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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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  • U.S. Futures Advance, Though Cliff Dive Threatens 0 comments
    Dec 11, 2012 10:06 AM

    This morning. U.S. equity markets confirmed an uptrend on November 23rd. Futures are moderately higher, but off their best morning levels.

    Monday, markets opened lower, but traded narrowly around breakeven to a mixed close. The DJI ended with a slim +0.11% gain, followed by the NYSE composite and SPX, which rose +0.10% and +0.03%, respectively, while the Nasdaq close unchanged. The DJ Transports were a standout, which a strong rose +1.08% gain that left the index only -3.46% below its February 3rd high. In December, the NYSE composite is up +1.52%, the DJI and SPX are up +1.11% and +0.17%, respectively, while the Nasdaq is down -0.77%. 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 +7.81% higher in 2012.

    Fundamentals are mixed, as SPX 20-day moving average has regained a positive slope. Most major averages are above their respective 20-, 50-, 100-, and 200-day moving averages. The Nasdaq closed below its 50-, 100-, and 200-day moving averages. Today, Asian equities closed mixed, with modest strength in Hong Kong, while Tokyo and Shanghai closed off -0.09% and -0.44%, respectively. In Europe, the major equity indexes are moderately higher as sovereign debt prices recovered after yesterday's political concerns eased.

    This morning, U.S. equity futures are moderately higher. U.S. Treasury yields are slightly higher, with the 10-year at 1.635%, up from 1.616% Monday. U.S. repo rates are at 22 bps, up from 27 bps the prior day. Spanish and Italian 10-year debt yields are at 5.48% and 4.73%, respectively, compared to 5.56% and 4.82% the prior day. The dollar is modestly lower. U.S. options markets suggest a neutral to bullish short-term outlook. The CBOE skew fell -0.44% to 115.23, from 115.74 the prior day. Commodities prices are mostly higher.

    In pre-market futures trading, December SPX equity futures are moderately higher, but in the middle of a 1422-1424 range. SPX equity futures are at 1423.30, up +3.31 points. The SPX opens at 1418.55, off -3.22% from September 14th's 1465.77 multi-year closing high, and +1.61, +0.12%, +0.39%, and +2.32% above its 20-, 50-, 100-, and 200-day moving averages. The SPX is up +12.8% 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 +32.0% above the 1074.77 October 4, 2011 intraday low. Next resistance is at 1421.58. First support is at 1415.58.

    Financial stocks have recently underperformed the broader market, with the BKX down -4.53% from its September 14th high. Monday, the BKX fell -0.06%, reducing its monthly gain to +1.52%. The BKX closed down -2.10% in November, following losses of -5.85% in October and -1.08% in September.

    Monday. Futures suggested a modestly lower open, but after a modestly weak open, equities reversed higher by mid-morning and to their intraday highs. Markets eased through into the afternoon session and reversed briefly lower in mid-afternoon, but rallied weakly to close with small gains. Market breadth was positive. NYSE volume fell -2.24% to 592.76 million shares, 0.87x the 15-day moving average. At the close, the DJI rose +0.11%, followed by the NYSE composite and SPX rose +0.10% and +0.03%, respectively, while the Nasdaq was unchanged. SPX market segments closed mixed. Leaders were basic materials, technology, and industrials, which rose at least +0.39%. Laggards were financials, telecommunications, and consumer services, which fell at least -0.25%.

    From its 1418.07 prior close, the SPX opened lower and traded to its 1415.64 intraday low, but then reversed higher by mid-morning to the day's 1421.64 high. The index trended lower by mid-afternoon, and reversed briefly lower, but found support at 1417 and rallied back to 1420 before easing into the close. Market volatility rose. From 15.90 at the prior close, the VIX opened at its 16.47 intraday high and eased through the close to end at 16.05, up +0.94%.

