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Gary Townsend - Since 2007, a founding partner, CEO and Portfolio Manager of Hill-Townsend Capital LLC, a long/short equity financial sector fund based in Chevy Chase, Maryland. Mr. Townsend has 30 years banking, regulatory, and investment experience. He started his business career in 1978, as... More
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  • European Equities Set To Close Higher In November; In U.S., Only DJI Is Lower  0 comments
    Nov 30, 2012 9:09 AM

    This morning. U.S. equity markets confirmed an uptrend on November 23rd.

    Thursday, the Nasdaq rose +0.68%, followed by NYSE composite, SPX, and DJI, which rose +0.59%, +0.68%, and +0.28%, respectively. The DJ Transports rose +0.60%, outperforming the DJI. In November, the Nasdaq, NYSE composite, and SPX are up +1.17%, +0.42%, and +0.27%, while the DJI is down -0.57%. In October, the SPX, DJI, Nasdaq, and NYSE composite closed off -1.98%, -2.54%, -4.46%, and -0.36%, respectively. In September, the SPX and DJI indexes closed +2.42% and +2.65% higher, respectively, while the Nasdaq and NYSE composite rose +1.61% and +2.95%, respectively. All the major equity indexes also closed higher in August, July, and June. All are at least +6.59% higher in 2012.

    Fundamentals improved as most major averages are higher in November. All are above their respective 20-day moving averages, but below their respective 50-day moving averages. Today, Asian equities closed higher, with greater strength in Shanghai. In Europe, the major equity indexes are modestly higher, but off their intraday highs and trended lower at mid-session.

    This morning, U.S. equity futures are modestly higher. U.S. Treasury yields are lower, with the 10-year at 1.599%, up from 1.615% Thursday. U.S. repo rates are at 25 bps, up from 21 bps the prior day. Spanish and Italian 10-year debt yields are at 5.37% and 4.52%, respectively, compared to 5.34% and 4.56% the prior day. The dollar is mixed. U.S. options markets suggest a neutral to bullish short-term outlook. The CBOE skew rose +1.06% to 117.35 from 116.12 the prior day. Commodities prices are mixed.

    In pre-market futures trading, December SPX equity futures are modestly higher, but near the middle of a 1415-1418 range. SPX equity futures are at 1416.40, up +0.70 points. The SPX opens at 1415.95, off -3.40% from September 14th's 1465.77 multi-year closing high, and +1.62% +0.52%, and +2.28% above its 20-, 100-, and 200-day moving averages, but -0.46% below its 50-day moving average. The SPX is up +12.6% in 2012. On November 13th, the 20-day moving average crossed below its 50-day moving average. The 50-day moving average crossed above its 100-day moving average on August 17th. The SPX is +31.7% above the 1074.77 October 4, 2011 intraday low. Next resistance is at 1420.75. First support is at 1410.09.

    Financial stocks have recently underperformed the broader market, with the BKX down -5.77% from its September 14th high. Wednesday, the BKX rose +0.33%. The BKX is off -1.90% in November, following losses of -5.85% in October and -1.08% in September.

    Thursday. Futures suggested a higher open, and markets gapped higher to intraday highs in early trading, but dropped back to breakeven at mid-session, after the House leadership derided the administration's opening fiscal cliff compromise. Despite the headline, markets shrugged off the news and recovered nearly to their morning levels my mid-afternoon, trading narrowly into the close. Market breadth was positive. NYSE volume fell -4.14% from Wednesday's trade, to 0.97x the 15-day moving average. At the close, the Nasdaq rose +0.68%, followed by the NYSE composite, SPX, and DJI, which rose +0.559%, +0.43%, and +0.28%, respectively. All market segments closed at least +0.10% higher. Leaders were telecommunications, health care, and basic materials, which rose at least +0.62%. Financials rose +0.47%. Laggards were technology, consumer services, and oil and gas.

