This morning. U.S. equity markets confirmed an uptrend on November 23rd, but futures are significantly lower following the failure of last night's fiscal cliff, "Plan B" congressional vote. Asian equity markets closed moderately lower, European equities are also lower.
While market fundamentals have improved rapidly in December, and all major indexes closed above their respective 20-, 50-, 100-, and 200-day moving averages, other price and exhaustion indicators indicate overbought conditions in most major markets.
This morning's U.S. economic reports were generally strong. Nonetheless, in addition to U.S. equity futures weakness, U.S. Treasury yields are lower, with the 10-year at 1.763%, down from 1.796% Thursday. U.S. repo rates are at 20 bps, unchanged from the prior day. Spanish and Italian 10-year debt yields are at 5.26% and 4.48%, respectively, compared to 5.23% and 4.42% the prior day. The dollar is weaker. U.S. options markets suggest a neutral to bullish short-term outlook. The CBOE skew rose +3.07% to 124.47, from 120.76 the prior day. Commodities prices are mostly lower.
In pre-market futures trading, December SPX equity futures are significantly lower, but off the bottom of their 1418-1424 range. SPX equity futures are at 1419.60, down -21.00 points. The SPX opens at 1443.69, off -1.51% from September 14th's 1465.77 multi-year closing high, and +1.74%, +2.13%, +1.76%, and +3.94% above its respective 20-, 50-, 100-, and 200-day moving averages. The SPX is up +14.8% in 2012. On December 18th, the 20-day moving average crossed above its 50-day moving average and on December 20th crossed above the 100-day moving average. The 50-day moving average crossed above its 100-day moving average on August 17th. The SPX is +34.3% above the 1074.77 October 4, 2011 intraday low. Next resistance is at 1447.32. First support is at 1436.44.
Until recently, financial stocks had underperformed the broader market, but the BKX is at a new 2012 closing high, while the SPX is -1.51% below its September 14th high. Thursday, the BKX rose +1.33%, widening its weekly and monthly gains to +5.36% and +6.88%, respectively. The BKX closed down -2.10% in November, following losses of -5.85% and -1.08% in October and September, respectively.
Thursday. Markets posted moderate gains on optimism that the House's planned "Plan B" vote signaled fiscal cliff progress. Futures suggested a modestly lower open, and equities traded narrowly through the morning session until early afternoon, when news of an evening vote spurred a rally that extended through the close. The major indexes closed at their intraday highs, with NYSE composite up +0.62%, followed by the SPX, DJI, and Nasdaq, which closed up +0.55%, +0.45%, and +0.20%, respectively. Market breadth was positive. NYSE volume fell -9.10% to 682.60 million shares, 0.98x the 15-day moving average. All SPX market segments closed at least +0.02% higher. Leaders were financials, basic materials, and telecommunications, which rose at least +0.80%. Laggards were industrials, health care, and technology.
From its 1435.81 prior close, the SPX opened slightly higher, but immediately reversed lower to its 1432.82 intraday low. The index traded narrowly around 1436 through early afternoon, but then rallied to 1442 by 2:00 and rallied into the close to end at the 1443.69 intraday high. Market volatility rose. From 17.36 at the prior close, the VIX trended lower through late morning, then rose to 17.96 late in the session before easing to end at 17.67, up +1.79%.
Trading desks noted a general rotation away from "risk-on" names, though financials outperformed other groups. The "pain" trade appears to be higher. Liquidity and attendance are dropping moving into the holiday week and New Year.
On -9.45% decreased volume, the DJ transports outperformed, up +0.70% compared to the DJI's +0.45% gain. The index closed at 5,357.81, up from 5,320.78 the prior day, and above 5,300 for a 3rd consecutive day. The TRAN traded around 5320 through mid-session, then trended higher through the afternoon to a late 5,358.30. Notably, the index never reached its yearly high. The index closed +3.81%, +5.14%, +5.54%, and +4.76% above its respective 20-, 50-, 100-, and 200-day moving averages. The TRAN closed -0.21% 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 as all major indexes closed well above their 20-, 50-, 100-, and 200-day moving averages. SPX relative strength (RSI) rose to 62.19 from 59.35 the prior day. The CBOE put/call skew rose +3.07% to 124.47, from 120.76 the prior day. U.S. Treasury bond prices fell.