    On -12.8% lower volume, the DJ transports outperformed, up +1.08% compared to the DJI's +0.11% gain. The index closed at 5,183.36, up from 5,128.06 the prior day, and above 5,000 for a 12th consecutive day. The TRAN opened tentatively and briefly traded lower to 5,124.19, but trended higher to a late session 5,186.33 intraday high. The index closed +2.56%, +2.62%, +2.41%, and +1.43% above its respective 20-, 50-, 100-, and 200-day moving averages. The TRAN closed -3.46% 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. The CBOE put/call skew fell -0.40% to 114.77, compared to 115.23 the prior day. U.S. Treasury bond prices rose modestly.

    Trading desks reported another non-committal session, marked mostly by sideways drift. Markets are either seen as tired and non-committal or resilient. Fiscal cliff talks remain deadlocked.

    Immediate SPX support is 1417 (the 50-day moving average), then 1413 (the 100-day moving average), 1396 (the 20-day moving average), and 1386 (the 200-day moving average). Resistance is 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 a modest gain in Honk Kong. The NKY fell -0.09% on a -15.6% volume decrease. The HSI closed up +0.21%, on a +14.1% volume increase. In Shanghai, the SHCOMP fell -0.44% on a -19.1% volume decrease. The SHCOMP closed above 2,000 for a 5th 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 has recaptured its 20- and 50-day moving averages, but closed below its 100- and 200-day moving averages.

    Commentary focused on strong Chinese industrial production.

    Compared to last week's close, the NKY is up +0.07%, the HSI is up +0.39%, and the SHCOMP is up +1.07%. Last week, the NKY rose +0.86%, the HSI rose +0.73%, and the SHCOMP rose +4.12%. In December, the NKY is down -0.02%, the HSI up +0.60%, and the SHCOMP up +0.63%. In November, the NKY closed up +5.65%, while the HSI and SHCOMP closed +0.73% higher and -4.53% lower, respectively.

    In Japan, the NKY closed at 9,525.32, down from 9,533.75 at Monday's close, and above 9,000 since November 16th. The index closed down -7.12% from its March 27th high, but +12.7% higher in 2012. The index opened below 9,520 and traded narrowly through the first hour, then weakened by late morning to the 9,487.95 intraday low. The index rallied modestly into the afternoon session, trending back to find resistance at 9,530 and easing into the close. The NKY closed +3.16%, +5.77%, +6.49%, and +4.76% above their respective 20-, 50-, 100-, and 200-day moving averages. Most market segments closed lower. Leaders were oil and gas, consumer services, and technology, which rose at least +0.34%. Laggards were industrials, telecommunications, and financials, which fell at least -0.40%.

    In China, the Hang Seng closed at 22,323.94, up from 22,276.72 at the prior close, and up +21.1% for the year. The index has closed above 20,000 since September 12th. The index opened slightly higher and traded by mid-morning to the 22,393.20 intraday high. The index eased back to breakeven moving into the final hour. After trading briefly lower, the index rallied into the close to end with its modest gain. The HSI closed +2.76% and +3.70% above its respective 20- and 50-day moving averages. Market segments were mixed. Leaders were telecommunications, utilities, and financials, which closed at least +0.31% higher. Laggards were technology, industrials, and consumer services, which fell at least -0.32%.

    In Shanghai, the SHCOMP closed at 2,074.70, down from 2,083.77 the prior day. The index closed -16.1% below its 2,474.07 March 14th high, and down -5.67% in 2012. The index opened at 2,075 and traded narrowly until mid-afternoon, when it briefly reversed higher to the 2,088.61 intraday high. The index reversed lower in the final hour to end with a modest loss. Most market segments closed lower. Leaders were consumer goods, which rose +0.37%, and technology and financials, which fell -0.25%. Laggards were health care, industrials, and telecommunications, which fell at least -0.76%.

    In Europe, the majorequity indexes are moderately higher, with greater strength in Italy and Spain. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +0.66%, +0.11%, +0.63%, and +0.60%, 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 +0.72%, while the Italian FTSE MIB is up +0.88%.

    From its prior 2,596.02 close, the Euro Stoxx50 open slightly higher, then rose to a mid-morning 2,617.12 intraday high. Market segments are at least +0.17% higher. Leaders are utilities, industrials, and oil and gas, which are up at least +0.98%. Laggards are technology, health care, and financials, which are up at least +0.44%.