    From its 1409.93 prior close, the SPX gapped higher to open near 1415 and rose to an early 1419.70 intraday high. The index fell precipitously to 1409.04 after Boehner's remarks following his meeting with Treasury Secretary Geithner. The decline was brief, however, and the index rallied back to 1418 by mid-afternoon, then eased into the close. Market volatility fell. From 15.92 at the prior close, the VIX opened at 15.20, and fell to 115.05 in early trading, then rose to 15.50 with the market's mid-day decline. The VIX subsequently eased through the afternoon to end at 15.06, down -2.90%.

    On -2.86% decreased volume, the DJ transports outperformed, rising +0.60%, compared to the DJI's +0.28% higher close. The index closed at 5,145.35, up from 5,114.86 the prior day, above 5,000 for a 5th consecutive close. The TRAN opened higher, rising to an early 5,158.27 intraday high, but then eased back to breakeven by mid-day. The index trended higher through the afternoon to test resistance at 5,150 and then eased into the close. The index closed +1.82%, +2.25%, +1.63%, and +0.62% above its respective 20-, 50-, 100-, and 200-day moving averages. The TRAN closed -4.16% below its 5,368.93 February 3rd closing high. The TRAN has not confirmed multiple DJI new highs (the most recent September 14th) subsequent to February 3rd.

    Technical factors improved modestly. The CBOE put/call skew rose +1.06% to 117.35, compared to 116.12 the prior day. U.S. Treasury bond prices were little changed.

    According to trading desk, conviction levels remain low, with some signs of fatigue appearing after the sharp ~5.5% rise in equities since the November 16th low. Much of the action has been a reactionary response to the latest "cliff" headline, though public posturing is increasingly discounted.

    Immediate SPX support is 1410 (the prior day close), then 1409 (the 100-day moving average), 1393 (the 20-day moving average) and 1384 (the 200-day moving average). Resistance is 1420 (the August high close), 1422 (the 50-day moving average), and 1466 (the September 14th closing high).

    Distribution day count. Since the uptrend confirmation on November 23rd, the SPX, DJI, and NYSE composite have a distribution counts of two.

    In Asia, equity markets closed moderately higher, with better strength in Shanghai. The NKY rose +0.48% on a +41.0% volume increase. The HSI closed up +0.49% on a +14.2% volume increase. In Shanghai, the SHCOMP rose +0.85% on a +14.8% volume increase. The SHCOMP closed below 2,000 for a 4th consecutive session, but above the prior day's post-2009 lowest close. The NKY and HSI closed above their respective 20-, 50-, 100-, and 200-day moving averages. The SHCOMP closed below its 20-, 50-, 100-, and 200-day moving averages.

    Commentary focused on Japanese stimulus and its strong preliminary October industrial production.

    Compared to last week's close, the NKY is up +0.85%, the HSI is up +0.53%, and the SHCOMP is down -2.33%. Last week, the NKY rose +3.80%, the HSI rose +3.32%, and the SHCOMP rose +0.63%. In November, the NKY is up +5.80%, the HSI is up +1.80%, and the SHCOMP is down -4.29%. In October, the NKY closed up +1.50%, while the HSI and SHCOMP ended +3.85% higher and -0.83% lower, respectively.

    In Japan, the NKY closed at 9,466.0, up from 9,400.88 at Wednesday's close, and above 9,000 since November 16th. The index closed down -7.89% from its March 27th high, but +11.7% higher in 2012. The index gapped higher to open at 9,440, but the index reversed lower in early trading to the 9,380.25 intraday low. The index rallied on higher and much stronger than expected industrial production, reversing higher to a mid-session 9,492.91 intraday high. The index traded narrowly through the afternoon, weakening slightly into the close. The NKY closed +4.48%, +5.58%, +6.18%, and +3.95% above their respective 20-, 50-, 100-, and 200-day moving averages. Most market segments closed higher. Leaders were technology, health care, and consumer services, which rose at least +0.85%. Financials fell -0.06%. Laggards were utilities, oil and gas, and telecommunications, which fell at least -0.21%.

