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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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  • Draghi Exceeds Expectations; U.S. Futures Follow Europe Higher, As Euro Weakens, Sovereigns Strengthen

    This morning. In Europe, following ECB rate cut announcements at 7:45 EDT, European sovereign rates are lower, and equity indexes spiked higher. Also, the ECB announced quantitative easing commencing in October, including asset backed securities and covered bonds. The QE is expected to be substantial, though its size is yet to be disclosed. Asia closed mixed, with better strength in Shanghai. Similarly, U.S. futures are now higher and near the top of their pre-session trading range. The dollar is stronger. U.S. Treasury 10-year yields are lower. Commodities are mixed. Economic reporting is heavy, focusing on central bank actions, August worldwide PMIs, and largely in-line U.S. initial and continuing jobless claims, August ADP employment (presaging the August employment report), and 2Q2014 non-farm productivity and unit labor costs. Friday's Nikkei 225 September 2014 (NKU4) equity futures are modestly higher.

    Wednesday, on greater and above average volume, U.S. equity indexes closed mixed. The DJI and NYSE composite managed respective gains of +0.06% and +0.23%, while the Nasdaq and lost -0.28% and -0.08%. This week, indexes are mixed. Last week, indexes closed at least +0.57% higher. In August, indexes closed up at least +2.98% higher. In July, indexes closed off at least -0.87%. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +8.24%, +3.03%, +9.48%, and +6.38%, respectively.

    Since August 13, the U.S. equity market outlook is "confirmed uptrend", though in yesterday's trade, the Nasdaq suffered its first distribution since its August 13th follow-through. The Nasdaq opens -10.9% below its March 31, 2000 record close.

    NYSE volume rose +4.11% to 1.07x its 20-day moving average.

    Other notable indexes closed lower. The DJ Transports (TRAN) fell -0.23% from its prior day record close. The Russell 2000 (RTY) fell -0.62%. The Nasdaq Internet (QNET) index fell -0.43%, and the Nasdaq Biotech (NBI) index fell -0.21%. The RTY, QNET, and NBI are down -3.02%, -5.14%, and -0.37%, respectively, from their recent record highs.

    Trading desks report a quiet global equity markets, though European equity indexes rallied following the ECB's rate cuts and ECB President Draghi's press conference announcement that QE will commence in October. Gains are broad, led by energy and financials . In yesterday's trade, the SPX managed to hold above 2000, but seems stuck in a narrow range ahead of expected U.S. economic reports today and tomorrow and today's ECB action. Trading was slow, with technology the laggard as AAPL slumped on Samsung's product announcement.

    The 2Q2014 earnings season began June 18th and is now largely complete as 497 of 500 SPX companies have reported with respective +5.08% and +1.52% 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 $119.64, $132.81, and $147.67, respectively compared to $118.05, $131.36 and $145.70 at June-end, respective increases of +1.35%, +1.10% and +1.35%. Price earnings multiples remain elevated. With SPX equities trading at a 17.4x (compared to 17.5x the prior day) average 2014-15 earnings ($126.22), attention focuses on prospective 2014-15 earnings and valuations (17.5x times survey 2014-15 SPX average operating earnings suggests a 2201.73 SPX level in the next year, a +10.1% rise from yesterday's close).

    Technicals were little changed. SPX market segments closed mixed. SPX market breadth was negative, and up volume lagged down volume. Volatility rose, and the CBOE SPX volatility index (VIX) now suggests a 68% probability that the 30-day change in the SPX will be less than ±4.28%. Treasury bond markets strengthened, with the 10-year U.S. Treasury bond yield falling -2.49 bps to 2.3962%, compared to 2.4211% at the prior close.

    This morning, 10-year U.S. Treasury yields are +2.23 bps lower at 2.4185%, compared to the prior close. World sovereign bond markets are mixed, with the German 10-year yield at 0.938%, compared to 0.955% the prior day. Spanish and Italian 10-year debt yields are lower at 2.231% and 2.422%, respectively, compared to 2.271% and +2.459% the prior day.

    U.S. options markets worsened to neutral, compared to neutral to bullish the prior day. The CBOE SKEW fell -0.13% to 131.55, compared to 131.72 the prior day, above a neutral 115-120 range and above 130, 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 are above first resistance and near the top of their 1999-2011 trading range. After a fair value adjustment of +0.68 points, the SPU4 future prices at 2006.00, up +7.08 points. The SPX opens +1.53% and +1.67% above its respective 20- and 50-day moving averages, and +3.45% and +6.37% above its 200-day moving averages. Initial resistance is 2007.29. Initial support is 1996.15, then 1991.57.

    "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. Yesterday, the Nasdaq experienced its first distribution since August 13th. There have been no other index distributions.

    2Q2014 earnings continue to surprise positively, with financials' earnings leading other sectors. On August 29th, the SPX closed at a record 2003.38, up +3.60% 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 +15.0% to the September 2nd 4,598.19 multi-year record close.

    In Asia, equity markets closed mixed. The Nikkei 225 (NYSEARCA:NKY) fell -0.33%. In China, the Hang Seng (HSI) Index fell -0.08%, while the Shanghai SE composite (SHCOMP) rose +0.80%. The NKY, HSI, and SHCOMP 50-day moving averages are above their respective 200-day moving averages. Today's volumes are unavailable.

    Commentary focused on U.S. economic reports, currency and commodity developments.

    This week, the NKY, HSI, and SHCOMP are up +1.63%, +2.25%, and +4.04%, respectively. Last week, the NKY, HSI, and SHCOMP closed down -0.74%, -1.47%, and -1.05%, respectively. In September, the NKY, HSI, and SHCOMP are up +1.637%, +2.25%, and +4.04%, respectively, compared to August, when the NKY and HSI closed down -1.26% and -0.06%, while the SHCOMP gained +0.71%.

