This morning. U.S. equity markets confirmed an uptrend on November 23rd, but the uptrend is under pressure following Friday's sharp losses and looming fiscal cliff concerns. Today, U.S. futures are modestly lower, having improved after one Republican senator expressed confidence that a cliff deal would be reached today. Asian markets closed mixed, with the strength in Shanghai after another strong manufacturing activity report. Tokyo was closed for holiday. European equity markets are moderately lower.
Technical indicators have recently worsened. Friday, the SPX, DJI, and Nasdaq closed below their respective 20-, 50-, and 100-day moving averages. The Nasdaq is also below its 200-day moving averages. Other indicators suggest many major indexes passed price exhaustion levels and are trending lower.
This morning's U.S. economic reports are limited to December Dallas Fed manufacturing activity. U.S. Treasury yields are slightly higher, with the 10-year at 1.704%, down from 1.701% Friday. U.S. repo rates are at 24 bps, down from 15 bps the prior day. Spanish and Italian 10-year debt yields are at 5.27% and 4.50%. The dollar is mixed, with the yen only slightly lower. U.S. options markets suggest a neutral short-term outlook. The CBOE skew fell -1.02% to 118.38, from 119.60 the prior day. Commodities prices are mostly lower.
In pre-market futures trading, March SPX equity futures are lower and near the top of their 1386-1390 range. After a fair value adjustment of +12.68 points, SPX equity futures are at 1395.40, down -1.32 points. The SPX opens at 1402.43, off -4.32% from September 14th's 1465.77 multi-year closing high, and -1.36%, -0.68%, -1.29% below its respective 20-, 50-, and 100-day moving averages. The SPX is +0.88% above its 200-day moving average. The SPX is up +11.5% 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 +30.5% above the 1074.77 October 4, 2011 intraday low. Next resistance is at 1413.16. First support is at 1396.64.
Until recently, financial stocks had underperformed the broader market, but the BKX set a new 51.90 closing high on December 20th, and closed Wednesday -2.52% below its 2012 high, while the SPX is -4.32% below its September 14th high. Friday, the BKX fell -0.71%. This week, the index is down -1.35%. In December, the BKX is up +4.18%. In November, the BKX closed down -2.10%, following losses of -5.85% and -1.08% in October and September, respectively.
Friday. On lower volume, U.S. equity markets posted moderate losses. Futures suggested moderate losses, and indexes gapped lower on fiscal cliff concerns. The sell-off accelerated late in the session, when the president's intention not to propose any new offers became clear. The DJI fell -1.21%, followed by the SPX's -1.10% loss. The NSYE composite lost -1.00%, and the Nasdaq fell -0.86%. Market breadth was negative. NYSE volume fell -5.52% to 535.44 million shares, +0.76x the 20-day moving average.
Despite the sell-off, trading desks reported a quiet day. Late selling was more active, but never panicked. From its 1418.10 prior close, the SPX fell to 1410 in early trading, and rallied as high as 1416 by mid-morning, but then eased into the president's 3:00 pm meeting with congressional leaders and fell sharply in the final half hour, closing at 1402.43. Market volatility rose sharply. From 19.47 at the prior close, the VIX traded in a narrow 20-21 range through mid-afternoon, then spiked higher into the close to end at 22.72, up +16.7%.
On -1.07% decreased volume, the DJ Transports fell -0.85%, compared to the DJI's -1.21% loss. The index closed at 5,220.98, down from 5,265.70 the prior day, and below 5,300 for a 3rd consecutive day. The TRAN opened at 5,240, but reversed higher at mid-session, trading to a 5,278.84 intraday high. The rally was brief, reversing lower in early afternoon and falling sharply into the close. The index closed +0.22%, +1.93%, +2.61%, and +2.02% above its respective 20-, 50-, 100-, and 200-day moving averages. The TRAN closed -22.76% 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 worsened as the SPX surrendered its 50-day moving average. SPX relative strength (RSI) fell to 42.50, from 49.28 the prior day. The CBOE put/call skew fell -1.02% to 7027, from 119.60 the prior day. U.S. Treasury bond prices rose.