On the week, the Nasdaq, NYSE composite, SPX, and DJI are up +2.66%, +2.19%, +2.13%, and +1.35%, respectively. In December, the NYSE composite leads with a gain of +3.10%, followed by the DJI, SPX, and Nasdaq, with gains of +2.20%, +1.94%, and +1.33%, 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 +8.97% higher in 2012.
Immediate SPX support is 1434 (the 5-day moving average), then 1428 (the 10-day moving average), 1419 (the 20-day moving average), 1414 (the 50-day moving average), and 1389 (the 200-day moving average). Resistance is 1447, 1451, and 1466 (the September 14th closing high).
Distribution day count. Since the uptrend confirmation on November 23rd, the Nasdaq and NYSE composite have distribution counts of 3, while the SPX has a distribution count of two.
In Asia, equity markets ended lower, with distributions in Hong Kong and Shanghai. In Tokyo, the NKY fell -0.99% on a -6.66% decrease in volume. In Hong Kong, the HSI fell -0.68%. Volume rose +11.4%. In Shanghai, the SHCOMP fell -0.69% on a +4.01% volume increase. The NKY and HSI closed above their respective 20-, 50-, 100-, and 200-day moving averages. The SHCOMP closed above its 20-, 50-, and 100-day moving averages, but -2.20% below its 200-day moving average.
There were no important economic releases. Commentary focused on U.S. budget, fiscal cliff concerns.
Compared to last week's close, the NKY ended the week up +2.08%, the HSI closed down -0.44%, and the SHCOMP closed up +0.12%. Last week, the NKY rose +2.21%, the HSI rose +1.87%, and the SHCOMP rose +4.31%. In December, the NKY is up +5.23%, the HSI up +2.16%, and the SHCOMP up +8.75%. In November, the NKY closed up +5.80%, while the HSI and SHCOMP closed +0.73% higher and -4.12% lower, respectively.
In Japan, the NKY closed at 9,940.06, down from 10,039.33 at Thursday's close. The index closed down -3.07% from its March 27th high, but +17.6% higher in 2012. The index gapped higher to open just below 10,150 and rose to a 10175.06 early session high, but reversed lower before mid-session and traded to a mid-afternoon 9,924.42 intraday low. The index traded narrowly around 9,950 until easing again into the close. The NKY closed +3.63%, +8.38%, +9.89%, and +9.26% above its respective 20-, 50-, 100-, and 200-day moving averages. Most market segments closed lower. Leaders were financials, oil and gas, and telecommunications, which rose at least +0.23%. Laggards were consumer goods, basic materials, and industrials, which lost at least -1.22%.
In China, the Hang Seng closed at 22,506.29, down from 22,659.78 at the prior close. The index is +18.1% higher for the year. The index has closed above 20,000 since September 12th. The index opened above 22,565, but fell immediately to a 22,423.16 intraday day low. The index rebounded to 22,540 by mid-morning, then traded narrowly around 22,500 through the session's remainder. The HSI closed +1.38% and +3.30% above its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were utilities, which rose +0.06%, and oil and gas and telecommunications, which fell at least -0.31%. Laggards were consumer goods, consumer services, and financials, which closed at least -0.60% lower.
In Shanghai, the SHCOMP closed at 2,153.31, down from 2,168.35 the prior day. The index closed -13.0% below its 2,474.07 March 14th high, and down -2.10% in 2012. The index opened slightly higher and rose to a mid-morning 2,190.21 intraday high, but reversed lower following the failure of the Plan B vote. The index trended lower through the afternoon to a late 2,148.55 intraday low, and then rallied modestly into the close. Most market segments closed lower. Leaders were health care and consumer goods, which rose at least +0.06%, and telecommunications, which fell -0.10%. Laggards were utilities, oil and gas, and financials, which fell at least -0.84%.
In Europe, the majorequity indexes are moderately lower. The Euro Stoxx50, FTSE 100, and DAX are down -0.45%, -0.62%, -0.37%, and -0.59%, 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 -0.23%, while the Italian FTSE MIB is down -0.82%.