    In China, the Hang Seng closed at 22,030.39, up from 21,922.89 at the prior close. The index has closed above 20,000 since September 12th. The index closed -0.37% below its recent November 2nd high, but +19.5% higher in 2012. The index opened higher at 21,950, then tested support and breakeven and rallied to the 22,050 level, around which it traded narrowly through the day, reaching a 22,091.61 intraday high in mid-afternoon and then easing into the close. The HSI closed +1.89% and +3.29% above its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were oil and gas, basic materials, and financials, which rose at least +0.67%. Laggards were utilities, technology, and consumer services, which fell at least -0.25%.

    In Shanghai, the SHCOMP closed at 1,980.12, up from 1,963.488. The index closed -20.0% below its 2,474.07 March 14th high, and down -9.97% in 2012. The index traded lower in early trading, but quickly reversed higher to test the 1,980 level throughout the afternoon, reaching a 1983.36 intraday high. Most market segments closed higher. Leaders industrials, technology, and utilities, which rose at least +1.37%. Laggards were financials and telecommunications, which rose at least +0.32%, and oil and gas, which fell -0.02%.

    In Europe, the majorequity indexes are modestly higher. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +0.34%, +0.20%, +0.37%, and +0.44%, respectively. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are above their respective 20-, 50-, 100- and 200 day moving averages. On the day, the Spanish IBEX 35 is down -0.14%, while the Italian FTSE MIB is up +0.15%.

    From its prior 2,581.69 close, the Euro Stoxx50 opened lower to a 2,577.57 intraday low, but quickly reversed higher and rallied through mid-session to a 2,592.43 intraday high. The index present trades at 2,590.67. Most market segments are higher. Leaders are consumer goods, industrials, and oil and gas, which are at least +0.49% higher. Financials are +0.39% higher. Laggards are telecommunications, consumer services, and health care, which are down at least -0.38%.

    Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +5.34%, +3.81%, +5.60%, and +5.16%, respectively. In November, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +5.51%, +1.77%, +4.45%, and +2.39%, respectively. In 2012, the indexes are up +11.8%, +5.61%, +13.4%, and +26.0%, respectively.

    Libor, LOIS, Currencies, Treasuries, Commodities:
     

    • USD LIBOR is 0.16050%, unchanged from 0.16000% the prior day. USD 3-month LIBOR is 0.31050%, unchanged from 0.31050% the prior day, and compares to the January 4th peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread is 16.35 bps, compared to 16.35 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 12.60 bps, down from 13.35 bps the prior day, and down from the December 27th high of 98.80 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.
    • The 3-month Euro basis swap improved to -24.396 bps, from -24.675 bps the prior day, but up from a trough of -147.00 bps on December 14th and within a normal -10 bps and -40 bps range.
    • Spanish 10-year debt yields are 5.39%, compared to 5.34% the prior day. Italian 10-year debt yields are at 4.54%, compared to 4.56% the prior day. German 10-year debt yields are 1.38%, compared to +1.37% the prior day.
    • The U.S. government overnight repo rate is 21 bps, compared to 20 bps the prior day.
    • U.S. Treasury yields are slightly higher, with 2- and 10-year maturities yielding 0.254% and 1.616%, respectively, compared to 0.254% and 1.615% Thursday. The yield curve widened, with the 2 to 10 year spread +1.363%, compared to 1.361% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.174% on July 24, 2012, to a high of +1.998% on March 19, 2012.
    • The U.S. dollar is mixed, weaker compared to the euro and British pound, but slightly stronger compared to the Japanese yen. The dollar trades at US$80.133, compared to a US$80.027 intraday low and US$80.204 the prior day, and mixed compared to its US$80.149 50-day, US$80.940 100-day, and US$80.831 200-day averages. The euro trades at US$1.3005, compared to a US$1.3028 intraday high and US$1.2979 the prior day. The euro trades mixed compared to its US$1.2905 50-day and US$1.2703 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥82.68, compared to ¥82.12 the prior day. The yen trades worse than its 50-day moving average ¥79.79.
    • Citigroup Economic Surprise Index fell to 43.90, from 47.00 the prior day, but down from a recent peak of 60.70 on November 13th. The index turned positive on September 5th. The index is worse compared to its respective 46.68 5-day and 50.89 10-day moving averages. The index has improved significantly from a recent July 19th -65.30 low, but the trend appears to have again turned lower. After a lag, a rising CESIUSD correlates with stabilizing EPS revisions.
    • Commodities prices are mixed, with higher energy, higher precious metals, higher aluminum and copper, and lower agriculture prices.