    For the week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +0.55%, +0.36%, +0.86%, and +0.77%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +1.01%, +0.81%, +1.36%, and +1.52%, respectively. For the month, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +1.57%, +1.18%, +2.23%, and +2.30%, 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 +12.9%, +6.52%, +15.1%, and +28.4%, respectively.

    Libor, LOIS, Currencies, Treasuries, Commodities:
     

    • USD LIBOR is 0.16150%, down from 0.16250% the prior day. USD 3-month LIBOR is 0.30950%, down from 0.31050% the prior day, and compares to the January 4th peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread is 16.75 bps, compared to 16.95 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 13.50 bps, down from 14.35 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 is -23.390 bps, compared to -24.436 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 5.48%, compared to 5.56% the prior day. Italian 10-year debt yields are at 4.73%, compared to 4.82% the prior day. German 10-year debt yields are 1.32%, compared to +1.31% the prior day.
    • The U.S. government overnight repo rate is 22 bps, compared to 27 bps the prior day.
    • U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.238% and 1.635%, respectively, compared to 0.234% and 1.616% Monday. The yield curve widened, with the 2 to 10 year spread +1.397%, compared to 1.382% 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 weaker compared to the euro and British pound, but stronger against the Japanese yen. The dollar trades at US$80.124, compared to a US$80.097 intraday low and US$80.328 the prior day, and mixed compared to its US$80.198 50-day, US$80.712 100-day, and US$80.869 200-day averages. The euro trades at US$1.2989, compared to a US$1.2997 intraday high and US$1.2941 the prior day. The euro trades mixed compared to its US$1.2920 50-day and US$1.2759 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥82.46, compared to ¥82.36 the prior day. The yen trades worse than its 50-day moving average ¥80.41.
    • Citigroup Economic Surprise Index eased to 49.70, from 50.80 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 better compared to its respective 44.08 5-day and 42.25 10-day moving averages. The index has improved significantly from a recent July 19th -65.30 low, but the trend was lower until today's bullish reversal. After a lag, a rising CESIUSD correlates with stabilizing EPS revisions.
    • Commodities prices are mostly higher, with higher energy, precious metals, higher aluminum and copper, and mixed agriculture prices.


    Volatility, Skew:
     

    • The VIX rose +0.94% to end at 16.05, from 15.90 at the prior close. The VIX is -0.63% below its 16.15 20-day moving average. The VIX set a recent closing low of 13.45 on August 17. Its 30-day high is 19.40.
    • At mid-session, the Euro Stoxx 50 volatility index (V2X) is down -3.01% to 16.88, from 17.40 at the prior day's close. The V2X index trades -8.53% below its 18.45 20-day moving average, -31.9% below the 24.77 30-day high, and +3.80% above the 16.26 30-day low. On November 29th, the index fell to a 5-year closing low of 16.48.
    • The Hang Seng volatility index (VHSI) closed at 15.267, down -2.55% from 15.67 the prior day. The VHSI index trades -4.21% below its 15.94 20-day moving average.
    • CBOE skew fell -0.44% to 114.77, from 115.23 at the prior day's close, below 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 NFIB small business optimism fell to 87.5, compared to 92.5 survey and 93.1 prior.
    • At 10:00, October wholes inventories, with +0.4% survey and +1.1% prior.


    Overseas News:
     

    • Australia - November NAB business confidence was -9, compared to -1 prior.
    • Portugal - October construction works index was 55.0 compared to 52.0 revised prior.
    • United Kingdom - November RICS house price balance was -9%, compared to -5% survey and -7% prior.


