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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. Equities Await Elections, ECB, Employment Report

    This morning. U.S. futures are moderately lower, but better than their intraday lows. Earnings season is winding down, with 78% of S&P 500 index companies now having reported 3Q2014 earnings, with better than expected earnings, but slightly disappointing revenues. In Asia, Japan reopened after yesterday's holiday and surged another +2.73%, with the Nikkei 225 Index (NYSEARCA:NKY) briefly topping 17,100 in early trading and signaling overbought at the close. China closed mixed. In Europe, equity indexes are modestly mixed after early strength. U.S. Treasury 10-year yields are lower. The dollar is weaker. Commodities are mostly lower. Wednesday's Nikkei 225 December 2014 (NKZ4) equity futures are modestly higher.

    Dominating the week's focus are: 1) today's mid-term U.S. elections; 2) Thursday's ECB meeting; and 3) Friday's October U.S. employment report.

    Last week, major U.S. equity indexes closed at least +2.48% higher, compared to the prior week, when major indexes rose closed mixed. In October, indexes closed up at least +1.33%, compared to September, when indexes closed off at least -0.32%. In 2014, the S&P 500 (SPX), DJ Industrials (DJI), Nasdaq, and NYSE composite are up +9.17%, +4.76%, +11.1%, and +3.93%, respectively.

    Market Outlook "Confirmed Uptrend". On October 21st, Nasdaq and SPX follow-throughs confirmed a new market uptrend, with the SPX starting the day at 1904.01. On Monday, the SPX closed up +5.98% from its October 20th 1904.01 close, which marked the start of the current "confirmed uptrend" market phase. There have been no subsequent distribution days.

    Monday, major indexes traded narrowly through the morning session, rallied strongly following the Saudi oil price cut through mid-afternoon, then weakened after 2:30 to end mixed. Volume fell to 0.91x the 20-day moving average. The Nasdaq rose +0.18%, while the SPX, DJI, and NYSE composite closed down -0.01%, -0.14%, and -0.33%, respectively. The SPX closed at 2017.81, closing -0.01% below its October 31st 2018.05 record close. The SPX has rallied +10.8% above the October 15th 1820.66 intraday low, which was -9.84% below its 2019.26 September 19th intraday high.

    Other notable indexes closed mixed. The DJ Transports (TRAN) rose +0.14% to another record close. The Russell 2000 (RTY) fell -0.28%. The Nasdaq Internet (QNET) index fell -0.55%, and the Nasdaq Biotech (NBI) index fell -0.01%. The RTY, and QNET are down -3.18% and -8.37% from their recent highs, while the NBI is up +7.25%.

    Trading desks report mixed overseas markets and quiet economic reporting, though energy prices continue to move lower with both WTI and Brent at fresh lows. Regarding yesterday's trade, the session was uneventful without much change in the economic narrative (mixed world PMIs, better October auto sales, static ECB, and energy weakness), with participants unwilling to make new moves ahead of today's election, and possibly before Friday's employment report.

    Technicals were little changed. Most SPX market segments closed higher. Volatility fell, 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 ±5.10%, compared to ±4.86% the prior session. Treasury bond markets weakened, with the 10-year U.S. Treasury bond yield rising +0.72 bps to 2.3425%, compared to 2.3353% at the prior close.

    This morning, 10-year U.S. Treasury yields are down -2.87 bps at 2.3138% compared to the prior close. World sovereign bond markets are stronger, with the German 10-year yield at 0.811%, compared to 0.853% the prior day. Spanish and Italian 10-year debt yields are lower at 2.134% and 2.371%, respectively, compared to 2.143% and 2.414% the prior day.

    In pre-market futures trading, December SPX equity futures (SPZ4) are moderately lower and price near the bottom of their 2005-2012 trading range. After a fair value adjustment of +0.81 points, the SPZ4 prices at 2005.90, down -4.85 points. The SPX opens +4.14% and +2.50% above its respective 20- and 50-day moving averages, and +2.70% and +5.47% above its 200-day moving averages. Initial resistance is 2023.62. Initial support is 2012.84, then 2007.87.

    3Q2014 SPX Earnings. The current earnings season began on September 15th, and 379 of 500 SPX companies (76.0%) have reported with respective +5.48% and -0.12% earnings and revenue surprises. Financials, (78 of 85) lead with respective +8.83% EPS and +2.29% revenues surprises, followed by energy (30 of 43), with respective +8.57% EPS and -5.74% revenue 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. In the past 3 months, forward estimates have recently eased. Respective SPX estimates for 2014, 2015 and 2016 are now $120.32, $131.20, and $146.31, mixed compared to $118.05, $131.36 and $145.70 at June-end, respective changes of +1.92%, -0.12% and +0.42%. Price earnings multiples are elevated. With SPX equities trading at a 17.5x (compared to 17.6x the prior day) average 2014-15 earnings ($125.76), attention focuses on prospective 2014-15 earnings and valuations (17.5x times survey 2014-15 SPX average operating earnings suggests a 2206.40 SPX level in the next year, a +9.35% rise from yesterday's close).