    Volatility, Skew:
     

    • The VIX fell -2.90% to end at 15.06, down from 15.51 at the prior close. The VIX is -10.1% below its 16.74 20-day moving average. The VIX set a recent closing low of 13.45 on August 17. Its 30-day high is 19.65.
    • The Euro Stoxx 50 volatility index (V2X) is down -0.36% to 16.43, from 16.49 at the prior day's close. The V2X index trades -18.9% below its 20.26 20-day moving average, -33.7% below the 24.77 30-day high, and +0.68% above the 16.32 30-day low. The index is at its lowest level in 5 years.
    • The Hang Seng volatility index (VHSI) closed at 14.79, down -2.95% from 15.24 the prior day. The VHSI index trades -9.49% below its 16.34 20-day moving average.
    • CBOE skew rose +1.06% to 117.35, from 116.12 at the prior day's close, within a neutral (115-120) range. Spikes in excess of 130 (as last on September 21, but also on March 12, 15, and 16) correlate well with short-term market tops. The recent high close was 130.60 on September 21st. The index rarely falls below 110, last on July 31, 2009. The index tracks 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. news and economic reporting:
     

    • October person income rose %, compared to +0.2% survey and +0.4% revised prior.
    • At 9:00, November NAPM Milwaukee, with survey of 47.0 and 43.3 prior.
    • At 10:00, November Chicago purchasing manager, with survey of 50.5 and 49.9 revised prior.


    Overseas News:

    · Japan - Markit/JMMA November manufacturing PMI was 46.5, compared to 46.9 prior. October preliminary industrial production rose +1.8%, compared to -2.0% survey and -4.1% prior.

    · Leading Index was 100.42, compared to 100.36 revised prior.

    · Germany - October retail sales fell -2.8%, compared to -0.4% survey and +0.5% revised prior.

    · Italy - October preliminary unemployment rose to 11.1%, compared to 10.9% survey and 10.8% prior.

    · Portugal - October industrial production rose 4.9%, compared to -12.0% prior.

    · United Kingdom - November GfK consumer confidence survey was -22, compared to -30 survey and -30 prior.

    Company Ratings/News:
     

    • None


    Price and Selling Exhaustion/Trend Reversal:
     