    In 2014, the NKY is down -3.78%, the HSI is up +8.54%, and the SHCOMP is up +9.02%. 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 -14 bps to 3.26%, compared to 3.40% 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 and Hong Kong in a neutral range, while the SHCOMP is signaling overbought. The NKY RSI rose to 60.12, compared to 62.92 the prior session, up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI eased to 67.13, compared to 67.91 the prior day, down from an overbought 81.00 on July 31st. The SHCOMP's RSI rose to 73.06, compared to 70.57 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 15,676.18, compared to 15,728.35 the prior day, -3.78% below its year-end 16,291.31 high and -59.7% below its late-1989 38,915.87 high close. The index opened modestly lower, but rallied to trade briefly higher in early trading. From a 15,732.76 intraday high, the index reversed lower by mid-morning and trended lower through the session to a late 15,696.08 intraday low. Market segments closed mixed. Leaders were utilities, energy, and consumer staples, which closed up at least +0.28%. Financials fell -0.41%. Laggards were telecommunications, industrials, and health care, which fell at least -0.59%.

    In China, in Shanghai, the SHCOMP closed at 2,306.86, compared to 2,288.63 at the prior close, +18.3% above the 1,950.01 June 27, 2013 close, last year's low. The index initially traded to its early 2,283.36 intraday low, but reversed higher by mid-morning and rose through the session to a late 2,307.50 intraday high. All market segments closed at least +0.27% higher. Leaders were industrials, utilities, and financials, which rose at least +1.02%. Laggards were consumer staples, energy, and health care.

    In Europe, major equity indexes traded lower through mid-session, but improved ahead of the ECB action report and spiked further with Draghi's QE announcement. Indexes are off their best levels, but have rallied strongly. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +1.52%, +0.32%, +1.46%, and +0.802%, respectively. The Spanish IBEX 35 is up +1.42%. The Italian FTSE MIB up +1.85%. Compared to their recent highs, the FTSE 100 is up +0.05%, while the Euro Stoxx50, CAC 40, and DAX are down -1.30%, -2.43%, and -3.48%, respectively.

    Commentary focuses on today's ECB actions ("a day to remember"), Euro weakness, U.S. economic reports, and commodity price developments.

    European bourses have recently underperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 67.80, compared to 62.83 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 -1.30% below its recent June 18th 3,314.80 multi-year high and -38.7% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,218.84 close, the index traded to a mid-morning 3,201.44 intraday low, but reversed higher in early afternoon and rallied to its recent 3,273.90 intraday high. The index currently trades at 3,263.23. Most market segments are higher. Leaders are financials, energy, and utilities, which are up at least +1.62%. Laggards are technology and industrials, which are up at least +0.76%, and materials, which is down -0.16%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +3.02%, +1.15%, +2.42%, and +2.44%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +2.49%, +0.62%, +3.02%, and +1.40%, respectively. In August, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +1.93%, +1.33%, +3.18%, and +0.67%, 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 higher. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +5.23%, +2.21%, and +4.45%, and +1.56%, 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 497 of 500 SPX reporting firms having reported, with respective +5.08% EPS and +1.52% revenue surprises. Financials (84 of 84 reporting) lead with a 9.47% EPS surprise and +2.39% revenue surprise.

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

    Valuation. The SPX trades at 18.2x estimated 2013 earnings ($110.15), 16.7x estimated 2014 earnings ($119.64), 15.1x estimated 2015 earnings ($132.81), and 13.5x estimated 2016 earnings ($147.67). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +8.62%, +11.0%, and 11.2%, respectively.

    The KBW Bank Index (BKX) trades at 13.9x 2013 adjusted EPS ($5.16), 13.0x estimated 2014 earnings ($5.52), 12.1x estimated 2015 earnings ($5.94), and 10.8x 2016 earnings ($6.63). Analysts expect 2014, 2015, 2016 EPS will grow +6.98%, +7.65%, and +11.6%, respectively.

    Composite, index, and equity options. Options markets worsened to neutral, compared to neutral to bullish the prior session. Composite options are neutral, index options are neutral, and equity options are neutral. The composite put/call ratio is 1.01, compared to 0.82 the prior day, and worse than 5- and 10-period moving averages of 0.99 and 0.91, respectively. The index put/call ratio is 1.13, compared to 0.71 the prior day, and worse than its 5- and 10-period moving averages of 1.10 and 0.97, respectively. The equity put/call ratio closed the day at 0.95, compared to 0.88 the prior day, and worse than its 5- and 10-period moving averages of 0.97 and 0.91, respectively.

    NYSE Volume, Breadth Indicators. Volume rose +4.11% to 617.68 million shares, compared to 593.29 million shares the prior day, 1.07x the 578.73 million shares 20-day moving average. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged by -274 (compared to -102 the prior day), or 0.84:1. Up volume was 1.02:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.09050%, compared to 0.089.50% the prior day. USD 3-month LIBOR is 0.23310%, compared to 0.23360% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 13.96 bps, compared to 14.06 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 16.38 bps, compared to 16.50 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 -21.159 bps, compared to -16.250 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 0.922%, compared to 0.955% the prior day.

    · French 10-year debt yields 1.375%, compared to 1.381% the prior day.

    · Japanese 10-year debt yields are 0.535%, compared to 0.534% the prior day.

