This morning. U.S. futures are moderately higher after Tuesday's distributions. Asian markets closed mixed, as Tokyo and Hong Kong rebounded from the prior day's losses. European equity markets are modesty higher, with better strength in Milan. Overnight, Alcoa (NYSE:AA) reported in-line EPS, but higher revenues.
Technical indicators are mixed. The SPX, DJI, Nasdaq, and NYSE composite are well above their 20-, 50-, 100-, and 200-day moving averages. However, other indicators indicate most indexes are near exhaustion levels.
This morning's economic reporting is light. GS, MS, and other major U.S. banks reportedly will announce mortgage foreclosure settlements this week. U.S. Treasury yields are little changed, with the 10-year at 1.867%, compared to 1.868% the prior day. U.S. repo rates are at 14 bps, up from 14 bps the prior day. Spanish and Italian 10-year debt yields are at 5.12% and 4.31%, respectively. The dollar is stronger. U.S. options markets are mixed. The CBOE skew rose +1.17% to 118.15, from 116.78 the prior day. Commodities prices are mixed.
In pre-market futures trading, March SPX equity futures are modestly higher, and near the top of their 1450-1455 range. After a fair value adjustment of -0.80 points, SPX equity futures are at 1454.50, up +3.05 points. The SPX opens at 1457.15, -0.64% below above its January 4, 2013, 1465.77 multi-year closing high, and +1.56%, +3.08%, +2.33%, and +4.70% above its respective 20-, 50-, 100-, and 200-day moving averages. 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 +35.6% above the 1074.77 October 4, 2011 intraday low. In 2013, the SPX is up +2.17%. The SPX closed up +13.4% in 2012. Next resistance is at 1462.15. First support is at 1451.90.
Last year, financial stocks outperformed the broader market, as the BKX closed up +30.2% at 53.55, though -7.59% below its 57.95 post-2008 high. This week, the BKX is down -0.87%. Last week, the index rose +6.21%. In December, the BKX closed up +5.60%. In November, the BKX closed down -2.10%, following losses of -5.85% and -1.08% in October and September, respectively. In 2012, the BKX rose +30.2%, compared to the +13.4% SPX gain.
Tuesday. On increased volume, U.S. equity markets posted moderate losses with distributions on all the major exchanges. Futures were modestly lower, and markets moved lower through mid-morning before finding support. Indexes trended higher through the close to narrow losses. The DJI fell -0.41%, followed by the NYSE composite, SPX, and Nasdaq, which fell -0.38%, -0.32%, and -0.23%, respectively. Market breadth was negative. NYSE volume rose +10.5% to 691.62 million shares, +0.97x the 20-day moving average.
Trading desks reported a tired trade, though early selling pressure again abated in the afternoon, allowing indexes to narrow losses. Earnings are investors' most immediate concern. From its 1461.89 prior close, the SPX gapped lower and traded to a mid-morning 1451.64 intraday low. Finding support, the index eased higher through the afternoon. Market volatility fell to new multi-year lows. From 13.79 at the prior close, the VIX rose to a mid-morning 14.29 intraday high, then eased through the afternoon to end at 13.62, down -1.23%. The VIX is at March 2007 levels.
On +0.24% increased volume, the DJ Transports fell -0.38%, compared to the DJI's -0.41% loss. The index closed at 5,492.29, down from 5,513.50 the prior day. The TRAN traded narrowly through the first half-hour, then rolled lower to a mid-morning 5,456.03 intraday low. The index eased higher through the close, narrowing losses. The index closed +3.32%, +6.37%, +7.45%, and +7.23% above its respective 20-, 50-, 100-, and 200-day moving averages. The TRAN closed -2.30% below its 5,627.85 July 7, 2011 high. The TRAN has not confirmed multiple DJI new highs (the most recent September 14th).
Technical factors were little changed. SPX relative strength (RSI) fell to 60.12, from 62.33 the prior day. The CBOE put/call skew rose +1.17% to 118.15, from 116.78 the prior day. U.S. Treasury bond prices were little changed.
This week, the Nasdaq, SPX, DJI, and NYSE composite are down -0.32%, -0.64%, -0.79%, and -0.73%, respectively. Last week, the Nasdaq, SPX, DJI, and NYSE composite closed up +4.77%, +4.57%, +3.84%, and +4.23%, respectively. In December, the NYSE composite lead 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 closed at least +5.91% higher in 2012.
Immediate SPX support is 1452, then 1440 (the 10-day moving average). Resistance is 1461 (the 5-day moving average).
Distribution day count. Since the uptrend confirmation on November 23rd, the Nasdaq, NYSE composite, S&P 500, and DJI have distribution counts of 5, 4, 4, and 1, respectively.
