This morning. U.S. equity markets confirmed an uptrend on November 23rd.
Wednesday, markets closed mixed, with weakness on the Nasdaq, but moderate strength on the DJI; moreover, indexes ended the day much improved from early intraday lows. The Nasdaq fell -0.77%, but the DJI, NYSE composite and SPX rose +0.64%, +0.50%, and +0.16%, respectively. The DJ Transports rose +0.91%, outperforming the DJI. For the week and month, the Nasdaq and SPX are down -1.21% and -0.49%, respectively, while the DJI and NYSE composite are up +0.07% and +0.05%, respectively. In November, the Nasdaq, NYSE composite, and SPX closed up +1.11%, +0.28%, and +0.47%, while the DJI closed down -2.10%. 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 +6.70% higher in 2012.
Fundamentals are mixed. All are above their respective 20-day moving averages. Only the NYSE composite is above (by +0.53%) its 50-day moving average. Today, Asian equities closed mixed, with better strength in Tokyo. In Europe, the major equity indexes are modestly higher, but well off early intraday highs and testing the prior day's closing levels.
This morning, U.S. equity futures are modestly lower. U.S. Treasury yields are largely lower, with the 10-year at 1.567%, up from 1.5883% Wednesday. U.S. repo rates are at 25 bps, unchanged from the prior day. Spanish and Italian 10-year debt yields are at 5.50% and 4.55%, respectively, compared to 5.40% and 4.45% the prior day. The dollar is mixed. U.S. options markets suggest a neutral to bullish short-term outlook. The CBOE skew fell -0.66% to 114.55, from 115.31 the prior day. Commodities prices are mixed.
In pre-market futures trading, December SPX equity futures are modestly lower, but near the middle of a 1404-1408 range. SPX equity futures are at 1405.80, down -0.38 points. The SPX opens at 1409.43, off -3.84% from September 14th's 1465.77 multi-year closing high, and +1.31% and +1.72% above its 20- and 200-day moving averages, but -0.64% and -0.13% below its 50- and 100-day moving averages. The SPX is up +12.1% in 2012. On November 5th, the 20-day moving average crossed below its 50-day moving average, then fell below the 100-day moving average on November 16th. The 50-day moving average crossed above its 100-day moving average on August 17th. The SPX is +31.1% above the 1074.77 October 4, 2011 intraday low. Next resistance is at 1417.15. First support is at 1399.82.
Financial stocks have recently underperformed the broader market, with the BKX down -5.75% from its September 14th high. Wednesday, the BKX rose +1.67%, bringing its weekly and monthly gain to +0.16%. The BKX closed down -2.10% in November, following losses of -5.85% in October and -1.08% in September.
Wednesday. Futures suggested a modestly higher open, but markets initially moved lower, then recovered to narrow losses to end mixed. Market breadth was modestly positive. NYSE volume rose +12.6% from Tuesday's trade, to 759.33 million shares, 1.10x the 15-day moving average. At the close, the DJI rose +0.64%, followed by the NYSE composite and SPX, which rose +0.50% and +0.16%, respectively, while the Nasdaq fell -0.77%. Most SPX market segments closed higher. Leaders were utilities, financials, and industrials, which rose at least +0.99%. Laggards were consumer goods, basic materials, and technology, which fell at least -0.13%.
From its 1407.05 prior close, the SPX opened slightly higher, but reversed lower to a mid-morning 1398.23 intraday low. Subsequently, markets rallied strongly, reversing higher by mid-session and rising to 1415, which proved resistance through most of the afternoon. Profit taking narrowed gains into the close. Market volatility fell. From 17.12 at the prior close, the VIX rose to 17.53 as equities weakened in early trading. As equities strengthened, the VIX fell sharply to 16.30 by mid-session, where it traded narrowly through the close, ending at 16.46, down -3.86%.
On +3.21% greater volume, the DJ transports outperformed, rising +0.91%, compared to the DJI's +0.64% gain. The index closed at 5,120.31, up from 5,074.34 the prior day, and above 5,000 for a 9th consecutive day. The TRAN opened slightly higher, eased with the broader market in early trading and then rallied steadily to a late session 5,142.26 intraday high. The index closed +1.56%, +1.62%, +1.16%, and +0.19% above its respective 20-, 50-, 100-, and 200-day moving averages. The TRAN closed -4.63% 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 fell -0.66% to 114.55, compared to 115.31 the prior day. U.S. Treasury bond prices rose.