    · Spanish and Italian 10-year debt yields are lower and near multi-year lows. Spanish 10-year debt yields are 2.179%, compared to 2.271% the prior day. Italian 10-year debt yields are at 2.364%, compared to 2.459% 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 0.510% and 2.412%, respectively, compared to 0.516% and 2.496% Wednesday. The yield curve widened +2.190 bps, with the 2- to 10-year spread at +1.902%, compared to 1.880% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.861% on August 27, 2014, to a high of +2.648% on December 31, 2013.

    · The U.S. dollar is stronger compared to the euro, Japanese yen, and British pound. The dollar trades at US$82.943, compared to US$82.9892 intraday high and US$82.865 the prior day, and better compared to its $81.252 50-day, US$80.693 100-day, and US$80.501 200-day averages. The euro trades at US$1.3050, compared to a US$1.3037 intraday low and US$1.3150 the prior day. The euro trades worse compared to its US$1.3415 50-day and US$1.3556 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥105.04, compared to ¥104.79 the prior day. The yen trades worse than its 50-day moving average ¥102.50, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index eased to +41.20, its 9th consecutive positive reading, compared to +43.50 the prior day. The index is better compared to its respective +38.00 5-day and +25.87 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. The index turned positive again on August 21st. After a lag, the CESIUSD correlates with EPS revisions.

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

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) rose +0.90% to 12.36, compared to 12.25 at the prior close. The VIX is -4.53% below the 12.95 20-day moving average. Its 30-day high is 17.57. Its 30-day low is 11.24. Its all-time closing low is 9.31 on December 22, 1993. The long-term average is 20.00.

    · The Euro Stoxx 50 volatility index (V2X) is 16.62, down -1.13% compared to the 16.81 prior day close. The V2X index trades -6.51% below its 17.78 20-day moving average, -25.0% below the 22.15 30-day high, and +11.8% above the 14.87 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 14.21, up +1.00% compared to 14.07 at the prior close. The VHSI index trades -3.23% below its 14.68 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) fell -0.13% to 131.55, compared to 131.72 the prior session, above a neutral reading (115-120) since March 27th, and 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 8:15, August ADP employment change was 204K, compared to 220K survey and 218K prior.

    · At 8:30, the July trade balance was -$ billion, compared to -$42.4 billion survey and -$41.5 billion revised prior.

    · The latest weeks' initial and continuing claims were 302K and 2464K, compared to 300K and 2510K survey and 298K and 2528K revised prior.

    · 2Q2014 final nonfarm productivity rose +2.3%, compared to +2.4% survey and +2.5% prior.

    · 2Q2014 final unit labor costs fell -0.1%, compared to +0.5% survey and +0.6% revised prior.

    · At 9:45, August final Markit services PMI, with 58.5 survey and prior.

    · August final Markit composite PMI, with 58.8 prior.

    · At 10:00, August ISM non-manufacturing composite, with 57.7 survey and 58.7 prior.

    Overseas Economic Reporting and News:

    · Eurozone - August final Markit retail PMI was 45.8, compared to 47.6 prior.

    · Bank of England - September Bank rate is +0.50%, compared to 0.50% survey and prior. Asset purchase target is 375 billion, compared to 375 billion survey and prior.

    · European Central Bank - Main refinancing rate reduced to +0.05%, compared to +0.15% survey and prior. Marginal lending facility reduced to +0.30%, compared to +0.40% survey and prior. Deposit facility rate is -0.20%, compared to -0.10% survey and prior.

    · France - 2Q2014 ILO unemployment rate is 10.2%, compared to 10.2% survey and 10.1% prior. August Markit retail PMI was 45.5, compared to 45.6 prior.

    · Germany - July MoM factory orders rose +4.6%, compared to +1.5% survey and -2.7% revised prior. August Market construction PMI was 47.7, compared to 48.2 prior. August Markit retail PMI was 49.4, compared to 52.1 prior.

    · Italy - August Markit retail PMI was 40.8, compared to 43.4 prior.

    · Spain - August Markit services PMI was 58.1, compared to 55.5 survey and 56.2 prior. Markit composite PMI was 56.9, compared to 55.7 prior.

    · United Kingdom - YoY new car registrations rose +9.4%, compared to +6.6% prior.

    Notable Company Ratings/News:

    · None.

    Tuesday's Trade. Equity indexes opened higher, but weakened by mid-morning fell to modest mid-session lows and then traded narrowly to the a mixed close. Led by AAPL, which fell -4.22% on the day, technology was the weakest segment, and the Nasdaq ended off -0.56%, its first distribution since August 13th. The SPX's lost -0.08%. The DJI and NYSE composite managed respective +0.06% and +0.23% gains. This week, indexes are mixed, compared to the prior week, when indexes closed up at least +0.57%. In August, indexes closed up at least +2.98. In July, indexes closed down at least -1.51%. In 2014, indexes are up at least +3.03%. Market breadth was negative, with gainers 0.84x losing stocks. SPX market segments closed mixed. Leaders were utilities, health care, and energy, which rose at least +0.31%. Laggards were financials, consumer discretionary, and technology, which fell at least -0.13%.

    Other notable indexes closed lower. The Russell 2000 (RTY) fell -0.62% and closed -3.02% below its March 4th record high. The Nasdaq Internet Index (QNET) fell -0.43%, down -5.14% below its March 6th closing high. The NBI fell -0.16%, closing -0.37% below its August 29th 2,892.71 record high.

    NYSE volume rose +4.11% to 617.68 million shares, compared to 593.29 million shares the prior day, 1.07x the 578.73 million share 20-day moving average volume. Bond markets weakened. From its prior day 2.3962% close, the U.S. 10-year yield rose to an early 2.4658% intraday high, thentrended lower to a late 2.3944% intraday low. The index ended at 2.3962%, down -2.49 bps from the prior close.