On the week, the Nasdaq, SPX, DJI, and NYSE composite closed down -2.01%, -1.94%, -1.92%, and -1.35%, respectively. In December, the NYSE composite leads with a gain of +0.67%, followed by the DJI and SPX, with respective losses of -0.67%, -0.97%, and -1.66%, 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 +5.91% higher in 2012.
Immediate SPX support is 1390 (the 200-day moving average). Resistance is 1412 (the 50-day moving average), then 1422 (the 20-day moving average).
Distribution day count. Since the uptrend confirmation on November 23rd, the NYSE composite, Nasdaq, and S&P 500 have distribution counts of 6, 5, and 4, respectively.
In Asia, equity markets closed mixed, with strength in Shanghai, but modest losses in Hong Kong, which closed early for New Years. In Tokyo, market were closed for New Years. In Hong Kong, HSI fell -0.04% on a -0.34% volume decrease. In Shanghai, the SHCOMP rose +1.61% on a +10.5% volume increase. The NKY, HSI, and SHCOMP closed above their respective 20-, 50-, 100-, and 200-day moving averages. Economic releases included vehicle sales in Japan and Chinese industrials profits.
Commentary focused on Chinese manufacturing and the weakening Japanese yen.
Last week, the NKY closed up +4.58%. The HSI closed +0.67% higher. The SHCOMP closed up +5.38%. In December, the NKY ended up +10.1%, the HSI +2.84%, and the SHCOMP +14.6%. In November, the NKY closed up +5.80%, while the HSI and SHCOMP closed +0.73% higher and -4.12% lower, respectively. In 2012, the NKY rose +1.37%. The HSI rose +22.9%. The SHCOMP rose +3.17%.
In Japan, the NKY closed at 10,395.18, up from 10,322.98 at Thursday's close. The index closed +1.37% above its prior March 27th high. The index gapped higher to open above 10,400, but traded narrowly until a late rally carried the index to its 10,433.63 intraday high. The index eased in the final minutes to end below 10,400. The NKY closed +6.66%, +11.8%, +14.2%, and +14.2% above its respective 20-, 50-, 100-, and 200-day moving averages. Most market segments closed higher. Leaders were consumer services basic materials, and consumer goods, which closed up at least +0.81%. Financials rose +0.43%. Laggards were health care, telecommunications, and utilities, which lost at least -0.55%.
In China, the Hang Seng opened at the day's 22,566.89 low, but reversed higher by mid-morning. The index closed modestly lower at 22,656.92. The HSI closed +1.37% and +3.43% above its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were consumer goods, utilities, and basic materials, which closed up at least +0.12%. Financials lost -0.06%. Laggards were oil and gas, technology, and consumer services, which fell at least -0.26%.
In Shanghai, the SHCOMP closed at 2,269.13, up from 2,233.25 the prior day. The index closed -8.28% below its 2,474.07 March 14th high. The index opened above 2,235, and rose to 2,260 moving into the afternoon session, and then eased higher to close just shy of its 2,269.42 intraday high. The SHCOMP closed +5.38% and +5.51% above its respective 20- and 50-day moving averages. All market segments closed at least +0.59% higher. Leaders were financials, technology, and industrials, which rose at least +1.25%. Laggards were consumer goods, telecommunications, and health care.
In Europe, the majorequity indexes closed mixed, with somewhat greater weakness in Italy. The Euro Stoxx50 and CAC 40 closed up +0.34% and +0.58%, respectively, while the FTSE 100 and DAX closed down -0.47% and -0.57%, respectively. All remain above their respective 20-, 50-, 100- and 200 day moving averages. The Spanish IBEX 35 closed up +0.45%, while the Italian FTSE MIB closed down -0.82%.
Last week, the Euro Stoxx50, FTSE 100, and CAC 40 closed down -0.50%, -0.17%, and -1.12%, respectively, while the DAX rose +0.26%. In December, the Euro Stoxx50, FTSE 100, CAC 40, and DAX ended up +2.86, +1.45%, +3.73%, and +2.00%, 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 closed up +13.8%, +5.84%, +15.2%, and +29.1%, respectively.