    The SPX trades at 18.3x actual 2013 earnings ($110.15), 16.8x estimated 2014 earnings, 15.4x estimated 2015 earnings, and 13.8x estimated 2016 earnings. The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +9.23%, +9.04%, and 11.5%, respectively.

    The KBW Bank Index (BKX) trades at 13.4x actual 2013 adjusted EPS ($5.16), 13.1x estimated 2014 earnings ($5.53), 12.3x estimated 2015 earnings ($5.87), and 11.1x 2016 earnings ($6.53). Analysts expect 2014, 2015, 2016 EPS will grow +7.26%, +5.99%, and +11.4%, respectively.

    Composite, index, and equity options. Options markets are unchanged at neutral to bullish, compared to neutral to bullish the prior session. Composite options are bullish, index options are neutral, and equity options are neutral. The composite put/call ratio is 0.83, compared to 0.76 the prior day, and better than 5- and 10-period moving averages of 0.91 and 0.94, respectively. The index put/call ratio is 1.08, compared to 0.98 the prior day, and better than its 5- and 10-period moving averages of 1.09 and 1.13, respectively. The equity put/call ratio closed the day at 0.73, compared to 0.67 the prior day, and better than its 5- and 10-period moving averages of 0.84 and 0.86, respectively.

    The CBOE SKEW fell -0.09% to 124.64, compared to 124.75 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, and fell to a recent low of 111.31 on October 15th.

    NYSE Volume, Breadth Indicators. Volume fell -23.4% to 799.95 million shares, compared to 1,044.49 million shares the prior day, 0.91x the 883.77 million share 20-day moving average. Market breadth was modestly negative, and up volume lagged down volume. Advancing stocks lagged by -49 (compared to +1,668 the prior day) or 0.97:1. Up volume was 0.92:1 down volume.

    LIBOR, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.08800%, compared to 0.09110% the prior day. USD 3-month LIBOR is 0.23210%, compared to 0.23235% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 13.61 bps, compared to 13.46 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 10.00 bps, compared to 9.10 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 -11.083 compared to -10.704 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 0.811%, compared to 0.853% the prior day.

    · French 10-year debt yields 1.159%, compared to 1.192% the prior day.

    · Japanese 10-year debt yields are 0.444%, compared to 0.458% the prior day.

    · Spanish and Italian 10-year debt yields are lower. Spanish 10-year debt yields are 2.134%, compared to 2.143% the prior day. Italian 10-year debt yields are at 2.371%, compared to 2.414% 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 0.508% and 2.312%, respectively, compared to 0.511% and 2.343% Monday. The yield curve narrowed -2.670 bps, with the 2- to 10-year spread at +1.804%, compared to 1.831% 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$87.170, compared to US$87.060 intraday low and US$87.309 the prior day, and better compared to its $84.977 50-day, US$82.945 100-day, and US$81.533 200-day averages. The euro trades at US$1.2516, compared to a US$1.2531 intraday high and US$1.2482 the prior day. The euro trades worse compared to its US$1.2798 50-day and US$1.3139 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥113.37, compared to ¥114.05 the prior day, a multi-year closing low. The yen trades worse than its 50-day moving average ¥107.72.

    · Citigroup Economic Surprise Index improved to 22.10, compared to 18.00 the prior session, with consecutive positive readings since August 21st. The index is better compared to its respective +16.88 5-day and +17.37 10-day moving averages. From a +72.70 high on January 15, the index subsequently trended lower and turned negative on February 19 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 29 and remained negative through August 5. After a lag, the CESIUSD correlates with EPS revisions.

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

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) fell -3.37% to 14.03, compared to 14.52 at the prior close. The VIX is -23.6% below the 18.36 20-day moving average. Its 30-day high is 31.06. Its 30-day low is 13.24. 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 20.97, up +3.22% compared to 20.32 at the prior day close. The V2X index trades -8.04% below its 22.81 20-day moving average, -41.8% below the 36.00 30-day high, and +37.1% above the 15.29 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 16.01, down -2.14% compared to 16.36 at the prior close. The VHSI index trades -15.7% below its 18.98 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) rose +3.08% to 124.75, compared to 121.02 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 111.31 on October 15, 2014. 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 9:45, October ISM New York, with 62.0 survey and 63.7 prior.

    · At 10:00, September factory orders, with -0.6% survey and -10.1% prior.

    · November IBD/TIPP economic optimism, with 46.5 survey and 45.2 prior.

    World Economic Reporting and News:

    · Japan - October final Markit/JMMA manufacturing PMI was 52.4, compared to 52.8 prior.

    · United Kingdom - October Markit/CIPS construction PMI was 61.4, compared to 63.5 survey and 64.2 prior.