From its prior 2,658.30 close, the Euro Stoxx50 opened lower at 2,645, and fell to a late morning 2,634.87 low. The index rallied back to 2,650 at mid-session, but eased again to 2,646.55. Leaders are consumer services, telecommunications, and oil and gas, which are up at least +0.08%. Laggards are basic materials, financials, and technology, which are down at least -0.59%.
For the week, the Euro Stoxx50, CAC 40, and DAX are up +0.52%, +0.21%, and +0.37%, respectively, while the FTSE 100 is down -0.06%. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +1.12%, +0.12%, +1.04%, and +1.05%, respectively. For the month, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +2.67%, +0.87%, +2.63%, and +2.96%, 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 +14.1%, +6.21%, +15.5%, and +29.3%, respectively.
Libor, LOIS, Currencies, Treasuries, Commodities:
- USD LIBOR is 0.16350%, unchanged from 0.16350% the prior day. USD 3-month LIBOR is 0.31000%, unchanged from 0.31000% the prior day, and compares to the January 4th peak of 0.58250%.
- The US Libor-OIS (LOIS) spread is 15.20 bps, compared to 15.80 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 12.20 bps, up from 12.00 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 -25.63 bps, compared to -25.38 bps the prior day, and 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 5.26%, compared to 5.23% the prior day. Italian 10-year debt yields are at 4.48%, compared to 4.42% the prior day. German 10-year debt yields are 1.40%, compared to +1.42% the prior day.
- The U.S. government overnight repo rate is 20 bps, compared to 20 bps the prior day.
- U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.266% and 1.763%, respectively, compared to 0.270% and 1.796% Thursday. The yield curve narrowed, with the 2 to 10 year spread at +1.497%, compared to 1.526% 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 and British pound, but somewhat weaker compared to the Japanese yen. The dollar trades at US$79.395, compared to a US$79.487 intraday high and US$79.261 the prior day, and worse compared to its US$80.170 50-day, US$80.440 100-day, and US$80.852 200-day averages. The euro trades at US$1.3202, compared to a US$1.3180 intraday low and US$1.3244 the prior day. The euro trades better compared to its US$1.2956 50-day and US$1.28232 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥84.13, compared to ¥84.39 the prior day. The yen trades worse than its 50-day moving average ¥81.30.
- Citigroup Economic Surprise Index rose to 56.00, from 46.20 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 49.68 5-day and 43.75 10-day moving averages. The index has improved significantly from a recent July 19th -65.30 low, but the trend was lower until December 7th's bullish reversal from the prior day's 35.50 close. After a lag, a rising CESIUSD correlates with stabilizing EPS revisions.
- Commodities prices are mostly lower, with lower energy, lower precious metals, lower aluminum and copper, and higher agriculture prices.
- The VIX rose +1.79% to end at 17.67, up from 17.36 at the prior close. The VIX is +9.15% above its 16.19 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 up +9.14% to 17.20, from 15.76 at the prior day's close. The V2X index trades +1.44% above its 16.95 20-day moving average, -27.4% below the 24.77 30-day high, and +15.2% above the 14.93 30-day low. On December 19th, the index fell to a 5-year closing low of 15.65.
- The Hang Seng volatility index (VHSI) closed at 16.82, up +7.27% from 15.68 the prior day. The VHSI index trades +8.52% above its 15.50 20-day moving average. On December 17th, the VHSI closed at 15.14, a 5-year low.
- CBOE skew rose to 124.47, up +3.07% from 120.76 at the prior day's close, and above 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:
- Focus continues on fiscal cliff developments, after the failure of last night's House vote on "PLAN B". House Speaker Boehner will hold a news conference at 10:00.
- At 8:30, the November Chicago Fed national activity index was +0.10, compared to -0.64 revised prior.
- November personal income rose +0.6%, with +0.3% survey and +0.1% prior.
- November personal spending was +0.4%, compared to +0.4% survey and -0.1% revised prior.
- November durable goods orders rose +0..7%, compared to +0.3% survey and +1.1% revised prior.
- Capital non-defense goods shipments, ex-aircraft, rose +1.8%, compared to +0.6% survey and +0.6% revised prior.
- At 10:00, final December University of Michigan confidence, with 75.0 survey and 74.5 prior.
- France - December business confidence was 89, compared to 89 survey and 88 prior
- Germany - January GfK consumer confidence was 5.6, compared to 5.9 survey and 5.8 revised prior.