Libor, LOIS, Currencies, Treasuries, Commodities:
- USD LIBOR is 0.16800%, up from 0.16650% the prior day. USD 3-month LIBOR is 0.30600%, down from 0.30800% the prior day, and compares to the January 4, 2012 peak of 0.58250%.
- The US Libor-OIS (LOIS) spread is 15.70 bps, compared to 15.50 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 -20.260 bps, compared to -21.238 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 5.27%, compared to 5.26% the prior day. Italian 10-year debt yields are at 4.50%, compared to 4.53% 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 24 bps, compared to 15 bps the prior day.
- U.S. Treasury yields are slightly higher, with 2- and 10-year maturities yielding 0.243% and 1.704%, respectively, compared to 0.247% and 1.701% Friday. The yield curve widened, with the 2 to 10 year spread at +1.462%, compared to 1.454% 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 Japanese yen, but weaker compared to the British pound. The dollar trades at US$79.809, compared to a US$79.850 intraday high and US$79.678 the prior day, and worse compared to its US$80.199 50-day, US$80.278 100-day, and US$80.859 200-day averages. The euro trades at US$1.3183, compared to a US$1.3172 intraday low and US$1.3216 the prior day. The euro trades better compared to its US$1.2975 50-day and US$1.2883 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥86.18, compared to ¥85.96 the prior day. The yen trades worse than its 50-day moving average ¥82.07.
- Citigroup Economic Surprise Index fell to 47.70, from 49.10 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 than its respective 50.86 5-day and 50.57 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, mixed precious metals, lower aluminum and copper, and mixed agriculture prices.
- The VIX rose +16.7% to end at 22.72, from 19.47 at the prior close. The VIX is +31.8% above its 17.24 20-day moving average. The VIX set a recent closing low of 13.45 on August 17. Its 30-day high is 23.23, set this past Friday.
- At mid-session, the Euro Stoxx 50 volatility index (V2X) is up +17.1% to 21.53, from 18.23 at the prior day's close. The V2X index trades +24.7% above its 17.13 20-day moving average, -4.67% below the 22.32 30-day high, and +43.0% 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 17.82, up +3.66% from 17.19 the prior day. The VHSI index trades +13.5% above its 15.71 20-day moving average. On December 17th, the VHSI closed at 15.14, a 5-year low.
- CBOE skew fell to 118.38, down -1.02% from 119.60 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:
- Senate fiscal cliff negotiations, which proved fruitless over the weekend, continue today.
- At 10:30, December Dallas Fed manufacturing activity, with -2.8 prior.
- China - December HSBC manufacturing PMI was 51.5, compared to 50.9 survey and 50.5 prior.
- France - Its supreme court declares the 75% maximum tax rate unconstitutional.
- United Kingdom - December Lloyds business barometer was 20 compared to 17 prior.
Price and Selling Exhaustion/Trend Reversal:
· SPX - On a monthly basis,the SPX initiated a buy setup in June 2008, with the month's 1404.05 high setting the resistance level. The setup perfected at 735.09 in February 2009. A sell setup ensued in May 2009. In September 2010, a follow-on setup began. The May 2009 setup perfected in January 2010. Its countdown completed in January 2012, closing at 1312.41 and setting a 1429.36 risk level. The follow-on setup perfected in May 2011. In March 2012, the index closed at 1408.47, above resistance, suggesting further upside. In September 2012, the index closed at 1440.67, above the 1429.36 risk level and suggesting the likelihood of further upside. In October and November, the index closed below the risk level, but above 1404.05 support. Also, the follow-on countdown rose to 8 in September 2012, but hasn't subsequently progressed. In August 2012, the index initiated a new setup, 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 risk 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 28th, the index closed down -1.94% at 1402.43, compared to 1430.15 the prior week and 1416.18 close four weeks prior. The bearish price flip initiated a buy countdown. The sell countdown associated with Auugst 10th perfection was unchanged at 9. On a daily basis, the SPX perfected a sell setup on August 15th at 1405.53, and completed its sell countdown on September 13th, with its 1459.99 close. The completion generated a 1492.18 risk level. The index showed weak subsequent trend until November 19th, when a bullish price flip initiated a sell setup with support at 1359.88, the open and intraday low. The index perfected the setup on November 30th with its 1416.18 close, initiating a sell countdown. On Friday, the SPX fell -1.10% to close at 1402.43, compared to 1418.10 the prior day and 1430.15 4 days prior. The buy setup rose to 5. The sell countdown stemming from the November 30th perfection was unchanged at 8.