    Monday's Trade. On lower and below average 15-day volume, U.S. equities ended mixed, with the Nasdaq up modestly to another multi-year record close. The Nasdaq rose +0.18%, while the SPX, DJI, and NYSE composite fell -0.01%%, -0.14%, and -0.33%, respectively. Last week, major indexes closed at least +2.48% higher. In October, indexes ended mixed. In September, indexes closed down at least -0.32%. In 2014, indexes are at least +3.93% higher. Market breadth was negative, with gainers 0.97x losing stocks. Most SPX market segments closed lower. Leaders were utilities, technology, and consumer staples, which rose at least +0.36%. Financials rose +0.31%. Laggards were industrials, materials, and energy.

    Other notable indexes closed lower. The Russell 2000 (RTY) fell -0.28%, recovering rapidly from its recent correction and down -3.18% from its March 4th record high, but remaining "death crossed" with its 50-day moving average -1.49% below its 200-day moving average. The Nasdaq Internet Index (QNET) fell -0.55%, down -8.37% below its March 6th closing high. The Nasdaq Biotech index (NBI) fell -0.01% from its October 31st record high.

    NYSE volume fell -23.4% to 799.95 million shares, compared to 1,044.49 million shares the prior day, 0.91x the 883.77 million share 20-day moving average volume. Bond markets weakened slightly. From its prior day 2.3058% close, the U.S. 10-year yield fell to an early 2.2995% intraday low, then rose to a late-morning 2.3811% intraday high. The index ended at 2.3425%, up +0.72 bps from the prior close.

    From its prior day 2018.05 close, December 2014 SPX futures (SPZ4) suggested a lower open. The SPX moved narrowly through late morning, then rallied to a mid-afternoon 2024.46 intraday high. Late in the session, profit taking took the index lower to the 2013.68 intraday low before improving to close at 2017.81, +10.8% better than the October 15th 1820.66 intraday low, and 87.8% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day 8,755.51 close, the DJ Transportation index (TRAN) rose +0.14% to 8,767.83, a new record on consecutive sessions. The index fell to an early 8,701.61 intraday low, then improved in early afternoon to the session's 8,775.78 intraday high. The index weakened in the final hour, but improved into the close. Volume fell -5.48% to 19.420 million shares, compared to 20.545 million shares the prior session, and 0.70x the 15-day moving average volume. The TRAN closed +5.34% and +4.08% above its respective 20- and 50-day moving averages, and +5.22% and +10.1% above its respective 100- and 200-day moving averages.

    Market volatility rose, as the CBOE SPX volatility index (VIX) rose +4.99% to 14.73, compared to 14.03 at the prior close. The index rose to 14.80 by late morning, then fell back to 14.30 by mid-afternoon. The index rose on profit taking to a late 14.99 intraday high, then eased to the close. 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 19.91, 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 fell -0.09% to 124.64, compared to 124.75 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. SPX relative strength (RSI) eased to 65.25, compared to 65.33 the prior day and to its recent October 15th 29.22 low, which corresponded with the indexes 1820.66 intraday low.

    Last week, indexes rallied, with the SPX, DJI, Nasdaq, and NYSE composite up +2.72%, +3.48%, +3.28%, and +2.48%, respectively. The prior week, the SPX, DJI, Nasdaq, and NYSE composite closed up +4.12%, +2.47%, +3.88%, and +3.24%, respectively. In October, the SPX, DJI, Nasdaq, and NYSE composite closed down -1.55%, -0.32%, -1.90%, and -3.11%, 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 +9.17%, +4.76%, 11.1%, and +3.93%, 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 increased and above 15-day average volume, the BKX rose +0.15% to 72.25, compared to 72.14 at the prior day's close. The index traded narrowly through mid-morning, then rallied to a mid-afternoon 72.60 intraday high. Profit taking pulled the index back to breakeven by late session, but the index improved modestly into the close. Volume fell -26.1% to 48.014 million shares, compared to 64.985 million shares the prior day, 0.77x the 61.979 million share 15-day moving average.

    Large cap banks outperformed the regional banks, as the KBW regional banking index (KRX) fell -0.23%.

    Last week, the BKX closed up +3.95%, compared to the prior week, when the BKX closed up +3.88%. In October, the BKX closed up +0.81%, compared to September, when the BKX closed up +0.10%. In 2014, the BKX is up +4.32%, compared to the SPX's +9.17% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +24.7% 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 index recaptured 70 on October 28th.

    The BKX closed +121.9% 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 +87.7% in the same period. The BKX index closed -40.3% below its February 20, 2007, record 121.06 high. The BKX is up +288.0% 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 BKX closed above its 20-, 50-, 100-, and 200-day moving averages. The index closed +4.27% and +1.86% above its respective 20- and 50-day moving averages, and +2.09% and +3.15% above its 100- and 200-day moving averages. The 20-day moving average rose +4 bps to 69.29. The 70.93 50-day moving average rose +2 bps. Its 70.77 100-day moving average rose +2 bps, and the 70.04 200-day moving average rose +1 bp. The 20-day closed (by -1.64 points) below the 50-day, and the negative gap narrowed -1 bp. The 50-day moving average closed (by +0.89 bps) above the 200-day moving average, and the gap widened +2 bps. The 100-day moving average closed (by +0.73 points) above the 200-day moving average, and the gap widened +1 bp.