    • SPX - On a monthly basis,the SPX signaled selling exhaustion in February 2009 and rallied through a perfected upward setup in January 2010 and a completed upward countdown in January 2011. In May 2011, the SPX perfected another setup in April 2011. After September and August 2012's respective +1.98% and +2.42% higher closes, followed by October's -1.98% decline, the upward monthly setup is 4 and the countdowns is 11. On a weekly basis, the SPX signaled buying exhaustion the week of March 30th, when it completed an upward countdown on its higher 1408.47 daily and weekly close. The SPX signaled selling exhaustion the week ended June 8th, during which the SPX traded to an intraday low 1266.74 on June 4th, with a completed downward weekly setup on the June 8th. Subsequently, the SPX rebounded and perfected an upward setup on August 10th, when it closed at 1402.11. In the week ending November 23rd, the index closed up +3.62% at 1409.15, compared to 1359.88 the prior week and 1411.94 four weeks prior. The downward setup rose to 7. The downward countdown was unchanged at 4. The SPX closed -1.91% below its 1446.74 price exhaustion target. On a daily basis, the SPX perfected an upward setup on August 16th and completed an upward countdown on September 13th, when the SPX rose +0.40% to close at 1465.77. The SPX set a new multi-year closing high of 1465.77 the following day. Thursday, the SPX rose +0.43% to close at 1415.95, from 1409.93 the prior day and 1391.03 close 4 days prior. The upward setup rose to 8, and the countdown rose to 6.
    • BKX - On a monthly basis, the BKX recorded a completed downward countdown in February 2009. The BKX reached an unperfected downward setup of 9 in December 2011. In October, the BKX rose +0.04%, after having increased +5.06%, and +3.67% in the prior 2 months. Its upward setup is 2, with an upward countdown of 1. On a weekly basis, the BKX recorded a completed countdown last November 25th. The index subsequently rallied, perfecting a setup on February 10th, and rising the week of March 30th to 50.9, above to the 49.30 price exhaustion target. The index subsequently reversed, and on June 8, the BKX closed at 41.00 with downward perfected setup. On September 21st, the index closed at 50.22, down -2.36% on the week, but above the 47.17 close 4 weeks prior, perfecting an upward setup. On October 26th, the index closed at 49.25, below the 49.58 close 4 weeks prior, initiating a new downward setup and countdown. Friday, the BKX closed at 47.15, down -2.04% from 48.13 at the prior week's close. The close was below the 50.44 close 4 weeks prior, extending the downward set up to 8, while the downward countdown rose to 6. On a daily basis, the BKX signaled selling exhaustion on June 4th, then rallied to 44.65 on June 19th, when it perfected an upward daily setup. The index completed an upward daily countdown on August 8th. On August 15th, the index perfected a daily upward setup. On September 6th, the BKX initiated a new setup with its +2.93% gain, which broke through resistance at 47.75. On September 14th, the index completed an upward countdown, followed on September 19th, when the index perfected its upward setup. Since then, the BKX traded without much direction until Wednesday's -4.36% decline, which closed below both the prior day's and 4 day prior closes, initiating both a new downward setup and countdown. Thursday, the BKX closed at 48.66, up +0.33% from 48.50 the prior day, and compares to 48.42 close 4 days prior. The upward setup is 1, but there is no countdown.
    • VIX - On a monthly basis, the VIX perfected an upward setup on January 31, 2008, and reached an upward setup of 7 on October 31, 2008. In September, the VIX rose +18.3%, after falling -16.9% in August, and rising +8.36% in July. Presently, the VIX exhibits no particular monthly trend. On a weekly basis, the VIX perfected a downward setup on January 27th, and an upward setup on June 8th, followed by another perfected downward setup on August 10th. Last week, the VIX fell -7.74% to end at 15.14, compared to 16.41 the prior week, and the 17.81 close 4 weeks prior. The current downward setup and countdown rose to 2. On a daily basis, the VIX reached an upward countdown of 11 on June 4th, and subsequently exhibited a more distinct downward trend with a perfected setup on August 17th, followed by a perfected upward setup on August 31st. Subsequently, the VIX exhibited little in the way of a distinct trend. On November 23rd, the index perfected a downward setup, with a countdown of 6. Thursday, the VIX fell -2.90% to 15.06, compared to 15.51 at the prior close, and 15.31 at the 4 days' prior close. The decline erased a nascent upward setup and countdown, and initiated a downward setup. The VIX closed +7.42% above the 14.02 support level and -19.2% below the 18.64 exhaustion level.