    Company Ratings/News:
     

    • None


    Price and Selling Exhaustion/Trend Reversal:
     

    • SPX - On a monthly basis,the SPX signaled selling exhaustion in February 2009 when it perfected sell setup at 735.09. The index recorded a bullish price flip in May 2009, when the index closed at 919.14, above the prior month 872.81 close and above the January 825.88 close 4 months prior. The index perfected the sell setup in January 2010. A bullish price flip in May 2009 initiated a sell setup, which perfected in January 2010. A sell countdown began in March 2010. In September 2010, the index initiated a follow-on sell setup, which perfected in May 2011. The sell countdown completed in January 2012. The index initiated a new countdown in August 2012, which progressed to 4 in November, when the index closed at 1416.18, compared to 1412.16 the prior month and 1379.32 four months prior. Resistance is 1429.36. On a weekly basis, 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 perfected a weekly buy setup on the June 8th. The next week's bullish price flip initiated a sell setup that perfected on August 10th at 1405.87. In the week ending December 7th, the index closed up +0.13% at 1418.07, compared to 1416.18 the prior week and 1379.85 four weeks prior. The sell setup extended to 2. The sell countdown is 8. The SPX closed -1.28% below its 1436.40 price exhaustion target. On a daily basis, the SPX perfected an upward setup on August 15th at 1405.53, but didn't show much subsequent trend until November 19th, when a bullish price flip initiated a sell setup with a close at 1386.89. The index perfected the setup on November 30th with its 1416.18 close and initiating a sell countdown. Monday, the SPX closed at 1418.55, compared to 1418.07 the prior day and 1407.05 four days prior. The sell setup rose to 2. The countdown rose to 4.
    • BKX - On a monthly basis, the BKX perfected a buy setup in December 2007 and completed its buy countdown in February 2009. recorded a completed downward countdown in February 2009. The BKX reached an unperfected buy setup in December 2011. In September 2012, it initiated a sell setup, which rose to 3 in November. In November, the BKX fell -2.10% to end at 48.56, compared to 49.60 at the end of October, but above 45.52 four months prior. On a weekly basis, the BKX recorded a completed buy countdown November 25, 2011. A bullish price flip in the week ending December 16th initiated a sell setup which perfected the week of February 10th, when the index closed at 44.53. A bearish price flip ensued the week of April 13th, and a buy setup perfected the week of June 8th, when the index closed at 40.86. A bullish price flip occurred on July 27th, and the sell setup perfected on September 21st. Subsequent trends have been weak, though the index closed on December 7 at 49.33, above 48.56 the prior week and 48.13 four weeks prior, a bullish price flip that initiated a new sell setup. On a daily basis, the BKX signaled selling exhaustion on June 4th, then rallied to 44.65 on June 19th, when it perfected a sell setup. The index completed a sell countdown on August 8th, and on August 15th, perfected a daily follow-on sell 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 a sell countdown, followed on September 19th, with an unperfected sell setup. Since then, the BKX traded without much trend December 6th's bullish price flip. The index closed Monday at 49.30, compared to 49.33 at the prior close and 47.84 four days prior. The sell setup rose to 3. The countdown is 12.
    • 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 buy setup on January 27th, and a sell setup on June 8th, followed by another perfected buy setup on August 10th. Last week, the VIX rose +0.19% to end at 15.90, compared to 15.87 the prior week, and the 16.64 close 4 weeks prior. The sell setup rose to 4, but the countdown was unchanged at 2. On a daily basis, the VIX reached an sell 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 sell setup on August 31st. Subsequently, the VIX exhibited little in the way of a distinct trend. On November 23rd, the index perfected a sell setup. Monday, the VIX rose +0.94% to 16.05, compared to 15.90 at the prior close and 17.12 at the 4 days' prior close. The countdown stemming from the November 23rd perfection rose to 2. The buy setup rose to 2. The VIX closed +14.5% above the 14.02 support level and -13.9% 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 buy 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 sell setup is 3 with a countdown of 1. On a weekly basis, the cross perfected a buy setup on January 6th, followed by another buy 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 sell 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 December 7th, the index ended at 1.2927, compared to 1.2986 the prior week and 1.2304 4 weeks prior. The weekly setup and countdown rose to 3. On a daily basis, the EURUSD cross perfected a sell setup on September 12th. The subsequent trend was lower, with a buy setup initiated on November 2nd and perfected on November 14th with a 1.2736 close. The index initiated an buy setup the following day and perfected the setup on November 27th at 1.2943. With Monday's +0.11% increase, the EURUSD cross closed at 1.2941, compared to 1.2927 the prior day and 1.3094 four days prior. The buy setup closed at 4, with a sell countdown of 4.