- BKX - On a monthly basis, the BKX perfected a buy setup in December 2007but has yet to complete its associated buy countdown, which is has been a deferred 13 since April 2011. That same month, the BKX initiated a buy setup, but the setup has remained unperfected since December 2011, when the index closed at 39.38. 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 December 2, 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 were weak until December 7, when the index initiated a new sell setup. On December 28th, the BKX closed at 50.59, down -1.35% from 451.28 the prior week and 48.56 four weeks prior. The sell setup rose to 4. The sell countdown associated with the September 21st perfection rose to 6. On a daily basis, the BKX signaled selling exhaustion on June 4th, then rallied to 44.65 on June 19th, when it perfected 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. Friday, the index closed at 50.59, compared to 50.95 the prior day and 51.28 four days prior. 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 +27.4% to end at 22.72, compared to 17.84 the prior week, and the 15.87 close 4 weeks prior. The sell setup rose to 3. The buy countdown associated with the August 10th perfection 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. Friday, the VIX rose +16.7% to 22.72, compared to 19.47 at the prior close and 17.84 at the 4 days' prior close. The sell setup rose to 7. The VIX closed +38.8% above the 14.02 support level and +4.45% above 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 28th, the index ended at 1.3216, compared to 1.3188 the prior week and 1.2986 4 weeks prior. The weekly sell setup rose to 6, while the sell countdown rose to 5.
- 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 a buy setup the following day and perfected the setup on November 27th at 1.2943. With Friday's -0.20% decrease, the EURUSD cross closed at 1.3216, compared to 1.3236 the prior day and 1.3185 four days prior. The sell setup rose to 2. The sell countdown stemming from the November 27th perfection was unchanged at 12.
- 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 1.7009%, down from 1.7623% the prior Friday and 1.6156% four weeks prior. The sell setup rose to 4. 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. On December 28th, a bearish price flip initiated a bearish price flip. On Friday, the rate ended at 1.7009%, compared to 1.7364% the prior day and 1.7623% four days prior. The buy setup rose to 5. The sell countdown associated with the December 19th perfection 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 December at 10,395.18, compared to 9,446.01 the prior month and 8839.91 four months prior. The sell setup rose to 2. The sell countdown associated with the April 2009 perfection was unchanged at 11. 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 December 28th, the index closed at 10,395.18, compared to 9,940.06 the prior week and 9,446.01 four weeks' prior. The sell countdown rose to 2. On a daily basis, the NKY perfected an upward setup on March 27th, and two consecutive downward setups on April 12th, and May 14th, with completed downward countdowns on May 16th and June 4th. The index rallied through August 21st, but then strung together multiple lower closes, perfecting a downward setup on September 5th. The index subsequently rallied, initiating a 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 up +0.70% at 10,395.18, compared to 10,322.98 the prior day and 9,940.06 four days prior. The sell countdown completed at 13.
- 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 four months and ended December at 22,656.92, 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 28th, the index closed at 22,666.59, compared to 22,506.29 the prior week and 22,030.39 four weeks prior. The sell setup rose to 4. The sell countdown rose to 5. 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 31st, the HSI closed down -0.04% at 22,656.92, compared to 22,666.59 the prior day, and 22,506.29 four days prior. The sell setup rose to 2. The sell countdown was unchanged at 4.
