QNET) rose +0.28% and is down -6.63% below its March 6th closing high. The Nasdaq Biotech Index (NBI) rose +1.50% and ended -4.35% below its February 25th record high.

    NYSE volume fell -7.56% to 516.67 million shares, compared to 558.95 million shares the prior day, 0.80x the 643.10 million share 20-day moving average volume. Bond markets weakened. In early trading, the U.S. 10-year yield rose to an early 2.4405% intraday high,but moved lower as world bond markets strengthened, with a late morning 2.3891% intraday low. The index ended at 2.3927%, down -0.88 bps from the 2.4015% prior close.

    From its prior day 1946.72 SPX close, September 2014 SPX futures (SPM4) suggested a moderately higher open. In early trading, the index rose to the 1950, then trended higher through the session to a late 1955.23. The index closed at 1955.18, +81.9% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day 8,209.57 close, the DJ Transportation index (TRAN) rose +0.66%, outpacing the DJI's +0.37% gain, closing -2.41% off its July 24th record close. The index initially traded narrowly around breakeven, but rallied from late morning through the afternoon to a late 8,264.46 intraday high. The index closed at 8,264.15. Volume rose +19.1% to 10.044million shares, compared to 8.431 million shares the prior session, and 0.82x the 15-day moving average volume. The TRAN closed +0.33% and +0.65% above its respective 20- and 50-day moving averages, and +3.75% and +8.44% above its respective 100- and 200-day moving averages.

    Market volatility fell, as the CBOE SPX volatility index (VIX) fell -3.72% to 12.42, compared to 12.90 at the prior close. The VIX set an early 13.13 intraday high, but quickly fell to 12.50, then moved narrowly around 12.70 through late afternoon, when it fell to close at its 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 rose +2.62% to 126.93, compared to 123.69 the prior session, above a neutral 115-120 range, but below 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 improved. The SPX relative strength (RSI) rose to 52.59, compared to 49.43 the prior day, in the middle of 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. The RSI compares to an overbought 71.26 on December 31st, when the SPX closed at an earlier record 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 +1.22%, +0.96%, +1.88%, and +0.76%, respectively. Last week, the SPX, DJI, and Nasdaq closed up +0.33%, +0.37%, and +0.42%, respectively, but the NYSE composite closed off -0.01%. In August, the SPX, DJI, Nasdaq, and NYSE composite are up +1.27%, +0.91%, +1.90%, and +0.71%, 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 +5.78%, +0.83%, +6.62%, and +3.87%, 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 still lower and below 15-day average volume, the BKX rose +0.32% to 69.35, compared to 69.13 at the prior day's close, -4.88% below its 72.91 March 20th post-2008 closing high. The index gapped higher and rallied to 69.40 in early trading, which proved resistance through early afternoon. The index dipped back to 69.30 in the final hours, but improved into the close. Volume fell -16.5% to 24.123 million shares, compared to 28.880 million shares the prior day, and 0.61x the 39.400 million share 15-day moving average.

    Large cap banks outperformed the regional banks, as the KBW regional banking index (KRX) fell -0.18%.

    This week, the BKX is up +0.44%. Last week, the BKX closed off -0.48%. In August, the BKX is down -1.44%, compared to July, when the BKX closed off -1.64%. In 2014, the BKX is down -0.19%, compared to the SPX's +5.32% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +17.2% 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 +113.0% 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 +81.9% in the same period. The BKX index closed -42.7% below its February 20, 2007, record 121.06 high. The BKX is up +272.5% 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, as the index again closed above its 200-day moving average, but the 50-day moving average was unchanged after declining the prior day. The average closed -0.82%, -1.94%, and -0.89% below its 20-, 50-, and 100-day moving averages, but +0.34% above its 200-day moving average. The 20-day moving average fell -4 bps to 69.92. The 70.72 50-day moving average was unchanged. Its 69.98 100-day moving average fell -3 bps, and the 200-day moving average rose +2 bps to 69.11. The 20-day closed (by -0.80 points) below the 50-day, and the negative gap widened -3 bps. The 50-day moving average closed (by +1.61 points) above the 200-day moving average, and the gap fell -2 bps. The 100-day moving average closed (by +0.86 points) above the 200-day moving average, and the gap narrowed -6 bps.

    The directional movement indicator improved to -9.078, compared to -11.206 the prior day, its 11th consecutive negative reading since July 30th. Relative strength improved to 45.21, compared to 43.16 the prior day, in a neutral range, down from an overbought 73.14 on June 9th, but compares to up from the 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 69.50; next support is 68.18.

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

    Aug 15 9:13 AM | Link | Comment!
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