    • USGG10YR - On a monthly basis, the USGG10YR perfected a buy countdown on February 29th, and a buy 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 buy setup on June 8th, but subsequent trends have been weak. The rate ended the most recent week at 1.6215%, up from 1.6156% the prior Friday and 1.5800% four weeks prior. The index initiated a sell setup. 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%. A bullish price flip on December 7th initiated a sell setup. On Monday, the rate ended at 1.6164%, compared to 1.6215% the prior day and 1.6028% four days prior. The sell setup rose to 3. The buy countdown rose to 12.
    • NKY - On a monthly basis, the NKY perfected a buy 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. On November 30th, a bullish price flip initiated a sell setup. The index closed at 9,446.01, compared to 8,928.29 the prior month and 9,006.78 four months prior. On a weekly basis, the NKY perfected a sell setup on March 9th, and a subsequent buy setup on June 1st with a countdown of 8. For the week ended December 7th, the NKY rose +0.93% to 9,527.39, compared to 9,446.01 the prior week and 8,757.60 4 weeks prior. The upward setup rose to 7 and the countdown rose to 4. 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 sell setup on September 7th, which it perfected on September 20th. A buy setup commenced on September 21st, which was perfected on October 3rd. Subsequent trend and momentum were weak until November 15th, when a bullish price flip initiated a sell setup and countdown. The sell setup perfected on November 30th. Tuesday, the index closed down -0.09% at 9,525.32, compared to 9,533.75 the prior day and 9,468.84 four days prior. Today, the sell countdown was unchanged at 4.
    • 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 sell setup rose to 3, with a countdown of 11. 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 sell setup and countdown in the week ending September 14th. The index perfected the setup on November 9th. Subsequent trends were less pronounced, but last week, the index rose +0.39% to close at 22,191.17, compared to 22,030.39 the prior week and 21,384.38 4 weeks prior. The index initiated a follow-on sell setup, with a countdown of 2. On a daily basis, the HSI perfected a sell setup and completed an upward countdown on August 8th. After September 5th's lower close, the index perfected a buy setup. An sell setup commenced on September 9th, followed by a completed countdown on October 24th, and another perfected setup on October 25th. It completed another sell countdown on December 6th. After today's +0.21% increase, the HSI closed at 22,323.94, compared to 22,276.72 the prior day and 22,270.91 four days prior. The index's sell setup was unchanged at 5.
    • SHCOMP - On a monthly basis, the SHCOMP perfected a buy setup on September 30, 2008, and subsequently rallied to an August 31, 2009, high, but without perfecting a subsequent sell setup. Since then, the SHCOMP resumed a downward trend perfecting another buy 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 buy countdown is 6. On a weekly basis, the SHCOMP last perfected a buy setup on April 8, 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 buy setup and traded below the sales exhaustion target of 2148.45. On December 7th, the index closed the week up +4.12% at 2,061.79, compared to 1,980.12 the prior week and 2,069.07 four weeks prior. The buy countdown was unchanged at 11. On a daily basis, the SHCOMP perfected a buy setup and a completed a downward countdown on June 28th, but sold through the 2,170.95 exhaustion target on July 23rd to the September 5th 2037.68 closing low. On August 20th, the index perfected a buy setup carryover from August 2nd, and the index perfected another buy setup on August 27th, with completed buy countdowns September 5th and 24th. On September 25th, the index perfected another buy setup. The subsequent trend was weak until November 8th, when the index initiated a buy setup at 2,091.25. The index perfected the setup on November 20th at 2,004.17. On December 4th, a bullish price flip initiated a sell setup. Tuesday, the index closed down -0.44% at 2,074.70, compared to 2,083.77 at the prior close and 2,031.91 4 days prior. The sell setup was unchanged at 5.
    • SX5E - On a monthly basis, the Euro Stoxx50 last perfected an sell setup on May 31, 2007. It perfected a buy setup on September 30, 2008. The buy countdown completed in May 2012. A bullish price flip in August initiated a sell setup, which ended November at 4. The index closed at 2,575.25, compared to 2,503.64 the prior month and 2,479.82 four weeks prior. On a weekly basis, the index trends are more pronounced, having perfected an sell setup on March 9th, followed by a buy setup on May 25th, followed by a weekly close 2119.19, below the sales exhaustion target. The index subsequently rallied to perfect a sell setup on August 10th. The upward countdown reached 10 on September 14th. A bullish price flip the week of November 23rd initiated a sell setup that closed the following week at 2,575.25, above the price exhaustion target of 2,563.46. In the week ended December 7th, the index rose +0.03% to close at 2,601.37, compared to 2,575.25 the prior week and 2,479.82 at the 4 weeks' prior close. The sell setup rose to 3. The sell countdown was unchanged at 8. On a daily basis, the index perfected a downward setup on May 14th, when it closed at 2,201.95. The index subsequently rallied through a perfected sell setup on June 18th and completed its sell countdown on July 24th. 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. On November 29th, the index perfected an upward setup. Monday, the index fell -0.21% to 2,596.02, compared to 2,601.37 the prior day and 2,590.83 at the prior 4 days' close. The sell countdown was unchanged at 3.