    • DXY, EUR Cross - On a monthly basis, Euro Dollar cross perfected a downward setup on May 30, 2008, at 1.554. Subsequent monthly trends were weak until December 31, 2009, with a monthly decline of -4.56% that brought the index to 1.4321. The downward move continued until July 2010, when from 1.2238, the index rose +7.10%, with an unperfected downward setup in August 2010. The index failed to establish much strong upward momentum, however, peaking at the end of April 2011 at 1.4807, but then trending lower to test the July 2010 lows, when in August 2012, the index completed a downward countdown. In recent months, the trend has been higher, with an upward setup of 3. The cross ended October at 1.2960, compared to 1.2860 the prior month and 1.2667 4 months prior. On a weekly basis, the cross perfected a downward setup on January 6th, followed by another downward setup and completed countdown on June 1, 2012, when the cross closed at 1.2434. After several weeks without much trend, the index initiated an upward setup the week ended August 3rd, when it closed at 1.2387, and the setup perfected on September 28, with a 1.2860 close. The week of November 23rd, the index ended at 1.2976, compared to 1.2743 the prior week and 1.2938 4 weeks prior. On a daily basis, the EURUSD cross perfected an upward setup on September 12th, and completed an upward countdown on September 17th, at 1.3117. The subsequent trend was lower, with a downward setup initiated on November 2nd and perfected on November 14th with a 1.2736 close. The index initiated an upward setup the following day and perfected the setup on November 27th at 1.2943. After Thursday's +0.13% increase, the EURUSD closed at 1.2979, compared to 1.2953 the prior day and 1.2884 four days prior. The countdown rose to 3.
    • USGG10YR - On a monthly basis, the USGG10YR perfected a downward countdown on February 29th, and a downward setup on May 31st. The subsequent trend has been week, with an upward setup of 3 and countdown of 1. On a weekly basis, the index perfected a downward setup on June 8th, but subsequent trends has been weak. The rate ended the most recent week at 1.6899%, up from 1.5800% the prior Friday and 1.7147% four weeks prior. The downward setup rose to 4, while the downward countdown was unchanged at 2. On a daily basis, the USGG10YR completed a downward setup on May 8th, followed by two downward countdowns on May 17th and June 4th. Subsequent trends were weak until August 3rd, when the rate rose nearly 9 bps to end at 1.5905%, initiating a new upward setup. This setup perfected on August 15th, when the rate ended at 1.8155%. A new downward setup commenced on August 21st, when the rate rose to 1.8610% before ending at 1.7984%, below the prior 4 day's close of 1.8155%. The downward setup perfected on August 31st, when the rate ended at 1.5484%. The trend reversed upward on September 3rd, and the upward setup reached an unperfected 9 on September 18th. After a late October intraday spike to 1.861%, the trend was lower until November 16th, when the rate closed at 1.580%. On Thursday, the rate ended at 1.6147%, down from 1.6284% the prior day and 1.6796% four days prior. The downward setup rose to 3, while the countdown was unchanged at 2.
    • NKY - On a monthly basis, the NKY perfected a downward setup on April 30, 2009, and subsequently has traded narrowly. In October, the index rose +0.51%, following increases of +0.34% and +1.67% in September and August, respectively. However, the October close was below the 9,006.78 June close, four months prior. There is currently no setup or countdown. On a weekly basis, the NKY perfected an upward on March 9th, and a subsequent downward setup on June 1st with a countdown of 8. For the week ended November 23rd, the NKY rose +3.80% to 9,366.80, compared to 9,024.16 the prior week and 8,933.06 4 weeks prior. The upward setup rose to 5 with a countdown of 2. On a daily basis, the NKY perfected an upward setup on March 27th, and two consecutive downward setups on April 12th, and May 14th, with completed downward countdowns on May 16th and June 4th. The index rallied through August 21st, but then strung together multiple lower closes, perfecting a downward setup on September 5th. The index subsequently rallied, initiating a setup on September 7th, which it perfected on September 20th. A downward setup commenced on September 21st, and the setup perfected on October 3rd. The countdown reached 10 on October 15th. Subsequent trend and momentum were weak until November 14th. The index initiated an upward setup and countdown on November 15th. Today, the index closed up +0.48% at 9,446.01, compared to 9,400.88 the prior day and 9,366.80 four days prior. The index perfected its upward setup, and the countdown rose to 8.