    The directional movement indicator improved to +13.429, compared to +10.659 the prior day, with consecutive positive readings since October 28th. Relative strength rose to 63.20, compared to 62.72 the prior day, up from an oversold 27.99 on October 15th, when the BKX traded intraday at 65.05, correcting -12.1% from its September 18th high close. 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 72.56; next support is 71.98.

    In Asia, equity markets reopened and the BOJ inspired Japanese equity rally continued. China closed mixed. The Nikkei 225 (NKY) rose +2.73%, but closed off its early intraday high. In China, the Hang Seng (HSI) Index fell -0.29%, while the Shanghai SE composite (SHCOMP) rose +0.65%. The NKY, HSI, and SHCOMP closed above their respective 20-, 50-, 100-, and 200-day moving averages. The NKY, HSI, and SHCOMP 50-day moving averages are above their respective 200-day moving averages. Today's volumes are unavailable.

    Economic reporting was light. Commentary focused on monetary policy, and currency and commodity price developments.

    Last week, the NKY closed up +7.34%, while the HSI and SHCOMP rose +2.99% and +5.12%, respectively. The prior week, the NKY closed up +5.22%, while the HSI rose +1.21%, and SHCOMP declines -1.66%. In October, the NKY closed up +1.49%, while the HSI and SHCOMP rose +1.35% and +2.38%, respectively. 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 up +0.75%, the HSI is up +2.31%, and the SHCOMP is up +14.9%. 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 rose +3 bps to 3.20%, compared to 3.17% 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) signal that the NKY is overbought, while the SHCOMP is near the top of neutral range, and the HSI is in the middle of a neutral range. The NKY RSI rose to 70.57, compared to 65.96 the prior session, down from 77.29 on September 19th, but up from 40.48 on October 27th and an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI fell to 55.69, compared to 57.40 the prior day and compares to an oversold 23.40 on September 30th, and an overbought 81.00 on July 31st. The SHCOMP's RSI rose to 68.37, compared to 68.29 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 16,862.47, compared to 16,413.76 the prior day, a 2nd consecutive session multi-year high close and -56.7% below its late-1989 38,915.87 high close. The index rallied to an early 17,127.66 intraday high, then eased through the session on profit taking. Most market segments rose. Leaders were financials, consumer discretionary, and technology, which rose at least +3.39%. Laggards were materials and consumer staples, which gained at least +0.72%, and energy, which closed down -0.84%.

    In China, in Shanghai, the SHCOMP closed at 2,430.68, compared to 2,430.03 at the prior close, +24.7% above the 1,950.01 June 27, 2013 close, last year's low. The index fell to an early 2,417.22 intraday low, but then recovered and traded narrowly around breakeven to the close. Market segments closed mixed. Leaders were industrials, telecommunications, and materials, which rose at least +0.36%. Financials lost -0.28%. Laggards were technology, consumer staples, and health care, which fell at least -0.85%.

    In Europe, major equity indexes are moderately lower, with greater weakness in Madrid and Milan, and near their intraday lows. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -1.59%, -0.58%, -1.64%, and -0.95%, respectively. The Spanish IBEX 35 is down -2.07%. The Italian FTSE MIB is down -2.16%. Compared to their recent highs, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -8.45%, -6.44%, -10.3%, and -8.83%, respectively.

    Economic reporting the EU cut in economic forecasts. Commentary focuses on earnings, the U.S. elections, and prospective ECB meeting.

    European bourses have recently underperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 47.50, compared to 52.63 at the prior close, in the middle 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 22.27 on October 16th, which marked the year's 2,874.65, which marked the bottom of the recent -13.3% correction.

    The Euro Stoxx50 trades -8.45% below its recent June 18th 3,314.80 multi-year high and -42.2% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,082.32 close, the index initially traded higher and set an early 3,098.24 intraday high. The index reversed lower in early afternoon and fell to a late session 3,028.33 intraday low. The index currently trades at 3,034.58. All market segments are at least -0.81% lower. Leaders are consumer staples, utilities, and health care. Laggards are consumer discretionary, financials, and energy, which are down at least -1.79%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -2.53%, -1.47%, -2.52%, and -1.75%, respectively. Last week, these indexes closed up +2.74%, +2.47%, +2.52%, and +3.77%, respectively. In October, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -3.49%, -1.15%, -4.15%, and -1.56%, 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 -2.39%, -4.42%, -3.95%, and -4.07%, respectively. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.