    From its prior day 2003.37 SPX record close, September 2014 SPX futures (SPM4) suggested a moderately higher open. The index gapped higher and set an early 2,009.28 intraday high, where it found strong resistance. Profit taking, particularly in technology stocks, took the index lower, and the SPX reversed lower by late morning. The index traded narrowly through the afternoon, trading below 2000 moving into the final hour. The index improved to close at 2000.72, +3.46% above the August 12th 1933.75 close (which marked the start of the current market uptrend), and +86.2% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day record 8,516.25 close, the DJ Transportation index (TRAN) fell to 8,490 in early trading, but reversed higher to a mid-morning 8,537.80 intraday high. By late morning, the index reversed lower rose and fell to an early afternoon 8,474.26 intraday low before finding support and improving to 8,500 by mid-afternoon. The index closed at 8,496.93, down -0.23% on the session. Volume rose +19.8% to 14.921 million shares, compared to 12.458 million shares the prior session, and 1.39x the 15-day moving average volume. The TRAN closed +2.12% and +2.54% above its respective 20- and 50-day moving averages, and +5.15% and +10.2% above its respective 100- and 200-day moving averages.

    Market volatility fell, as the CBOE SPX volatility index (VIX) rose +0.90% to 12.36, compared to 12.25 at the prior close. The VIX opened lower, set an early 11.91 intraday low, but then rose to a mid-session 12.55 as equity markets weakened. In early afternoon, the VIX eased back to 12.10, then eased higher to the close. The VIX's all-time closing low is 9.31, on December 22, 1993. Its record high is 89.53 in December 2008. Its lifetime average is 20.01. The CBOE put/call SKEW fell -0.13% to 131.55, compared to 131.72 the prior session, above a neutral 115-120 range and above 130 for the first time since June 18th, a level that correlates well with short-term market tops. Its record 143.26 high came on June 20th.

    The market's technical factors were little changed. The SPX relative strength (RSI) eased to 64.46, compared to 65.59 the prior day, in a neutral range. The latest RSI compares to an oversold 32.85 on August 7th, an overbought 73.73 on June 9th, and an oversold 31.24 on February 3rd, its previous yearly low, when the SPX closed at 1741.89. The RSI compares to an overbought 71.26 on December 31st, when the SPX closed at an earlier record 1848.36 high, and compares to earlier oversold levels of 35.14 on August 27th and 39.19 on October 9th.

    This week, the SPX, DJI, and Nasdaq are down -0.13%, -0.12%, and -0.17%, while the NYSE composite is up +0.16%. Last week, the SPX, DJI, Nasdaq, and NYSE composite closed up +0.75%, +0.57%, +0.92%, and +0.90%, respectively. In August, the SPX, DJI, Nasdaq, and NYSE composite rallied +3.77%, +3.23%, +4.82%, and +2.98%, respectively. In July, the SPX, DJI, Nasdaq, and NYSE composite closed down up -1.51%, -1.56%, -0.87%, and -2.30%, respectively.

    In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +8.24%, +3.03%, +9.48%, and +6.38%, respectively. In 2013, the SPX, DJI, Nasdaq, and NYSE composite closed up +29.6%, +26.5%, +38.2%, +23.2%, respectively. All closed at least +5.91% higher in 2012.

    KBW Bank Index (BKX). On better, but below 15-day average volume, the BKX fell -0.28% to 71.70, compared to 71.90 at the prior day's close, its 10th consecutive close above 70. The index closed -1.66% below its 72.91 March 20th post-2008 closing high. The index opened higher and set an early 72.24 intraday high, but reversed lower by late morning and trended lower to a final hour 71.52 intraday low. Volume rose +2.16% to 34.078 million shares, compared to 33.358 million shares the prior day, and 0.94x the 36.203 million share 15-day moving average.

    Large cap banks outperformed the regional banks, as the KBW regional banking index (KRX) fell -0.30%.

    This week, the BKX is up +0.29%, compared to last week, when the BKX closed up +0.56%. In August, the BKX rose +1.92%, compared to July, when the BKX closed off -1.64%. In 2014, the BKX is up +3.52%, compared to the SPX's +8.24% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

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

    The BKX closed +120.2% above the 32.56 intraday low on October 4, 2011, the bottom of that year's correction. Large-cap bank stocks have outperformed the broader market's rebound, with the SPX up +86.2% in the same period. The BKX index closed -40.8% below its February 20, 2007, record 121.06 high. The BKX is up +285.1% from its 18.62 March 6, 2009, closing low, its low at the end of the 2008-09 financial panic.

    Technical indicators were little changed. The index closed +2.11% and +1.44% above its respective 20- and 200-day moving averages, and +2.58% and +3.16% above its 50- and 100-day moving averages. The 20-day moving average rose +13 bps to 70.22. The 70.68 50-day moving average was unchanged. Its 69.90 100-day moving average rose +3 bps, and the 200-day moving average rose +2 bps to 69.50. The 20-day closed (by -0.46 points) below the 50-day, and the negative gap narrowed -15 bps. The 50-day moving average closed (by +1.18 points) above the 200-day moving average, and the gap narrowed -3 bps. The 100-day moving average closed (by +0.39 points) above the 200-day moving average, and the gap was unchanged.

    The directional movement indicator improved to +8.587, compared to +5.931 the prior day, its 9th consecutive positive reading. Relative strength eased to 59.75, compared to 61.94 the prior day, in a neutral range, down from an overbought 73.14 on June 9th, but compares to recent lows of 32.95 on February 3rd and 31.08 on November 14, 2012, which is also the date of the BKX's 2012 closing low. Next resistance is 72.12; next support is 71.40.