- Italy - December consumer confidence was 85.7, compared to 85.1 survey and 84.9 revised prior.
- October retail sales fell -1.0%, compared to 0.0% survey and -0.1% revised prior.
- United Kingdom - December GfK consumer confidence was -29, compared to -25 survey and -22 prior.
- ICE - Announces the $8.2 billion acquisition of NYX.
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, when the SPX closed at 1312.41, and generated a trend exhaustion level of 1429.36. In August 2012, the index initiated a new countdown, 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. A December close in excess of the trend exhaustion level would suggest that the uptrend will continue. 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 14th, the index closed down -0.32% at 1413.58, compared to 1418.07, but well above the 1379.85 close four weeks prior. The sell setup extended to 3. The sell countdown was unchanged at 8. The SPX closed -1.59% 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, initiating a sell countdown. A bullish price flip on December 17th initiated a sell setup. Wednesday, the SPX closed at 1443.69, compared to 1435.81 the prior day and 1413.58 four days prior. The sell setup rose to 4. The sell countdown rose to 9.
- 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 on December 7, the index initiated a new sell setup. On December 14th, the BKX closed at 49.26, compared to 49.33 the prior week and 47.15 four days prior. The sell setup rose to 2. The sell countdown rose to 34. 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. A sell countdown began on September 28th. A bullish price flip on December 6th, was followed on December 14th by a bearish price flip, initiating a buy setup. The index closed Thursday at 51.90, compared to 51.22 at the prior close and 49.26 four days prior. On December 17th, the 50.62 close above the November 1st 50.45 close and above the prior two days' close completed a sell countdown and initiated a sell setup. Thursday, the sell setup rose to 4.
- 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 +6.92% to end at 17.00, compared to 15.90 the prior week, and the 16.41 close 4 weeks prior. The positive price flip initiated a sell setup. The buy countdown was unchanged at 6. 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. A bearish price flip on December 7th initiated a new sell setup. Thursday, the VIX rose +1.79% to 17.67, from 17.36 at the prior close and 17.00 at the 4 days' prior close. The sell setup rose to 2. The buy countdown stemming from the November 23rd perfection was unchanged at 5. The VIX closed +26.0% above the 14.02 support level and -5.49% below the 18.64 exhaustion level.
- EUR, USD 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 14th, the index ended at 1.3163, compared to 1.2927 the prior week and 1.2743 4 weeks prior. The weekly sell setup rose to 5, while the sell countdown rose to 4. 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 Thursday's -0.12% decrease, the EURUSD cross closed at 1.3243, compared to 1.3227 the prior day and 1.3163 four days prior. The sell setup rose to 7. The sell countdown rose to 11.
- 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, with a sell countdown of 8, unchanged since November 16th. The rate ended the most recent week at 1.7015%, up from 1.6215% the prior Friday and 1.5800% four weeks prior. The sell setup rose to 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%. A bullish price flip on December 7th initiated a sell setup. On December 12th, the rate completed a sell countdown. On December 19th, the rate perfected its sell setup and initiated a sell countdown. Thursday, the rate ended at 1.7979%, compared to 1.8014% the prior day and 1.7015% four days prior. The sell countdown was unchanged at 1.
- 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. In the week ended December 14th, the NKY rose +2.14% to 9,940.06, compared to 9,737.56 the prior week and 9,366.80 4 weeks prior. On December 21st, the sell setup perfected, initiating a sell countdown. Notably, the index's 10,175.06 weekly high, never crossed its 10,190.35 trend (its April 4th weekly high) and closed -2.46% below trend. 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. Friday, the index closed down -0.99% at 9,940.06, compared to 10,039.33 the prior day and 9,826.30 four days prior. The sell countdown was unchanged at 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 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, and initiated a new sell setup on December 7th. On December 21st, the index closed at 22,506.29, compared to 22,605.98 the prior week and 22,513.61 four weeks prior. The sell setup rose to 3. The sell countdown rose to 4. 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, with a trend of 22071.74, and another perfected setup on October 25th. It completed another sell countdown on December 6th, with a trend of 22,465.97. On December 21st, the HSI closed off -0.44% from Thursday's 16-month high at 22,506.29, compared to 22,659.78 the prior day and 22,513.61 four days prior. The bearish price flip initiated a new buy setup. The sell countdown was unchanged at 2.