Trading desks noted that the SPX 1409.28 close was well off the 1398.23 intraday low and that AAPL's weakness cost the index 3.8 points. Attention was split between micro issues (AAPL, C) and macro issues such as China's rally and fiscal cliff negotiations (the president remarked at 10:50. Participants are putting the fiscal cliff into "perspective".
Immediate SPX support is 1402, then 1398, 1391 (the 20-day moving average), and 1386 (the 200-day moving average). Resistance is 1411 (the 100-day moving average), 1418 (the 50-day moving average), 1420 (the August high close), 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 ended mixed, with moderate strength in Tokyo, but modest losses in Hong Kong and Shanghai. The NKY rose +0.81% on a +6.21% volume increase. The HSI closed down -0.09%, on a -40.1% volume decrease. In Shanghai, the SHCOMP fell -0.13% on a -0.32% volume decrease. The SHCOMP closed above 2,000 for a 2nd consecutive session and compares to the December 3rd 1949.46 intraday and post-2009 low. The NKY and HSI closed above their respective 20-, 50-, 100-, and 200-day moving averages. The SHCOMP closed below its 50-, 100-, and 200-day moving averages.
Commentary focused on optimism that the U.S. will avoid the fiscal cliff.
Compared to last week's close, the NKY is up +1.05%, the HSI is up +1.00, and the SHCOMP is up +2.48%. Last week, the NKY rose +0.85%, the HSI rose +1.80%, and the SHCOMP fell -2.33%. In December, the NKY closed up +1.05%, the HSI up +1.00%, and the SHCOMP up +2.48%. In November, the NKY closed up +5.65%, while the HSI and SHCOMP up +0.73% higher and -4.53% lower, respectively.
In Japan, the NKY closed at 9,545.16, up from 9,468.84 at Wednesday's close, and above 9,000 since November 16th. The index closed down -7.67% from its March 27th high, but +12.0% higher in 2012. The index gapped higher to open above 9,530 and traded narrowly through the day, between the 9,503.31 mid-morning intraday low and late session 9,565.43 intraday high. The NKY closed +4.53%, +6.38%, +7.00%, and +4.99% above their respective 20-, 50-, 100-, and 200-day moving averages. All market segments closed at least +0.02% higher. Leaders were technology, basic materials, and industrials, which rose at least +1.01%. Financials ended up +0.39%. Laggards were consumer services, oil and gas, and health care.
In China, the Hang Seng closed at 22,249.81, down from 22,270.91 at the prior close, but up +20.8% for the year. The index has closed above 20,000 since September 12th. The index opened at it 22,355.89 intraday high, but quickly reversed lower, finding support at 22,240 through the day. The index briefly reversed higher in mid-afternoon, but eased on profit taking into the close. The HSI closed +2.97% and +3.82% above its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were technology, basic materials, and consumer services, which closed at least +0.15% higher. Financials lost -0.07%. Laggards were industrials, utilities, and telecommunications, which fell at least -0.28%.
In Shanghai, the SHCOMP closed at 2,029.24, down from 2,031.91 the prior day. The index closed -18.0% below its 2,474.07 March 14th high, and down -7.74% in 2012. The index opened modestly lower, but traded narrowly through the day between an early 2,036.48 intraday high and early afternoon 2,018.58 intraday low. Market segments closed lower. Leaders were financials and utilities, which rose at least +0.12%, and industrials, which fell -0.21%. Laggards were consumer goods, telecommunications, and basic materials, which fell at least -0.47%.
In Europe, the majorequity indexes are moderately higher, with better strength in Frankfurt. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +0.23%, +0.36%, +0.17%, and +0.91%, 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 up +0.04%, while the Italian FTSE MIB is down -0.98%.
From its prior 2,592.09 close, the Euro Stoxx50 gapped open modestly higher and strengthened to an early 2,617.83 intraday high. The index weakened on profit taking, but found support at 2,595 and currently trades at 2,597.62. Most market segments are higher. Leaders are basic materials, health care, and industrials, which are up at least +0.58%. Financials are up +0.29%. Laggards are oil and gas, telecommunications, and utilities, which are down at least -0.36%.