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

    Sep 04 9:09 AM | Link | Comment!
  • Global Equities Rally On PMIs, Conflicting Ukraine Ceasefire Claims

    This morning. World equities closed higher in Asia (the Shanghai Composite rose to fresh new 52-week highs) and have rallied in Europe, where conflicting reports of a Russian/Ukraine ceasefire . U.S. futures are moderately higher and near the top of their pre-session trading range. The dollar is weaker. U.S. Treasury 10-year yields are higher. Commodities are mostly higher, though the agricultural complex is lower. Economic reporting focuses on August PMIs. Wednesday's Nikkei 225 September 2014 (NKU4) equity futures are modestly higher.

    Since August 13, the U.S. equity market outlook is "confirmed uptrend". Yesterday, the Nasdaq closed at a multi-year record. The Nasdaq opens -10.4% below its March 31, 2000 record close.

    Tuesday, on lower, but above average volume, U.S. equity indexes closed modestly mixed. The Nasdaq closed up +0.39% to a multi-year high. The S&P 500 Index (SPX), DJ Industrials (DJI), and NYSE composite fell -0.05%, -0.18%, -0.07%, respectively. Last week, indexes closed at least +0.57% higher, compared to the prior week, when indexes closed at least +1.40% higher. In August, indexes closed up at least +2.98% higher. In July, indexes closed off at least -0.87%. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +8.33%, +2.96%, +10.1%, and +6.13%, respectively.

    NYSE volume fell -3.80% to 1.02x its 20-day moving average.

    Other notable indexes closed mixed. The DJ Transports (TRAN) rallied +1.29% and closed at another record. The Russell 2000 (RTY) rose +0.44%. The Nasdaq Internet (QNET) index rose +1.32%, and the Nasdaq Biotech (NBI) index fell -0.16%. The RTY, QNET, and NBI are down -2.41%, -4.73%, and -0.16%, respectively, from their recent record highs.

    Trading desks report another global equity rally, spurred by stronger than expected Chinese PMIs and positive macro news from Ukraine. Gains are broad, led by consumer discretionary in China and financials in Europe. In yesterday's trade, the SPX managed to hold above 2000, narrowing moderate mid-session losses by the close. Volumes and attendance remain low following the Labor Day holiday. The day's headline focused on world sovereign bond yields, which soared on views that the ECB meeting might underwhelm bullish expectations.

    The 2Q2014 earnings season began June 18th and is now largely complete as 494 of 500 SPX companies have reported with respective +5.08% and +1.53% adjusted EPS and revenues surprises. Financials (84 of 84 reporting) lead with respective +9.47% and +2.38% EPS and revenue surprises. In 1Q2014, 499 of 499 SPX companies reported with respective +5.91% EPS and +0.20% revenue surprises.

    Forward estimates have moved up. Respective estimates for 2014, 2015 and 2016 are now $119.64, $132.82, and $147.69, respectively compared to $118.05, $131.36 and $145.70 at June-end, respective increases of +1.35%, +1.11% and +1.36%. Price earnings multiples remain elevated. With SPX equities trading at a 17.5x (compared to 17.5x the prior day) average 2014-15 earnings ($126.23), attention focuses on prospective 2014-15 earnings and valuations (17.5x times survey 2014-15 SPX average operating earnings suggests a 2203.58 SPX level in the next year, a +9.95% rise from yesterday's close).

    Technicals were little changed. Led by financials, SPX market segments closed mixed. SPX market breadth was slightly negative, and up volume lagged down volume. Volatility rose, and the CBOE SPX volatility index (VIX) now suggests a 68% probability that the 30-day change in the SPX will be less than ±4.25%. Treasury bond markets weakened, with the 10-year U.S. Treasury bond yield rising +7.80 bps to 2.4211%, compared to 2.3431% at the prior close.

    This morning, 10-year U.S. Treasury yields are +2.86 bps lower at 2.4497%, compared to the prior close. World sovereign bond markets are mixed, with the German 10-year yield at 0.961%, compared to 0.931% the prior day. Spanish and Italian 10-year debt yields are lower at 2.266% and 2.453%, respectively, compared to 2.273% and +2.456% the prior day.

    U.S. options markets are unchanged at neutral to bullish, compared to neutral to bullish the prior day. The CBOE SKEW rose +3.71% to 131.72, compared to 127.01 the prior day, above a neutral 115-120 range and above 130, 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 are above first resistance and near the top of their 1999-2011 trading range. After a fair value adjustment of +0.38 points, the SPU4 future prices at 2007.50, up +7.37 points. The SPX opens +1.82% and +1.79% above its respective 20- and 50-day moving averages, and +3.62% and +6.51% above its 200-day moving averages. Initial resistance is 2007.32. Initial support is 1996.05, then 1989.81.

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

    2Q2014 earnings continue to surprise positively, with financials' earnings leading other sectors. Friday, the SPX closed at a record 2003.38, up +3.60% 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 +15.0% to the September 2nd 4,598.19 multi-year record close.

    In Asia, equity markets closed mixed. The Nikkei 225 (NYSEARCA:NKY) rose +0.38%. In China, the Hang Seng (HSI) Index soared +2.30%, and the Shanghai SE composite (SHCOMP) rose +1.00%. The NKY, HSI, and SHCOMP 50-day moving averages are above their respective 200-day moving averages. Today's volumes are unavailable.

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

    This week, the NKY, HSI, and SHCOMP are up +1.97%, +2.33%, and +3.22%, respectively. Last week, the NKY, HSI, and SHCOMP closed down -0.74%, -1.47%, and -1.05%, respectively. In September, the NKY, HSI, and SHCOMP are up +1.97%, +2.33%, and +3.22%, respectively, compared to August, when the NKY and HSI closed down -1.26% and -0.06%, while the SHCOMP gained +0.71%.