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

    Nov 04 11:26 AM | Link | Comment!
  • U.S. Equities Poised To Rally To Year-End?

    This morning. U.S. futures are modestly lower, but near their intraday lows. Earnings season is winding down, with nearly 73% of S&P 500 index companies now having reported 3Q2014 earnings, with better than expected earnings, but slightly disappointing revenues. In Asia, Japan was closed following Friday's explosive Bank of Japan-inspired rally. China closed mixed on disappointing October PMIs. In Europe, equity indexes moderately lower. U.S. Treasury 10-year yields are lower. The dollar is mixed, though the yen continues to weaken to multi-year lows. Commodities are mixed. Tuesday's Nikkei 225 December 2014 (NKZ4) equity futures are moderately higher.

    While Japan was closed, three events dominate the week's focus: 1) tomorrow's mid-term U.S. elections; 2) Thursday's ECB meeting; and 3) Friday's October U.S. employment report.

    Last week, major U.S. equity indexes closed at least +2.48% higher, compared to the prior week, when major indexes rose closed mixed. In October, indexes closed up at least +1.33%, compared to September, when indexes closed off at least -0.32%. In 2014, the S&P 500 (SPX), DJ Industrials (DJI), Nasdaq, and NYSE composite are up +9.18%, +4.91%, +10.9%, and +4.28%, respectively.

    Market Outlook "Confirmed Uptrend". On October 21st, Nasdaq and SPX follow-throughs confirmed a new market uptrend, with the SPX starting the day at 1904.01. On Friday, the SPX closed up +5.99% from its October 20th 1904.01 close, which marked the start of the current "confirmed uptrend" market phase. There have been no subsequent distribution days.

    Friday, major indexes rallied in early trading, then traded narrowly through late session, when indexes rallied strongly into the close. Volume rose sharply to 1.19x the 20-day moving average. The SPX, DJI, Nasdaq, and NYSE composite closed up +1.17%, +1.13%, +1.41%, and +1.24%, respectively. The SPX closed at 2018.05, closing above its prior 2011.36 September 18th record close. The SPX has rallied +10.8% above the October 15th 1820.66 intraday low, which was -9.84% below its 2019.26 September 19th intraday high.

    Other notable indexes closed mixed. The DJ Transports (TRAN) rose +1.44% to a record close. The Russell 2000 (RTY) rose +1.53%. The Nasdaq Internet (QNET) index rose +2.38%, and the Nasdaq Biotech (NBI) index fell -0.04%. The RTY, and QNET are down -2.91% and -7.86% from their recent highs, while the NBI is up +7.26%.

    Trading desks report a slow weekend for news, without any narrative moving headlines outside somewhat unimpressive PMIs from both China and Europe. After a mixed Chinese session, Europe is lower following a Reuters report that the ECB will not modify terms of its TLTRO in its meeting Thursday. In the U.S., there's little economic news before the market's 9:30 open, but the greater focus is tomorrow's mid-term elections and this Friday's employment report. Regarding last Friday's rally, traders ask whether the year-end "melt-up" rally is now underway, with remembrance of last year's 200 point SPX rally following a sharp October sell-off.

    Technicals were little changed. Led by energy, all SPX market segments closed at least +0.04% higher. Volatility fell, 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 ±4.86%, compared to ±5.03% the prior session. Treasury bond markets weakened, with the 10-year U.S. Treasury bond yield falling -2.95 bps to 2.3353%, compared to 2.3058% at the prior close.

    This morning, 10-year U.S. Treasury yields are down -1.08 bps at 2.3245% compared to the prior close. World sovereign bond markets are mixed, with the German 10-year yield at 0.841%, compared to 0.841% the prior day. Spanish and Italian 10-year debt yields are lower at 2.129% and 2.388%, respectively, compared to 2.076% and 2.348% the prior day.

    In pre-market futures trading, December SPX equity futures (SPZ4) price near the top of their 2008-2012 trading range. After a fair value adjustment of -0.45 points, the SPZ4 prices at 2009.40, down -2.45 points. The SPX opens +4.30% and +2.54% above its respective 20- and 50-day moving averages, and +2.76% and +5.53% above its 200-day moving averages. Initial resistance is 2023.76. Initial support is 1995.49, then 1978.50.

    3Q2014 SPX Earnings. The current earnings season began on September 15th, and 364 of 500 SPX companies (72.4%) have reported with respective +5.42% and -0.27% earnings and revenue surprises. Financials, (75 of 85) lead with respective +8.80% EPS and +1.61% revenues surprises, followed by energy (29 of 43), with respective +8.78% EPS and -5.79% revenue 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. In the past 3 months, forward estimates have recently eased. Respective SPX estimates for 2014, 2015 and 2016 are now $120.10, $131.12, and $146.28, compared to $118.05, $131.36 and $145.70 at June-end, respective changes of +1.73%, -0.18% and +0.39%. Price earnings multiples are elevated. With SPX equities trading at a 17.6x (compared to 17.4x the prior day) average 2014-15 earnings ($125.61), attention focuses on prospective 2014-15 earnings and valuations (17.6x times survey 2014-15 SPX average operating earnings suggests a 2206.00 SPX level in the next year, a +9.31% rise from yesterday's close).