In Asia, equity markets closed mixed, with Tokyo rebounding from yesterday's distribution. In Tokyo, the NKY rose +0.67% on a +1.70% volume increase. In Hong Kong, the HSI rose +0.46% on a +3.90% volume increase. In Shanghai, the SHCOMP fell -0.03% on a -0.73% volume decrease. The NKY, HSI, and SHCOMP closed above their respective 20-, 50-, 100-, and 200-day moving averages.
Commentary focused on positive U.S. earnings.
This week, the NKY, HSI, and SHCOMP are down -1.02%, -0.48%, and -0.07%, respectively. Last week, the NKY closed up +2.82%. The HSI closed +2.93% higher. The SHCOMP closed up +1.96%. 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 2013, the NKY is up +1.76%. The HSI is up +2.48%. The SHCOMP is up +0.27%. In 2012, the NKY rose +1.37%. The HSI rose +22.9%. The SHCOMP rose +3.17%.
In Japan, the NKY closed at 10,578.57, up from 10,508.06 at Tuesday's close. The index opened at 10,400, but rallied to breakeven by mid-morning and trended higher to its final hour 10,620.70 intraday high. The NKY closed +6.12%, +12.3%, +15.3%, and +16.0% above its respective 20-, 50-, 100-, and 200-day moving averages. Market segments closed mixed. Leaders were financials, industrials, and health care, which rose at least +0.69%. Laggards were oil and gas, utilities, and telecommunications, which fell at least -0.10%.
In China, the Hang Seng gapped higher to open above 23,160, then traded to an early afternoon 23,235.39 intraday high. The HSI closed +2.26% and +5.10% above its respective 20- and 50-day moving averages. Most market segments closed higher. Leaders were industrials, consumer services, and financials, which rose at least +0.76%. Laggards were basic materials, oil and gas, and technology, which closed off at least -0.02%.
In Shanghai, the SHCOMP closed at 2,275.34, down from 2,276.07 at Tuesday's close. The index closed -8.03% below its 2,474.07 March 14th high. The index opened at 2,270, but traded narrowly higher until mid-afternoon, when it reversed lower to its 2,259.13 intraday low. The index rallied back in the final hour to end with a fractional loss. The SHCOMP closed +4.71% and +8.71% above its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were telecommunications, consumer goods, and basic materials, which rose at least +0.79%. Laggards were industrials, financials, and utilities, which closed at least -0.37% lower.
In Europe, the majorequity indexes are modestly higher. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +0.17%, +0.50%, +0.01%, and +0.13%, respectively. All are above their respective 20-, 50-, 100- and 200 day moving averages. The Spanish IBEX 35 is up +0.48%, while the Italian FTSE MIB is up 1.21%.
The Euro Stoxx 50 moved higher at the open, setting an early 2,707.61 intraday high, but subsequently eased to breakeven by mid-session. The index currently trades at 2,695.32. Most market segments are higher. Leaders are telecommunications, oil and gas, and financials, which rose at least +0.48%. Laggards are health care, consumer goods, and consumer services, which are down at least -0.21%.
This week the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -0.55%, -0.22%, -0.58%, and -1.00%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +3.14%, +2.78%, +3.03%, and +1.57%, respectively. 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 2013, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +2.22%, +3.03%, +1.84%, and +1.14%, 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 0.16400%, unchanged from 0.16450% the prior day. USD 3-month LIBOR is 0.30500%, unchanged from 0.30500% the prior day, and compares to the January 4, 2012 peak of 0.58250%.
- The US Libor-OIS (LOIS) spread is 16.30 bps, compared to 17.28 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 12.60 bps, down from 13.40 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 -20.266 bps, compared to -19.733 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 5.12%, compared to 5.07% the prior day. Italian 10-year debt yields are at 4.31%, compared to 4.29% the prior day. German 10-year debt yields are 1.48%, compared to +1.49% the prior day.
- The U.S. government overnight repo rate is 14 bps, unchanged from 12 bps the prior day. The January 2,, 2013, 45 bps rate was the highest since late 2008.
- U.S. Treasury yields are mixed, with 2- and 10-year maturities yielding 0.256% and 1.867%, respectively, compared to 0.252% and 1.868% Tuesday. The yield curve narrowed, with the 2 to 10 year spread at +1.612%, compared to 1.616% 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 stronger compared to the euro, Japanese yen, and British pound. The dollar trades at US$80.517, compared to a US$80.531 intraday high and US$80.345 the prior day, and mixed compared to its US$80.228 50-day, US$80.134 163-day, and US$80.895 200-day averages. The euro trades at US$1.3046, compared to a US$1.3049 intraday low and US$1.3081 the prior day. The euro trades better compared to its US$1.2997 50-day and US$1.2934 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥87.43, compared to ¥87.05 the prior day. The yen trades worse than its 50-day moving average ¥83.14.