    In 2014, the NKY is down -3.46%, the HSI is up +8.63%, and the SHCOMP is up +8.16%. 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 -10 bps to 3.40%, compared to 3.50% 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 and Hong Kong in a neutral range, while the SHCOMP is signaling overbought. The NKY RSI rose to 62.92, compared to 60.99 the prior session, up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI rose to 67.91, compared to 53.58 the prior day, down from an overbought 81.00 on July 31st. The SHCOMP's RSI rose to 70.57, compared to 67.07 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 15,728.35, compared to 15,668.60 the prior day, -3.46% below its year-end 16,291.31 high and -59.6% below its late-1989 38,915.87 high close. The index rallied to an early afternoon 15,829.38 intraday high, then weakened through the afternoon to a late 15,723.54 intraday low. Market segments closed mixed. Leaders were consumer discretionary, financials and utilities, which rose at least +0.68%. Laggards were materials, energy, and health care, which fell at least -0.11%.

    In China, in Shanghai, the SHCOMP closed at 2,288.63, compared to 2,266.05 at the prior close, +17.4% above the 1,950.01 June 27, 2013 close, last year's low. The index opened above 2,260 and rallied nearly to 2,290 by mid-morning. The index eased into the afternoon session, but rallied through the afternoon to a late 2,290.42 intraday high. All market segments closed at least +0.34% higher. Leaders were consumer discretionary, telecommunications, and energy, which rose at least +1.42%. Laggards were materials, health care and technology.

    In Europe, major equity indexes opened modestly higher, but rallied in early trading on conflicting reports of a Ukraine/Russia ceasefire. Indexes improved to mid-morning highs, but have generally held their gains through mid-afternoon. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +1.35%, +0.81%, +1.12%, and +1.42%, respectively. The Spanish IBEX 35 is up +1.30%. The Italian FTSE MIB up +2.03%. Compared to their recent highs, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -2.87%, -0.22%, -3.71%, and -4.24%, respectively.

    Commentary focuses on mixed European services and composite PMIs (stronger than expected in the United Kingdom) and speculation regarding Thursday's ECB meeting, where views are that recent expectations have been somewhat frothy. Other foci are currency and commodity price developments. The euro is slightly stronger compared to the dollar.

    European bourses have recently underperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 63.33, compared to 57.85 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 -2.87% below its recent June 18th 3,314.80 multi-year high and -38.7% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,180.29 close, the index opened above 3,190 and rallied to a mid-morning 3,233.99 intraday high. The index eased to 3,220 by late morning, where it has found support through mid-afternoon. The index currently trades at 3,223.40. Most market segments are higher. Leaders are financials consumer discretionary, and utilities, which are up at least +1.78%. Laggards are consumer staples and telecommunications, which are up at least +0.51%, and technology, which is down -0.78%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +1.53%, +1.03%, +1.10%, and +1.86%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +2.49%, +0.62%, +3.02%, and +1.40%, respectively. In August, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +1.93%, +1.33%, +3.18%, and +0.67%, 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 higher. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +3.71%, +2.09%, and +3.10%, and +0.98%, 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 494 of 500 SPX reporting firms having reported, with respective +5.08% EPS and +1.53% revenue surprises. Financials (84 of 84 reporting) lead with a 9.47% EPS surprise and +2.39% revenue surprise.

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

    Valuation. The SPX trades at 18.2x estimated 2013 earnings ($110.15), 16.7x estimated 2014 earnings ($119.64), 15.1x estimated 2015 earnings ($132.82), and 13.6x estimated 2016 earnings ($147.69). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +8.62%, +11.0%, and 11.2%, respectively.

    The KBW Bank Index (BKX) trades at 13.9x 2013 adjusted EPS ($5.16), 13.0x estimated 2014 earnings ($5.52), 12.1x estimated 2015 earnings ($5.94), and 10.8x 2016 earnings ($6.63). Analysts expect 2014, 2015, 2016 EPS will grow +6.98%, +7.65%, and +11.6%, 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 0.82, compared to 0.95 the prior day, and better than 5- and 10-period moving averages of 0.95 and 0.90, respectively. The index put/call ratio is 0.91, compared to 0.87 the prior day, and better than its 5- and 10-period moving averages of 1.05 and 0.94, respectively. The equity put/call ratio closed the day at 0.88, compared to 0.78 the prior day, and better than its 5- and 10-period moving averages of 0.93 and 0.90, respectively.

    NYSE Volume, Breadth Indicators. Volume fell -3.80% to 593.29 million shares, compared to 512.17 million shares the prior day, 0.94x the 582.99 million shares 20-day moving average. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged by -102 (compared to +1,246 the prior day), or 0.94:1. Up volume was 0.88:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.08950%, compared to 0.09150% the prior day. USD 3-month LIBOR is 0.23360%, compared to 0.23360% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 14.11 bps, compared to 14.16 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 16.50 bps, compared to 16.40 bps the prior day, and down from the December 27, 2011, high of 98.800 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.

    · The 3-month Euro basis swap curve is -16.500 bps, compared to -17.208 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 0.961%, compared to 0.931% the prior day.

    · French 10-year debt yields 1.383%, compared to 1.384% the prior day.

    · Japanese 10-year debt yields are 0.534%, compared to 0.505% the prior day.