For the week and month, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +0.96%, +0.69%, +1.19%, and +1.62%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +0.71%, +0.82%, +0.81%, and +1.32%, respectively. In November, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +2.86%, +1.45%, +3.73%, and +2.00%, respectively. In 2012, the indexes are up +12.2%, +5.37%, +13.7%, and +26.4%, respectively.
Libor, LOIS, Currencies, Treasuries, Commodities:
- USD LIBOR is 0.16250%, up 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 14.60 bps, compared to 15.00 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 12.80 bps, up from 12.60 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 is -24.616 bps, compared to -24.278 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 5.52%, compared to 5.40% the prior day. Italian 10-year debt yields are at 4.57%, compared to 4.45% the prior day. German 10-year debt yields are 1.33%, compared to +1.35% the prior day.
- The U.S. government overnight repo rate is 25 bps, compared to 25 bps the prior day.
- U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.234% and 1.576%, respectively, compared to 0.238% and 1.588% Wednesday. The yield curve narrowed, with the 2 to 10 year spread +1.342%, compared to 1.349% 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, stronger compared to the euro, but weaker compared to the Japanese yen and British pound. The dollar trades at US$79.833, compared to a US$79.773 intraday low and US$79.744 the prior day, and weaker compared to its US$80.162 50-day, US$80.811 100-day, and US$80.855 200-day averages. The euro trades at US$1.3068, compared to a US$1.3042 intraday low and US$1.3068 the prior day. The euro trades better compared to its US$1.2918 50-day and US$1.2735 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥82.36, compared to ¥82.47 the prior day. The yen trades worse than its 50-day moving average ¥80.15.
- Citigroup Economic Surprise Index fell to 34.70, from 33.00 the prior day, and 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 36.12 5-day and 41.54 10-day moving averages. The index has improved significantly from a recent July 19th -65.30 low, but the trend has again turned lower. After a lag, a rising CESIUSD correlates with stabilizing EPS revisions.
- Commodities prices are mixed, with lower energy, lower precious metals, higher aluminum and copper, and mixed agriculture prices.
- The VIX fell -3.86% to end at 16.46, down from 17.12 at the prior close. The VIX is -0.45% below its 16.59 20-day moving average. The VIX set a recent closing low of 13.45 on August 17. Its 30-day high is 19.65.
- At mid-session, the Euro Stoxx 50 volatility index (V2X) is down -2.07% to 17.03, from 17.39 at the prior day's close. The V2X index trades -11.7% below its 19.29 20-day moving average, -31.2% below the 24.77 30-day high, and +4.74% above the 16.26 30-day low. On November 29th, the index fell to a 5-year low of 16.48.
- The Hang Seng volatility index (VHSI) closed at 15.62, down -2.38% from 16.19 the prior day. The VHSI index trades -3.52% below its 16.17 20-day moving average.
- CBOE skew fell -0.66% to 114.55, from 115.31 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 recent low was 113.23 on November 14th. 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:
- November Challenger job cuts rose +34.4%, compared to +11.6% in October.
- At 8:30, initial jobless claims for the week ended December 1 were 370K, compared to 380K survey and 395K revised prior. Continuing claims for the week ended November 24 were 3205K, compared to 3275K survey and 3305 revised prior.
· Australia - November unemployment was 5.2%, compared to 5.5% survey and 5.4% prior.
· Republic of Korea - 3Q2012 final GDP was +0.1%, compared to +0.2% prior.
· Eurozone - ECD kept its benchmark interest rate at 0.75%.
· France - 3Q2102 unemployment was 10.3%, compared to 10.5% survey and 10.2% prior.
· Germany - October factory orders rose +3.9%, compared to +1.0% survey and -2.4% revised prior.
· November final PMI services was 49.7, compared to 48.0 survey and 48.0 prior.
· United Kingdom - The Bank of England kept its benchmark interest rate unchanged at 0.50%.
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. After November's +0.28% increase, the SPX closed at 1416.18, compared to October's 1412.16 close and June's 1379.32 closes. The upward setup rose to 4. The countdown remained unchanged at 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, when it 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 30th, the index closed up +0.50% at 1416.18, compared to 1409.15 the prior week and 1411.94 four weeks prior. The close above the prior 4 week close initiated a setup. The higher close compared to the prior week initiated a countdown. The SPX closed -2.11% 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. Wednesday, the SPX rose +0.07% to close at 1409.28, compared to 1407.05 the prior day and a 1409.93 close 4 days prior. On November 30th, the index perfected an upward setup. The upward countdown rose to 7 on December 3rd. Today's close below the prior 4 days' close extended a downward setup and countdown to 2.