    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 0.89, compared to 0.80 the prior day, and mixed compared to its 5- and 10-period moving averages of 0.90 and 0.92, respectively. The index put/call ratio rose to 0.99, compared to 0.76 the prior day, and worse compared to its 5- and 10-period moving averages of 1.03 and 1.03, respectively. The equity put/call ratio closed the day at 0.84, compared to 0.82 the prior day, and better compared to its 5- and 10-period moving averages of 0.86 and 0.87, respectively.

    NYSE Indicators. Volume fell -2.24% to 592.76 million shares, compared to 606.32 million shares the prior day, +0.87x the 15-day moving average. Market breadth was slightly positive, and up volume led down volume. Advancing stocks led decliners by +311 (compared to +295 the prior day), or 1.23:1. Up volume led down volume by 1.15:1.

    BKX. Volume fell -22.6%, and the KBW bank index closed at 49.30, down -0.06% from 49.33 at the prior close. Volume fell to 46.849 million shares, from 60.506 million shares the prior day, or 0.85:1x the 55.021 million share 15-day moving average. The index opened modestly lower and fell to an early 48.95 intraday low, but reversed by mid-session and rallied to a mid-afternoon 49.62 intraday high. Profit taking brought the index back to breakeven by the final hour, and the index traded narrowly lower at the close. Large cap banks underperformed the regional banks, as the KRX rose +0.20%.

    For the week, the BKX is down -0.06%. In December, the BKX is up +1.52%. 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 -3.22% below its recent September 14th peak. It has closed above 40 since January 3rd. The BKX closed -14.9% below its April 23, 2010 close (the post-2008 high point), but +51.4% above the 32.56 low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, which is up +32.0% in the same period. The BKX is up +25.2% in 2012, compared to a +12.8% rise in the SPX.

    Technical indicators are improving, as 20- and 50-day moving averages have regained a positive slope. The index closed +2.07%, +1.83%, and +4.21% above its respective 20-, 100-, and 200-day moving averages, but -0.17% 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 rose +6 bps. The 50-day moving average was unchanged. Its 100-day moving average rose +3 bps and the 200-day moving average rose +2 bps. The 20-day closed (by -1.08 points) below the 50-day. The 50-day moving average has closed (by +2.07 points) above the 200-day moving average since February 22nd. The 100-day moving average closed (by +1.10 points) above the 200-day moving average since March 19th, and the gap expanded +1 bp.

    The directional movement indicator remains negative, but improved Friday. Relative strength eased to 55.19, from 55.49 the prior day, moving above the middle of a neutral range. Next resistance is 49.63; next support at 48.96.

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