    · Spanish and Italian 10-year debt yields are lower and near multi-year lows. Spanish 10-year debt yields are 2.266%, compared to 2.273% the prior day. Italian 10-year debt yields are at 2.453%, compared to 2.456% 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 0.536% and 2.453%, respectively, compared to 0.524% and 2.421% Tuesday. The yield curve widened +2.020 bps, with the 2- to 10-year spread at +1.918%, compared to 1.897% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.861% on August 27, 2014, to a high of +2.648% on December 31, 2013.

    · The U.S. dollar is weaker compared to the euro, Japanese yen, and British pound. The dollar trades at US$82.877, compared to US$82.832 intraday low and US$82.992 the prior day, and better compared to its $81.198 50-day, US$80.662 100-day, and US$80.489 200-day averages. The euro trades at US$1.3151, compared to a US$1.3160 intraday high and US$1.3133 the prior day. The euro trades worse compared to its US$1.3427 50-day and US$1.3563 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥105.00, compared to ¥105.09 the prior day. The yen trades worse than its 50-day moving average ¥102.43, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index improved to +43.50, its 8th consecutive positive reading, compared to +37.80 the prior day. The index is better compared to its respective +35.32 5-day and +21.57 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. The index turned positive again on August 21st. After a lag, the CESIUSD correlates with EPS revisions.

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

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) rose +2.25% to 12.25, compared to 11.98 at the prior close. The VIX is -7.00% below the 13.17 20-day moving average. Its 30-day high is 17.57. Its 30-day low is 11.24. Its all-time closing low is 9.31 on December 22, 1993. The long-term average is 20.00.

    · The Euro Stoxx 50 volatility index (V2X) is 16.92, down -5.14% compared to the 17.84 prior day close. The V2X index trades -5.45% below its 17.89 20-day moving average, -23.6% below the 22.15 30-day high, and +14.7% above the 14.76 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 14.07, up +6.11% compared to 13.26 at the prior close. The VHSI index trades -4.72% below its 14.77 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) rose +3.71% to 131.72, compared to 127.01 the prior session, above a neutral reading (115-120) since March 27th, and above 130, a level that correlates well with short-term market tops. The recent record high was 143.26 on June 20, 2014. Its recent low was 112.47 on May 25, 2013. Spikes in excess of 130 correlate well with short-term market tops, as occurred last December, ahead of market declines last January. The index rarely falls below 110, last on July 31, 2009. The index correlates with market tail risks, the cost of buying out-of-the-money, long-dated options, i.e., options not affected by expirations. A rise suggests that investors are buying more puts than calls, a bearish signal.

    U.S. Economic Reporting and News:

    · The latest week's MBA mortgage applications rose +0.2%, compared to the +2.8% prior.

    · At 9:45, August ISM New York, with 68.1 prior.

    · At 10:00, July factory orders with +11.0% survey and +1.1% prior.

    · At 2:00, Federal Reserve semi-monthly Beige Book.

    Overseas Economic Reporting and News:

    · Eurozone - August final Markit services PMI was 53.1, compared to 53.5 survey and prior. July MoM retail sales fell -0.4%, compared to -0.3% survey and +0.3% revised prior.

    · France - August final Markit services PMI was 50.3, compared to 51.1 survey and prior. Markit composite PMI was 49.5, compared to 50.0 survey and prior.

    · Italy - August Markit/ADACI composite PMI was 49.9, compared to 53.1 prior. Markit/ADACI services PMI was 49.8, compared to 52.0 survey and 52.8 prior.

    · Spain - August Markit services PMI was 58.1, compared to 55.5 survey and 56.2 prior. Markit composite PMI was 56.9, compared to 55.7 prior.

    · United Kingdom - Markit/CIPS services PMI was 60.5, compared to 58.5 survey and 59.1 prior. Markit/CIPS composite PMI was 59.3, compared to 58.6 prior.

    Notable Company Ratings/News:

    · None.

    Tuesday's Trade. Led by financials, the major indexes ended modestly mixed, with Nasdaq recording the better result and closing at another multi-year high. Major indexes rallied early, but eased at mid-session, then strengthened again in late afternoon. The Nasdaq rose +0.39%, while the SPX, DJI, and NYSE composite fell -0.05%, -0.18%, and -0.07%, respectively. Last week, indexes closed at least +0.57% higher, compared to the prior week, when indexes closed up at least +1.40%. In August, indexes closed up at least +2.98. In July, indexes closed down at least -1.51%. In 2014, indexes are up at least +2.96%. Market breadth was negative, with gainers 0.94x losing stocks. SPX market segments closed mixed. Leaders were financials, industrials, and consumer discretionary, which rose at least +0.18%. Laggards were materials, utilities, and energy, which fell at least -0.39%.

    Other notable indexes closed mixed. The Russell 2000 (RTY) rose +0.44% and closed -2.41% below its March 4th record high. The Nasdaq Internet Index (QNET) rose +1.322%, down -4.73% below its March 6th closing high. The NBI fell -0.16%, closing -0.16% below its August 29th 2,892.71 record high.

    NYSE volume fell -3.80% to 593.29 million shares, compared to 616.71 million shares the prior day, 1.02x the 582.99 million share 20-day moving average volume. Bond markets weakened. From its prior day 2.3431% close, the U.S. 10-year yield trended higher through the session to a late 2.4229% intraday high. The index ended at 2.4211%, up +7.80 bps from the prior close.