    The SPX trades at 17.8x actual 2013 earnings ($110.15), 16.4x estimated 2014 earnings, 14.9x estimated 2015 earnings, and 13.4x estimated 2016 earnings. The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +8.94%, +9.66%, and 11.5%, respectively.

    The KBW Bank Index (BKX) trades at 13.4x actual 2013 adjusted EPS ($5.16), 12.5x estimated 2014 earnings ($5.54), 11.8x estimated 2015 earnings ($5.87), and 10.6x 2016 earnings ($6.54). Analysts expect 2014, 2015, 2016 EPS will grow +7.30%, +6.04%, and +11.5%, respectively.

    Composite, index, and equity options. Options markets are unchanged at neutral to bullish, compared to neutral to bullish the prior session. Composite options are bullish, index options are bullish, and equity options are neutral. The composite put/call ratio is 0.76, compared to 0.96 the prior day, and better than 5- and 10-period moving averages of 0.94 and 0.95, respectively. The index put/call ratio is 0.98, compared to 1.13 the prior day, and better than its 5- and 10-period moving averages of 1.15 and 1.13, respectively. The equity put/call ratio closed the day at 0.67, compared to 0.88 the prior day, and better than its 5- and 10-period moving averages of 0.86 and 0.86, respectively.

    The CBOE SKEW rose +3.08% to 124.75, compared to 121.02 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, and fell to a recent low of 111.31 on October 15th.

    NYSE Volume, Breadth Indicators. Volume rose +36.2% to 1,044.49 million shares, compared to 766.71 million shares the prior day, 1.19x the 878.56 million share 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led by +1,668 (compared to +837 the prior day) or 3.32:1. Up volume was 4.68:1 down volume.

    LIBOR, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.08800%, compared to 0.09110% the prior day. USD 3-month LIBOR is 0.23210%, compared to 0.23235% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 13.46 bps, compared to 13.54 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 9.10 bps, compared to 9.75 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 -10.714 compared to -9.750 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 0.841%, compared to 0.841% the prior day.

    · French 10-year debt yields 1.210%, compared to 1.207% the prior day.

    · Japanese 10-year debt yields are 0.458%, compared to 0.458% the prior day.

    · Spanish and Italian 10-year debt yields are lower. Spanish 10-year debt yields are 2.129%, compared to 2.076% the prior day. Italian 10-year debt yields are at 2.388%, compared to 2.348% 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 0.498% and 2.327%, respectively, compared to 0.491% and 2.335% Tuesday. The yield curve narrowed -1.420 bps, with the 2- to 10-year spread at +1.830%, compared to 1.844% 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 mixed, stronger compared to euro and Japanese yen, but weaker compared to the British pound. The dollar trades at US$87.170, compared to US$87.018 intraday low and US$86.917 the prior day, and better compared to its $84.883 50-day, US$82.878 100-day, and US$81.499 200-day averages. The euro trades at US$1.2496, compared to a US$1.2440 intraday low and US$1.2525 the prior day. The euro trades worse compared to its US$1.2811 50-day and US$1.3150 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥113.59, compared to ¥112.32 the prior day, another multi-year intraday low. The yen trades worse than its 50-day moving average ¥107.52.

    · Citigroup Economic Surprise Index fell to 18.00, compared to 18.80 the prior session, with consecutive positive readings since August 21st. The index is lower compared to its respective +14.86 5-day and +17.28 10-day moving averages. From a +72.70 high on January 15, the index subsequently trended lower and turned negative on February 19 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 29 and remained negative through August 5. After a lag, the CESIUSD correlates with EPS revisions.

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

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) fell -0.43% to 16.04, compared to 16.11 at the prior close. The VIX is -14.1% below the 18.68 20-day moving average. Its 30-day high is 31.06. 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 21.32, down -7.40% compared to 23.02 at the prior day close. The V2X index trades -5.22% below its 22.49 20-day moving average, -40.8% below the 36.00 30-day high, and +47.7% above the 14.44 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 16.39, down -5.48% compared to 17.34 at the prior close. The VHSI index trades -16.6% below its 19.66 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) fell -1.43% to 123.77, compared to 125.57 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 111.31 on October 15, 2014. 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 9:45. October final Markit manufacturing PMI, with 56.2 survey and prior.

    · At 10:00, October ISM manufacturing, with 56.2 survey and 56.6 prior.

    · September MoM construction spending, with +0.7% survey and -0.8% prior.

    World Economic Reporting and News:

    · China - October non-manufacturing PMI was 53.8, compared to 54.0 prior. October final HSBC manufacturing PMI was 50.4, compared to 5.4 survey and prior.