    • HSI - On a monthly basis, the HSI perfected a downward countdown on March 31, 2009, and two subsequent perfected upward setups on December 31, 2009 and May 31, 2011. The index has yet to reach its 24,923.28 price exhaustion target. The index has risen in each of the past two months and concluded October at 22,111.33, with a upward setup and countdown counts of 2. On a weekly basis, the HSI perfected an upward setup on March 2nd, and subsequently traded to a low close of 18,185.59 on June 4th. After a period of weak trend, the index established a new upward setup and countdown in the week ending September 14th. The index perfecting an upward setup on November 9th. Subsequent trends have been weak. Last week, the index rose +3.57% to close at 21,193.98, compared to 21,159.01 the prior week and 21,545.57 4 weeks prior. On a daily basis, the HSI perfected an upward daily setup and completed an upward countdown on August 8th. After September 5th's lower close, the index perfected a downward setup. An upward setup commenced on September 9th, followed by a completed countdown on October 15th, and another perfected setup on October 25th. Subsequent trends have weakened. After today's +0.49% increase, the HSI closed at 22,030.39, compared to 21,922.89 the prior day and 21,913.98 four days prior. The upward setup rose to 2, while the countdown rose to 1.
    • SHCOMP - On a monthly basis, the SHCOMP perfected a downward setup on September 30, 2008, and subsequently rallied to an August 31, 2009, high, but without perfecting a subsequent upward setup. Since then, the SHCOMP resumed a downward trend perfecting another downward setup on January 31, 2012. The current monthly setup and countdowns are 6 and 11, respectively. On a weekly basis, the SHCOMP last perfected an upward setup on April 11, 2011. The index has subsequently trended lower, with a downward perfected setup on September 23, 2011, and January 6, 2012 countdown completion, when it closed at 2,163.40. The index rallied to a high of 2,476.22 during the week ending March 16th, but without perfecting an upward setup. On July 13th, the index perfected a downward weekly setup and traded below the sales exhaustion target of 2148.45. The index completed a downward countdown on August 31st. On November 23rd, the index closed the week up +0.63% at 2,027.38, compared to 2,014.73 the prior week and 2,066.21 four weeks prior. The downward setup increased to 3, and the countdown rose to 2. On a daily basis, the SHCOMP perfected a daily downward setup and a completed a downward countdown on June 8th, but sold through the 2,170.95 exhaustion target on July 23rd to the September 5th yearly 2037.68 closing low. On August 23th, the index perfected a downward setup carryover from August 2nd, and the index perfected another downward setup on August 27th, with completed downward countdowns September 3rd and 5th. On September 25th, the index perfected another downward setup. The subsequent trend was weak until November 8th, when the index initiated a downward setup at 2,091.25. The index perfected the setup on November 20th at 2,004.17. Today, the index closed +0.85% higher at 1,980.12, compared to 1,963.49 at the prior close and 2,027.38 4 days prior. The loss extended the downward setup to 4, while the downward countdown completed its 13.
    • SX5E - On a monthly basis, the Euro Stoxx50 last perfected an upward setup on May 31, 2007, and perfected a downward setup on September 30, 2008. The downward countdown reached 10 in March 2009, with the index closing at 2,071.13. Subsequently, the index has traded without much trend or momentum, though a new upward setup and countdown commenced in August 2012. Its current upward setup is 4, and countdown is 2. On a weekly basis, the index trends are more pronounced, having perfected an upward setup on March 9th, followed by a downward setup on May 25th, followed by a weekly close 2119.19 below the sales exhaustion target. The index subsequently rallied to perfect an upward setup on August 10th. The upward countdown reached 10 on September 14th. Subsequent trends have been weak. In the week ended November 23rd, the index rose +5.34% to close at 2,557.03, compared to 2,427.32 the prior week and 2,469.09 at the 4 weeks' prior close. On a daily basis, the index perfected a downward setup on May 14th and countdown on June 1st, when it closed at 2,068.66, below the 2,087.31 sales exhaustion target. The index subsequently rallied through a perfected upward setup on June 18th and completed its upward countdown on August 3rd, notably rising through the 2,344.95 price exhaustion target. On September 13th, the index perfected an upward setup. Daily trends were weak through November 16th, without sustained upward or downward setups and countdowns. Strong gains on November 19th initiated an upward setup and countdown. On November 29th, the index rose +1.37% to 2,581.69, from 2,546.84 the prior day and 2,535.09 at the prior 4 days' close. The upward setup perfected, and the countdown rose to 7.