- 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 November, the BKX fell -2.10% to end at 48.56, compared to 49.60 at the end of October and 45.79 four months prior. Its upward setup rose to 3, while its upward countdown was unchanged at 1. On a weekly basis, the BKX recorded a completed countdown November 25, 2011. 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 perfected downward 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. Last Friday, the BKX closed at 48.56, down -1.24% from 49.17 at the prior week's close and below the 49.25 close 4 weeks prior. The downward setup rose to 6, while the downward countdown was unchanged at 3. 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. Wednesday, the BKX closed at 48.64, up +1.67% from 47.84 the prior day, and compares to the 48.0 close 4 days prior. The downward setup rose to 5, while the countdown was unchanged at 2.
- 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 November, the VIX fell -14.7%, after rising +0.89% in October, and falling 16.2% in September. The VIX ended November at 15.87, compared to 18.60 at the end of October and 17.47 at the end of The month's decline initiated a downward setup but without a countdown. 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 rose +4.82% to end at 15.87, compared to 15.14 the prior week, and the 17.81 close 4 weeks prior. The current downward setup rose to 3, but the countdown was unchanged at 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. Wednesday, the VIX fell -3.86% to 16.46, compared to 17.12 at the prior close, and 15.51 at the 4 days' prior close. The upward setup rose to 4, and the countdown rose to 3. The VIX closed +17.4% above the 14.02 support level and -11.7% 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 November at 1.2986, compared to 1.2960 the prior month and 1.2667 4 months prior. The upward setup is 3 with a countdown of 1. 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 30th, the index ended at 1.2986, compared to 1.2976 the prior week and 1.2938 4 weeks prior. The weekly setup and countdown rose to 2. 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. With Wednesday's -0.03% decrease, the EURUSD cross closed at 1.3068, compared to 1.3094 the prior day and 1.2953 four days prior. The countdown was unchanged at 11.
- 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 weak. The rate ended November at 1.6156%, compared to 1.6901% the prior month and 1.6449% 4 months prior. The upward setup of 3 with a 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 1.6156%, down from 1.6899% the prior Friday and 1.7147% four weeks prior. The downward setup rose to 5, 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 Wednesday, the rate ended at 1.5875%, compared to 1.6028% the prior day and 1.6284% four days prior. The decline extended the downward setup to 8. The downward countdown rose to 5.
- NKY - On a monthly basis, the NKY perfected a downward setup on April 30, 2009, and subsequently has traded narrowly. In November, the index rose +5.80%, following an increase of +1.50% in October. The index closed at 9,446.01, compared to 8,928.29 the prior month and 9,006.78 four months prior. There index initiated an upward setup and countdown of 1. 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 30th, the NKY rose +0.85% to 9,446.01, compared to 9,366.80 the prior week and 8,933.06 4 weeks prior. The upward setup rose to 6 and the countdown rose to 3. 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. The upward setup perfected on November 30th. Thursday, the index closed up +0.81% at 9,545.16, compared to 9,468.84 the prior day and 9,400.88 four days prior. The index perfected its upward setup on November 30th. Today, the countdown rose to 10.
- 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 three months and ended November at 22,030.39, compared to 21,641.82 the prior month and 19,441.46 four months prior. The upward setup and countdown rose to 3. 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 were less pronounced, but last week, the index rose +0.53% to close at 22,030.39, compared to 21,193.98 the prior week and 21,545.57 4 weeks prior. The index initiated an upward setup. 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. After today's -0.09% decrease, the HSI closed at 22,249.81, compared to 22,270.91 the prior day and 21,922.89 four days prior. The index extended its upward setup to 3. The countdown completed at 13.