    · Eurozone - October final Markit manufacturing PMI was 50.6, compared to 50.7 survey and prior.

    · France - October final Markit manufacturing PMI was 48.5, compared to 47.3 survey and prior.

    · Germany - October final Markit/BME manufacturing PMI was 51.4, compared to 51.8 survey and prior.

    · Italy - October Markit/ADACI manufacturing PMI was 49.0, compared to 50.6 survey and 50.7 prior.

    · Spain - October Markit manufacturing PMI was 52.6, compared to 52.2 survey and 52.6 prior.

    Friday's Trade. On greater and above average 15-day volume, U.S. equities rallied to new records on the SPX and DJI, and multi-year Nasdaq highs. Japan's BOJ triggered the rally when it announced further stimulus. Futures suggested an early rally, and major indexes didn't disappoint. The SPX, DJI, Nasdaq, and NYSE composite rose +1.18%, +1.13%, +1.41%, and +1.24%, respectively. Last week, major indexes closed at least +2.48% higher. In October, indexes ended mixed. In September, indexes closed down at least -0.32%. In 2014, indexes are at least +4.16% higher. Market breadth was positive, with gainers 3.32x losing stocks. All SPX market segments closed at least +0.04% higher. Leaders were energy, materials, and technology, which rose at least +1.76%. Financials rose +1.24%. Laggards were consumer staples, health care, and utilities.

    Other notable indexes closed mixed. The Russell 2000 (RTY) rose +1.53%, recovering rapidly from its recent correction and down -2.91% from its March 4th record high, but remaining "death crossed" with its 50-day moving average -1.51% below its 200-day moving average. The Nasdaq Internet Index (QNET) rose +2.38%, down -7.86% below its March 6th closing high. The Nasdaq Biotech index (NBI) fell -0.04% off its August 29th record high.

    NYSE volume rose +36.2% to 1,044.49 million shares, compared to 766.71 million shares the prior day, 1.19x the 878.56 million share 20-day moving average volume. Bond markets weakened. From its prior day 2.3058% close, the U.S. 10-year yield fell to an early 2.2942% intraday low, then rose to a mid-morning 2.3568% intraday high. The index ended at 2.3353%, up +2.95 bps from the prior close.

    From its prior day 1994.65 close, December 2014 SPX futures (SPZ4) suggested a higher open. In early trading, the SPX rallied to 2014, then traded narrowly until the final hour, when equities rallied into the close. The index closed at 2018.05, compared to the prior September 18th record 2011.36 close, +10.8% better than the October 15th 1820.66 intraday low, and 87.8% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day 8,631.13 close, the DJ Transportation index (TRAN) rose +1.44% to 8,755.51, a new record compared to its recent prior September 18th 8,676.19 record close. The index rallied to an early 8,770.08 intraday high, then fell back to 8,700 support before easing higher through the session's remainder. Volume rose +15.3% to 20.545 million shares, compared to 18.970 million shares the prior session, and 0.92x the 15-day moving average volume. The TRAN closed +5.44% and +4.02% above its respective 20- and 50-day moving averages, and +5.18% and +10.1% above its respective 100- and 200-day moving averages.

    Market volatility fell, as the CBOE SPX volatility index (VIX) fell -3.37% to 14.03, compared to 14.52 at the prior close. The index fell to an early 13.72 intraday low, but rose to 14.83 in early afternoon before moving lower in the final hour. 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 rose +3.08% to 124.75, compared to 121.02 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. SPX relative strength (RSI) rose to 65.33, compared to 61.27 the prior day and to its recent 29.22 low, which corresponds with the indexes 1820.66 intraday low.

    Last week, indexes rallied, with the SPX, DJI, Nasdaq, and NYSE composite up +2.72%, +3.48%, +3.28%, and +2.48%, respectively. The prior week, the SPX, DJI, Nasdaq, and NYSE composite closed up +4.12%, +2.47%, +3.88%, and +3.24%, respectively. In October, the SPX, DJI, Nasdaq, and NYSE composite closed down -1.55%, -0.32%, -1.90%, and -3.11%, 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 +9.18%, +4.91%, 10.9%, and +4.28%, 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 increased and above 15-day average volume, the BKX rose +1.33% to 72.14, compared to 71.19 at the prior day's close and near its late intraday high. In early trading, the index rallied to above 72.10, then fell back to 72.00 by mid-session, trading narrowly until strengthening into the close, with a late 72.15 intraday high. Volume rose +27.8% to 64.985 million shares, compared to 50.838 million shares the prior day, 1.04x the 62.533 million share 15-day moving average.

    Large cap banks underperformed the regional banks, as the KBW regional banking index (KRX) rose +1.78%.

    Last week, the BKX closed up +3.95%, compared to the prior week, when the BKX closed up +3.88%. In October, the BKX closed up +0.81%, compared to September, when the BKX closed up +0.10%. In 2014, the BKX is up +4.16%, compared to the SPX's +9.18% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +24.5% 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 index recaptured 70 on October 28th.