    From its prior day 2003.37 SPX record close, September 2014 SPX futures (SPM4) suggested a moderately higher open. The index set an early 2,006.12 intraday high, but reversed lower by late morning and fell to a 1994.85 intraday low. The index rallied through the final two hours. The index closed at 2002.28, +3.54% above the August 12th 1933.75 close (which marked the start of the current market uptrend), and +86.3% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day 8,408.02 close, the DJ Transportation index (TRAN) rose and by mid-morning found resistance at a record 8,520. The index eased back to 8,480 by mid-session, but rallied through the afternoon to a late 8,519.64 intraday high. The index closed at a record 8,516.25, compared to its prior 8,454.25 August 25th record close. Volume rose +23.6% to 12.458 million shares, compared to 10.082 million shares the prior session, and 1.20x the 15-day moving average volume. The TRAN closed +2.62% and +2.86% above its respective 20- and 50-day moving averages, and +5.52% and +10.6% above its respective 100- and 200-day moving averages.

    Market volatility fell, as the CBOE SPX volatility index (VIX) rose +2.25% to 12.25, compared to 11.98 at the prior close. The VIX set an early 13.41 intraday high, but quickly moderated, and traded narrowly around 12.40 through the session. The VIX's all-time closing low is 9.31, on December 22, 1993. Its record high is 89.53 in December 2008. Its lifetime average is 20.01. The CBOE put/call SKEW fell -0.48% to 1315.10, compared to 135.75 the prior session, above a neutral 115-120 range and above 130 for the first time since June 18th, a level that correlates well with short-term market tops. Its record 143.26 high came on June 20th.

    The market's technical factors were little changed. The SPX relative strength (RSI) eased to 65.59, compared to 66.34 the prior day, in a neutral range. The latest RSI compares to an oversold 32.85 on August 7th, an overbought 73.73 on June 9th, and an oversold 31.24 on February 3rd, its previous yearly low, when the SPX closed at 1741.89. The RSI compares to an overbought 71.26 on December 31st, when the SPX closed at an earlier record 1848.36 high, and compares to earlier oversold levels of 35.14 on August 27th and 39.19 on October 9th.

    Last week, the SPX, DJI, Nasdaq, and NYSE composite closed up +0.75%, +0.57%, +0.92%, and +0.90%, respectively, compared to the prior week, when the SPX, DJI, Nasdaq, and NYSE composite closed up +1.71%, +2.03%, +1.65%, and +1.40%, respectively. In August, the SPX, DJI, Nasdaq, and NYSE composite rallied +3.77%, +3.23%, +4.82%, and +2.98%, respectively. In July, the SPX, DJI, Nasdaq, and NYSE composite closed down up -1.51%, -1.56%, -0.87%, and -2.30%, respectively.

    In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +8.33%, +2.96%, +10.1%, and +6.13%, respectively. In 2013, the SPX, DJI, Nasdaq, and NYSE composite closed up +29.6%, +26.5%, +38.2%, +23.2%, respectively. All closed at least +5.91% higher in 2012.

    KBW Bank Index (BKX). On lower, and below 15-day average volume, the BKX rose +0.57% to 71.90, compared to 71.49 at the prior day's close, its 9th consecutive close above 70. The index closed -1.39% below its 72.91 March 20th post-2008 closing high. The index opened higher and set a mid-morning 71.94 intraday high, but briefly reversed lower in early afternoon, when it set its 71.40 intraday low. The index rallied through the final two hours as the 10-year Treasury yield rose through 2.40%. Volume fell -16.1% to 35.957 million shares, compared to 349.761 million shares the prior day, and 0.93x the 35.957 million share 15-day moving average.

    Large cap banks outperformed the regional banks, as the KBW regional banking index (KRX) rose +1.12%.

    Last week, the BKX closed up +0.56%, compared to the prior week, when the BKX closed up +3.01%. In August, the BKX rose +0.57%, compared to July, when the BKX closed off -1.64%. In 2014, the BKX is up +3.81%, compared to the SPX's +8.33% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

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

    The BKX closed +120.8% above the 32.56 intraday low on October 4, 2011, the bottom of that year's correction. Large-cap bank stocks have outperformed the broader market's rebound, with the SPX up +86.3% in the same period. The BKX index closed -40.6% below its February 20, 2007, record 121.06 high. The BKX is up +286.1% from its 18.62 March 6, 2009, closing low, its low at the end of the 2008-09 financial panic.

    Technical indicators were little changed. The index closed +2.61% and +1.72% above its respective 20- and 200-day moving averages, and +2.91% and +3.49% above its 50- and 100-day moving averages. The 20-day moving average rose +12bps to 70.07. The 70.68 50-day moving average was unchanged. Its 69.87 100-day moving average rose +1 bp, and the 200-day moving average rose +3 bps to 69.48. The 20-day closed (by -0.61 points) below the 50-day, and the negative gap narrowed -2 bps. The 50-day moving average closed (by +1.21 points) above the 200-day moving average, and the gap narrowed -2 bps. The 100-day moving average closed (by +0.39 points) above the 200-day moving average, and the gap narrowed -4 bps.

    The directional movement indicator improved to +5.931, compared to +2.331 the prior day, its 8th consecutive positive reading. Relative strength rose to 61.94, compared to 59.08 the prior day, in a neutral range, down from an overbought 73.14 on June 9th, but compares to recent lows of 32.95 on February 3rd and 31.08 on November 14, 2012, which is also the date of the BKX's 2012 closing low. Next resistance is 72.09; next support is 71.55.

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

    Sep 03 9:40 AM | Link | Comment!
  • Macro Concerns Again Emerge, U.S. Futures Moderately Lower; Asia, Europe Also Dip

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Libor, LOIS, Currencies, Treasuries, Commodities:

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

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

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

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

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

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

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

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

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

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

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

    Volatility, Skew:

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

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

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

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

    U.S. Economic Reporting and News:

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

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

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

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

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

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

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

    Overseas Economic Reporting and News:

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

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

    Notable Company Ratings/News:

    · None.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Aug 28 9:20 AM | Link | Comment!
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