- Citigroup Economic Surprise Index fell to 31.10, from 31.90 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 35.18 5-day and 43.73 10-day moving averages. The index has improved significantly from the July 19th -65.30 low, but the index signaled exhaustion on December 20th, and subsequently trended lower. After a lag, the CESIUSD correlates with EPS revisions.
- Commodities prices are mixed, with mixed energy, mixed precious metals, higher aluminum and copper, and mixed agriculture prices.
- The VIX fell -1.232% to end at 13.62, from 13.79 at the prior close. The VIX is -18.6% below its 16.73 20-day moving average. The VIX set a recent closing low of 13.45 on August 17. Its 30-day high is 22.72, set December 28th.
- At mid-session, the Euro Stoxx 50 volatility index (V2X) is down -2.77% to 16.43, from 16.90 at the prior day's close. The V2X index trades -4.30% below its 17.17 20-day moving average, -23.1% below the 21.35 30-day high, and +10.0% 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 13.88, down -4.11% from 14.49 the prior day. The VHSI index trades -11.8% below its 15.74 20-day moving average. The VHSI closed at its lowest level since 2005.
- CBOE skew rose to 118.15, up +1.17% from 116.78 at the prior day's close, and within a neutral (115-120) range. Spikes in excess of 130 (as last on September 21, but previously 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:
- Alcoa Inc. - AA initiated 4Q2012 earnings with an in-line $0.06 EPS, but beat on revenues $5.898 billion compared to $5.598 billion estimate.
- November consumer credit was $16.045 billion, compared to $12.750 billion survey and $14.076 billion revised prior.
- GS and MS are reported to be in mortgage settlement talks.
- Australia - November retail sales fell -0.1%, compared to +0.3% survey and +0.0% prior.
- China - December new yuan loans were 550.0 billion, compared to 522.9 billion prior.
- Germany - November industrial production rose +0.2%, compared to +1.0% survey and -2.0% revised prior.
· GS, MS, JPM, C, WFC -- Mortgage settlement talks are expected as early as the end of this week.
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 5 in December, when the index closed at 1426.19, compared to 1416.18 the prior month and 1406.58 four months prior. A January close in excess of the 1429.36 risk level would suggest that the uptrend will continue. On a weekly basis, the SPX perfected a sell setup the week ending February 10th, when it closed at 1342.64. On March 30th, the index completed a sell countdown with a 1408.47 close, setting a resistance level of 1446.74. The index signaled selling exhaustion the week ended June 8th, during which the SPX traded to an intraweek 1266.74 low on June 4th, when it perfected a weekly buy setup. The next week's bullish price flip initiated a sell setup that perfected on August 10th at 1405.87. In the week ending January 4th, the index closed up +4.57% at 1466.47, compared to 1402.43 the prior week and 1418.07 close four weeks prior. The bullish price flip initiated a sell setup. The sell countdown associated with August 10th perfection rose to 10. 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, which completed on January 7th. On Tuesday, the SPX fell -0.32% to close at 1457.15, compared to 1461.89 the prior day and 1462.42 4 days prior. The bearish price flip canceled a sell setup and initiated a buy setup.
- BKX - On a monthly basis, the BKX perfected a buy setup in December 2007, but 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 December, the BKX rose +5.60% to end at 51.28, compared to 48.56 at the end of November and 47.19 four months prior. The sell setup rose to 4. The deferred buy countdown would complete with a close above 51.92. 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 January 4th, the BKX closed at 53.73, up from 50.59 the prior week and 49.33 four weeks prior. The sell setup rose to 5. The sell countdown associated with the September 21st perfection rose to 7. 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. Tuesday, the index closed at 53.26, compared to 53.55 the prior day and 52.93 four days prior. The sell setup rose to 6.
- 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 December at 18.02, compared to 15.87 at the end of November and 18.93 at the end of July. The bullish price flip initiated a sell setup. 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 fell -39.1% to end at 13.83, compared to 22.72 the prior week, and the 15.90 close 4 weeks prior. The bearish flip initiated a buy setup. The buy countdown associated with the August 10th perfection rose to 7. 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. Tuesday, the VIX fell -0.29% to 13.62, compared to 13.79 at the prior close and 14.68 at the 4 days' prior close. The buy setup rose to 6. The VIX closed -2.85% below the 14.02 support level, and -26.9% 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 January 4th, the index ended at 1.3069, compared to 1.3216 the prior week and 1.2927 4 weeks prior. The bearish price flip initiated a buy setup. The sell countdown associated with the September 28th perfection was unchanged at 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 Tuesday's -0.27% decrease, the EURUSD cross closed at 1.3081, compared to 1.3117 the prior day and 1.3186 four days prior. The bearish price flip cancelled a sell setup and initiated a buy setup. The sell countdown stemming from the November 27th is a deferred 13.