- 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 index ended November at 1,980.12, below trend exhaustion of 1,987.13, and compared to 2,068.88 the prior month and 2,225.43 four months prior. The current monthly setup and countdowns are 6 and 12, 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 30th, the index closed the week -2.33% at 1,980.12, compared to 2,027.38 the prior week and 2,066.21 four weeks prior. The downward setup increased to 4, and the countdown rose to 3. 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. The index completed one downward countdown on November 30th, and a 2nd downward countdown on December 4th. Thursday, the index closed -0.13% lower at 2,029.24, compared to 2,031.91 at the prior close and 1,963.49 4 days prior. The upward setup rose to 3, while the countdown was unchanged at 1.
- 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. The index ended November at 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 as the index tests price exhaustion targets at 2,563.46. In the week ended November 30th, the index rose +0.71% to close at 2,575.25, compared to 2557.03 the prior week and 2,469.09 at the 4 weeks' prior close. The upward setup rose to 2, and the countdown initiated. 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 perfected an upward setup. Wednesday, the index rose +0.05% to 2,592.09, compared to 2,590.83 the prior day and 2,546.84 at the prior 4 days' close. The upward countdown was rose to 11.
3Q2012 Earnings. The 3rd quarter's earnings reports were mixed, beating on EPS, but falling short on sales/revenues. Of 494 reporting companies, 353 or 71.5% surprised positively on earnings, beating by an average +3.65%. Sales and revenues fell short, however, with only 202 or 41.0% surprising positively.
Valuation. The SPX trades at 13.6x estimated 2012 earnings ($103.95), 12.3x estimated 2013 earnings ($114.90), and 11.1x estimated 2014 earnings ($127.84). 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 to bullish. Composite options are bullish, index options are bullish, and equity options markets are neutral. The composite put/call ratio is 0.87, compared to 1.04 the prior day, and better compared to its 5- and 10-period moving averages of 0.98 and 0.90, respectively. The index put/call ratio fell to 0.98, compared to 1.08 the prior day, and mixed compared to its 5- and 10-period moving averages of 1.08 and 0.98, respectively. The equity put/call ratio closed the day at 0.82, compared to 1.02 the prior day, and better compared to its 5- and 10-period moving averages of 0.93 and 0.86, respectively.
NYSE Indicators. Volume rose +12.6% to 759.33 million shares, compared to 674.59 million shares the prior day, +1.10x the 15-day moving average. Market breadth was slightly positive, and up volume led down volume. Advancing stocks led decliners by +139 (compared to -89 the prior day), or 1.10:1. Up volume led down volume by 2.09:1.
BKX. Volume rose +83.9%, and the KBW bank index closed at 48.64, up +1.67% from 47.84 at the prior close. Volume rose to 97.650 million shares, from 53.093 million shares the prior day, or 1.67:1x the 58.603 million share 15-day moving average. The index opened above 48.00, but reversed slightly lower in the first hour, but then rallied strongly through early afternoon to 48.80, trending higher into the final hour to the 48.91 intraday high. Profit taking narrowed the day's gain into the close. Large cap banks greatly outperformed the regional banks, as the KRX rose only +0.17%.
For the week and month, the BKX is up +0.16%. Last week, the BKX fell -1.24%, compared to the prior week's strong +4.28% increase. In November, the index closed off -2.10%. The index rose +0.04% in October, and +5.06% and +3.67% in September and August, respectively.
The BKX has closed below 50 since November 6th. It closed -5.81% below its recent September 14th peak. It has closed above 40 since January 3rd. The BKX closed -16.1% below its April 23, 2010 close (the post-2008 high point), but +49.4% above the 32.56 low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, which is up +31.1% in the same period. The BKX is up +23.5% in 2012, compared to a +12.1% rise in the SPX.
Technical indicators improved, as the index recaptured its 20- and 100-day moving averages. The index closed +1.00%, +0.66%, and +2.94% above its respective 20-, 100-, and 200-day moving averages, but -1.58% below its 50-dy moving average. 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 -10 bps. The 50-day moving average fell -3 bps. Its 100-day moving average rose +4 bps and the 200-day moving average rose +2 bps. The 20-day closed (by -1.26 points) below the 50-day. The 50-day moving average has closed (by +2.17 points) above the 200-day moving average since February 22nd. The 100-day moving average closed (by +1.07 points) above the 200-day moving average since March 19th, and the gap expanded +3 bps.
The directional movement indicator remains negative, but greatly improved Wednesday. Relative strength rose to 49.79, from 42.30 the prior day, moving back to the middle of a neutral range. Next resistance is 49.07; next support at 48.06.