    3Q2012 Earnings. The 3rd quarter's earnings reports were mixed, beating on EPS, but falling short on sales/revenues. Of 492 reporting companies, 352 or 71.5% surprised positively on earnings, beating by an average +3.64%. Sales and revenues fell short, however, with only 201 or 40.9% surprising positively.

    Valuation. The SPX trades at 13.9x estimated 2012 earnings ($108.87) and 12.1x estimated 2013 earnings ($114.89), compared to 13.9x and 12.6x respective 2011-12 earnings the prior day. The 10-year average median price/earnings multiple is 15.9x. Since the beginning of 2012, analysts changed 2012 and 2013 earnings estimates by -7.14%, and -3.60%, respectively. Analysts expect 2012 and 2013 earnings to exceed actual 2011 earnings ($96.94) by +4.12% and +18.0%, respectively.

    Options. Options markets are neutral. Composite options are neutral, index options are neutral, and equity options markets are neutral. The composite put/call ratio is 1.00, compared to 0.83 the prior day, and worse compared to its 5- and 10-period moving averages of 0.84 and 0.91, respectively. The index put/call ratio rose sharply to 1.19, compared to 0.81 the prior day, and worse compared to its 5- and 10-period moving averages of 0.92 and 1.05, respectively. The equity put/call ratio closed the day at 0.91, compared to 0.84 the prior day, and mixed compared to its 5- and 10-period moving averages of 0.81 and 0.86, respectively.

    NYSE Indicators. Volume fell -4.14% to 682.47 million shares, compared to 711.93 million shares the prior day, +0.97x the 15-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +1,288 (compared to +1,041 the prior day), or 2.51.07:1. Up volume led down volume by 3.08:1.

    BKX. Volume fell -25.6%, and the KBW bank index closed at 48.66, up +0.33% from 48.50 at the prior close. Volume fell to 44.855 million shares, from 60.259 million shares the prior day, or 0.74:1x the 53.713 million share 15-day moving average. The index gapped higher to open at 48.70 and rose to an early session 48.95 intraday high, then trended lower through the day, testing breakeven at mid-session and again in late afternoon, with a 48.48 intraday low. Large cap banks underperformed the regional banks, as the KRX rose +0.89%.

    This week, the BKX is down -1.04%. Last week, the BKX closed up +4.28%, compared to the prior week's -2.04% decline. In November, the index is down -1.90%. The index rose +0.04% in October, and +5.06% and +3.67% in September and August, respectively.

    The BKX closed below 50 for the 16th consecutive session. It closed -5.77% below its recent September 14th peak. It has closed above 40 since January 3rd. The BKX closed -16.0% below its April 23, 2010 close (the post-2008 high point), but +49.5% above the 32.56 low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, which is up +31.7% in the same period. The BKX is up +23.6% in 2012, compared to a +12.6% rise in the SPX.

    Technical indicators improved as the index closed +0.21% above its 20-day moving average, and -1.88% below its 50-day moving averages. The index closed +1.00% and +3.14% above its respective 100-, and 200-day moving averages. The 20-day moving average crossed below its 50-day moving average on November 13th. The index has closed above its 100-day moving average since August 7th. The 20-day moving average declined -4 bps. The 50-day moving average fell -5 bps. Its 100-day moving average rose +4 bps and the 200-day moving average rose +2 bps. The 20-day closed (by -1.04 points) below the 50-day. The 50-day moving average has closed (by +2.41 points) above the 200-day moving average since February 22nd. The 100-day moving average closed (by +1.00 points) above the 200-day moving average since March 19th, and the gap expanded 2 bps.

    The directional movement indicator switched to negative Monday. Relative strength rose to 48.89, from 47.54 the prior day, in the middle of a neutral range. Next resistance is 48.91; next support at 48.44.

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