- 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. In subsequent weeks, it traded below the sales exhaustion target of 2148.45 to a 1980.12 close on November 30th, when the buy countdown reached 11. On December 21st, the index closed the week up +0.12% at 2,153.31, compared to 2,150.63 the prior week and 2,027.38 four weeks prior. The sell setup rose to 2. 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 buy countdown was completed on November 19th. On November 8th, when the index initiated a buy setup at 2,091.25. The index perfected that buy setup on November 20th at 2,004.17. On December 4th, a bullish price flip initiated a sell setup. Friday, the index closed down -0.69% at 2,153.31, compared to 2,168.35 at the prior close and 2,160.34 4 days prior. The bearish price flip initiated a buy setup.
- 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 14th, the index rose +1.12% to close at 2,630.54, compared to 2,601.37 the prior week and 2,427.32 at the 4 weeks' prior close. The sell setup rose to 4. The sell countdown rose to 9. 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. Thursday, the index rose +0.14% to 2,658.30, compared to 2,654.69 the prior day and 2,630.54 at the prior 4 days' close. The sell countdown rose to 10. The index closed -0.30% below the 2,666.32 trend.
3Q2012 Earnings. The 3rd quarter's earnings reports were mixed, beating on EPS, but falling short on sales/revenues. Of 494 reporting companies, 336 or 71.5% surprised positively on earnings, beating by an average +3.12%. Sales and revenues fell short, however, with only 204 or 41.4% 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 neutral, and equity options markets are neutral. The composite put/call ratio is 0.86, compared to 0.95 the prior day, and worse compared to its 5- and 10-period moving averages of 0.85 and 0.85, respectively. The index put/call ratio rose to 1.11, from 1.04 the prior day, and worse than its 5- and 10-period moving averages of 0.98 and 0.96, respectively. The equity put/call ratio closed the day at 0.72 compared to 0.90 the prior day, and worse than its 5- and 10-period moving averages of 0.78 and 0.79, respectively.
NYSE Indicators. Volume fell -9.10% to 682.60 million shares, from 750.92 million shares the prior day, +0.98x the 15-day moving average. Market breadth was positive, and up volume led down volume by a larger margin. Advancing stocks led decliners by +1,104 (compared to -25 the prior day), or 2.15:1. Up volume led down volume by 3.26:1.
BKX. Volume fell -131.7%, and the KBW bank index closed at 51.90, up +1.33% from 51.22 at the prior close. Volume fell to 58.543 million shares, from 67.835 million shares the prior day, or 0.95:1x the 61.840 million share 15-day moving average. The index opened at 51.20 and rose to 51.70 by mid-morning. The index dropped back to 51.40 moving into the afternoon session, then rallied through the close to end at the intraday high. Large cap banks outperformed the regional banks, as the KRX rose +1.33%.
On the week, the BKX is up +5.36%. Last week, the BKX fell -0.14%. In December, the BKX is up +6.88%. 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 closed above 50 for a 5th consecutive day and set a new high for 2012. The BKX closed -10.4% below its April 23, 2010 close (the post-2008 high point), but +59.4% above the 32.56 low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, which is up +34.3% in the same period. The BKX is up +31.8% in 2012, compared to a +14.8% rise in the SPX.
Technical indicators improved as the index closed +5.11%, +5.10%, +6.29%, and +9.21% above its 20-, 50-, 100-, and 200-day moving averages. Its 20-, 100-, and 200-day moving averages now have a positive slope. 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 +17 bps. The 50-day moving average rose 1 bp. Its 100-day moving average rose +6 bps and the 200-day moving average rose +4 bps. The 20-day closed (by -0.01 points) below the 50-day. The 50-day moving average has closed (by +1.86 points) above the 200-day moving average since February 22nd. The 100-day moving average closed (by +1.31 points) above the 200-day moving average since March 19th, and the gap expanded +3 bps.
The directional movement indicator is positive, but widened to 22.586, from 18.961 the prior day. Relative strength rose to 68.975, from 65.429 the prior day, at the high end of a neutral range. Next resistance is 52.13; next support at 51.43