    The BKX closed +121.6% 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 +87.8% in the same period. The BKX index closed -40.4% below its February 20, 2007, record 121.06 high. The BKX is up +287.4% 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 BKX closed above its 20-, 50-, 100-, and 200-day moving averages. The index closed +4.17% and +1.74% above its respective 20- and 50-day moving averages, and +1.96% and +3.01% above its 100- and 200-day moving averages. The 20-day moving average rose +1 bp to 69.25. The 70.91 50-day moving average rose +2 bps. Its 70.75 100-day moving average rose +1 bp, and the 70.03 200-day moving average rose +1 bp. The 20-day closed (by -1.65 points) below the 50-day, and the negative gap narrowed -10 bps. The 50-day moving average closed (by +0.87 bps) above the 200-day moving average, and the gap widened +2 bps. The 100-day moving average closed (by +0.72 points) above the 200-day moving average, and the gap narrowed -1 bp.

    The directional movement indicator improved to -26.032, compared to -26.941 the prior day, with consecutive negative readings since September 24th. Relative strength rose to 62.72, compared to 58.34 the prior day, up from an oversold 27.99 on October 15th, when the BKX traded intraday at 65.05, correcting -12.1% from its September 18th high close. 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 72.36; next support is 71.72.

    In Asia, equity markets were closed in Japan, while China closed mixed. Friday, the Nikkei 225 (NYSEARCA:NKY) rose +0.92% and closed near its late intraday high. In China, the Hang Seng (HSI) Index fell -0.34%, while the Shanghai SE composite (SHCOMP) rose +0.41%. The NKY, HSI, and SHCOMP closed above their respective 20-, 50-, 100-, and 200-day moving averages. The NKY, HSI, and SHCOMP 50-day moving averages are above their respective 200-day moving averages. Today's volumes are unavailable.

    Economic reporting focused on Chinese PMIs, which disappointed. Commentary focused on the currency and commodity price developments.

    Last week, the NKY closed up +7.34%, while the HSI and SHCOMP rose +2.99% and +5.12%, respectively. The prior week, the NKY closed up +5.22%, while the HSI rose +1.21%, and SHCOMP declines -1.66%. In October, the NKY closed up +1.49%, while the HSI and SHCOMP rose +1.35% and +2.38%, respectively. 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 up +0.75%, the HSI is up +2.62%, and the SHCOMP is up +14.8%. 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 3.17%, compared to 3.20% 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 the NKY and SHCOMP near the top of neutral ranges, while the HSI is in a neutral range. The NKY RSI rose to 65.96, compared to 54.91 the prior session, down from 77.29 on September 19th, but up from 40.48 on October 27th and an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI rose to 57.40, compared to 59.38 the prior day and compares to an oversold 23.40 on September 30th, and an overbought 81.00 on July 31st. The SHCOMP's RSI rose to 68.29, compared to 66.97 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 Friday at 16,413.76, compared to 15,658.20 the prior day, +0.24% above its prior September 24th closing yearly high and -57.8% below its late-1989 38,915.87 high close. The index opened higher, but traded narrowly around 15,900 through early afternoon, when news of the BOJ's intention to provide economic stimulus pushed equities significantly higher. The index surged initially to 16,300 and improved to a late 16,533.91 intraday high before late profit taking brought the index down from its highs. All market segments closed higher.

    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 -0.73%, -0.49%, -0.54%, and -0.56%, respectively. The Spanish IBEX 35 is down -0.70%. The Italian FTSE MIB is down -1.47%. Compared to their recent highs, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -6.53%, -5.31%, -8.22%, and -7.47%, respectively.

    Economic reporting focuses on October PMIs, which have generally unimpressed. Commentary focuses on earnings, the U.S. elections, and prospective ECB meeting. 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 53.53, compared to 56.26 at the prior close, in the middle 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 22.27 on October 16th, which marked the year's 2,874.65, which marked the bottom of the recent -13.3% correction.

    The Euro Stoxx50 trades -6.53% below its recent June 18th 3,314.80 multi-year high and -41.0% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,113.32 close, the index initially traded narrowly, but weakened in early trading to the mid-morning 3,088.73 intraday low. The index currently trades at 3,090.11. All market segments are at least -0.31% lower. Leaders are consumer discretionary, industrials, and technology. Financials are down -0.72%. Laggards are consumer staples, health care, and utilities, which are down at least -0.85%.

    Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +2.74%, +2.47%, +2.52%, and +3.77%, respectively. The prior week, Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +2.30%, +1.24%, +2.37%, and +1.55%, respectively. In October, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -3.49%, -1.15%, -4.15%, and -1.56%, 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 -0.34%, -3.27%, -1.75%, and -2.64%, respectively. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.

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

    Nov 03 9:18 AM | Link | Comment!
  • 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!
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