- 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 December at 2,269.13, above support at 1,987.13, and compared to 1,980.12 the prior month and 2,047.52 four months prior. The bullish price flip initiated a sell setup. The current monthly buy countdown was unchanged at 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 28th, the index closed the week up +3.71% at 2,233.25, compared to 2,153.31 the prior week and 1,980.12 four weeks prior. The sell setup rose to 3. 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. Monday, the index closed up +1.61% at 2,269.13, compared to 2,233.25 at the prior close and 2,213.61 4 days prior. The sell setup rose to 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 rose to 5 in December. The index closed at 2,635.91, compared to 2,575.25 the prior month and 2,440.71 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 28th, the index fell -0.91% to close at 2,626.85, compared to 2,651.09 the prior week and 2,575.25 at the 4 weeks' prior close. The sell setup rose to 6. The sell countdown was unchanged at 10. 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 rose +0.34% to 2,635.91, compared to 2,626.85 the prior day and 2,213.61 at the prior 4 days' close. The buy setup rose to 2. The sell countdown was unchanged at 11.
3Q2012 Earnings. The 3rd quarter's earnings reports were mixed, beating on EPS, but falling short on sales/revenues. Of 497 reporting companies, 350 or 70.4% surprised positively on earnings, beating by an average +3.82%. Sales and revenues fell short, however, with only 205 or 41.3% surprising positively.
Valuation. The SPX trades at 13.6x estimated 2012 earnings ($103.41), 12.4x estimated 2013 earnings ($114.25), and 11.2x estimated 2014 earnings ($127.15). The 10-year average median price/earnings multiple is 15.9x. Since the beginning of 2012, analysts changed 2012 and 2013 earnings estimates by -4.87%, and -3.00%, respectively. Analysts expect 2012 and 2013 earnings to exceed actual 2011 earnings ($96.97) by +8.90% and +17.8%, respectively.
Options. Options markets are neutral. Composite options are neutral, index options are neutral, and equity options markets are neutral. The composite put/call ratio is 1.06, compared to 1.05 the prior day, and worse compared to its 5- and 10-period moving averages of 1.01 and 0.93, respectively. The index put/call ratio fell to 1.30, from 1.19 the prior day, and mixed compared to its 5- and 10-period moving averages of 1.34 and 1.16, respectively. The equity put/call ratio closed the day at 0.95 compared to 0.99 the prior day, and worse than its 5- and 10-period moving averages of 0.90 and 0.84, respectively.
NYSE Indicators. Volume fell -5.52% to 535.44 million shares, from 566.72 million shares the prior day, +0.74x the 726.00 million shares 20-day moving average. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -1,127 (compared to -384 the prior day), or 0.46:1. Up volume lagged down volume by 0.21:1.
BKX. Volume fell -23.4%, and the KBW bank index closed at 50.59, down -0.71% from 50.95 at the prior close. Volume fell to 38.900 million shares, from 50.781 million shares the prior day, or 0.64:1x the 60.451 million share 15-day moving average. In early trading, the index fell to its 50.42 intraday low, but it recovered back to breakeven by mid-morning. The index traded narrowly lower through most the session's remainder, finding support at 50.80, but weakened with the market in the final 30-minutes on news that the president would offer no new fiscal cliff deal in his afternoon meeting with Congressional leaders. Large cap banks outperformed the regional banks, as the KRX fell -0.91%.
Last week, the BKX fell -1.35%, compared to the prior week's +4.10% rise. In December, the BKX is up +4.18%. 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 9th consecutive day. The BKX closed -12.7% below its April 23, 2010 close (the post-2008 high point), but +55.4% above the 32.56 low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, which is up +30.5% in the same period. The BKX is up +28.5% in 2012, compared to a +11.5% rise in the SPX.
Technical indicators remain positive as the index closed +1.29%, +2.39%, +3.02%, and +6.16% 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 above its 50-day moving average on December 21st. The index has closed above its 100-day moving average since August 7th. The 20-day moving average rose +9 bps. The 50-day moving average was unchanged. Its 100-day moving average rose +5 bps, and the 200-day moving average rose +3 bps. The 20-day closed (by +0.53 points) above the 50-day. The 50-day moving average has closed (by +1.76 points) above the 200-day moving average since February 22nd. The 100-day moving average closed (by +1.45 points) above the 200-day moving average since March 19th, and the gap expanded +3 bps.
The directional movement indicator is positive, but narrowed to 8.588, from 9.078 the prior day. Relative strength fell to 55.42, from 59.07 the prior day, in a neutral range. Next resistance is 50.89; next support at 50.35.