- 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. On December 7th, a bullish rate flip initiated a sell setup. The rate ended the most recent week at 1.8991%, up from 1.7009% the prior Friday and 1.6215% four weeks prior. The sell setup rose to 5. 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 Tuesday, the rate ended at 1.8683%, compared to 1.8974% the prior day and 1.8371% four days prior. The bearish rate flip canceled a sell setup at 4 and initiated a buy setup. The sell countdown associated with the December 19th perfection was unchanged at 4.
- 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 January 4th, the index closed at 10,688.11, compared to 10,395.18 the prior week and 9,527.39 four weeks' prior. The sell countdown rose to 3. On a daily basis, the NKY perfected an upward setup on March 27th, and two consecutive downward setups on April 12th, and May 14th, with completed downward countdowns on May 16th and June 4th. The index rallied through August 21st, but then strung together multiple lower closes, perfecting a downward setup on September 5th. The index subsequently rallied, initiating a 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. The associated sell countdown completed on December 28th, when it set a 10,544.28 resistance level. On January 4th, the index opened after the New Year's holiday, and closed above resistance, suggesting further upside. Wednesday, the index rose +0.67% at 10,578.57, compared to 10,508.06 the prior day and 10,395.18 four days prior.
- 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 January 4th, the index closed at 23,331.09, compared to 22,666.59 the prior week and 22,191.17 four weeks prior. The sell setup rose to 5. The sell countdown rose to 6. 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 22,071.74, and another perfected setup on October 25th. It completed another sell countdown on December 6th. The index perfected another sell setup on December 14th. On Wednesday, the HSI closed up +0.46% at 23,218.47, compared to 23,111.19 the prior day, and 23,398.60 four days prior. The buy setup rose to 2. The sell countdown associated with the December 14th perfection was unchanged at 7.
- 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 January 4th, the index closed the week up +1.96% at 2,276.99, compared to 2,233.25 the prior week and 2,061.79 four weeks prior. The sell setup rose to 4. 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. Wednesday, the index closed down -0.03% at 2,275.34, compared to 2,276.07 at the prior close and 2,269.13 4 days prior. The sell setup rose to an unperfected 9.
- 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 January 4th, 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 7. The sell countdown rose to 11. 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. On January 3rd, the index completed the associated countdown. Tuesday, the index fell -0.15% to 2,691.45, from 2,695.56 the prior day and 2,711.25 at the prior 4 days' close. The bearish price flip initiated a buy setup.
4Q2012 Earnings. Early 4th quarter earnings reports are positive, beating on both EPS and sales/revenues. Of 25 reporting companies, 20 or 80.0% surprised positively on earnings, beating by an average +3.97%. Of reporting companies, 17 or 68.0% have reported sales and revenues in excess of estimates.
Valuation. The SPX trades at 14.1x estimated 2012 earnings ($103.41), 12.8x estimated 2013 earnings ($114.24), and 11.5x estimated 2014 earnings ($127.14). 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 mixed. Composite options are neutral, index options are bullish, and equity options markets are bearish. The composite put/call ratio is 0.96, compared to 0.89 the prior day, and worse compared to its 5- and 10-period moving averages of 0.89 and 0.95, respectively. The index put/call ratio rose to 0.88, from 1.01 the prior day, and better compared to its 5- and 10-period moving averages of 0.97 and 1.12, respectively. The equity put/call ratio closed the day at 1.02 compared to 0.78 the prior day, and worse than its 5- and 10-period moving averages of 0.83 and 0.88, respectively.
NYSE Indicators. Volume rose +10.5% to 691.62 million shares, from 625.69 million shares the prior day, 0.97x the 714.40 million shares 20-day moving average. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -14 (compared to -263 the prior day), or 0.99:1. Up volume lagged down volume by 0.59:1.
BKX. Volume fell -5.22%, and the KBW bank index closed at 53.226, down -0.54% from 53.55 at the prior close. Volume fell to 57.234 million shares, from 60.386 million shares the prior day, or 0.89:1x the 64.451 million share 15-day moving average. The index moved lower to an early 52.97 intraday low, then trended higher to the close. Large cap banks outperformed the regional banks, as the KRX fell -0.61%.
On the week and for the year, the BKX is down -0.87% and up +3.86%, respectively. Last week, the BKX rose +6.21%. In December, the BKX closed up +5.60%. 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. In 2012, the index rose +30.2%, compared to a +13.4% rise in the SPX.
The BKX has closed above 50 since December 17th. The BKX closed -8.09% below its April 23, 2010 close (the post-2008 high point), but +63.6% above the 32.56 low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, which is up +35.6% in the same period. Technical indicators are positive as the index closed +3.90%, +7.14%, +7.61%, and +11.5% above its 20-, 50-, 100-, and 200-day moving averages. Its 20-, 50-, 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 +20 bps. The 50-day moving average rose +7 bps. Its 100-day moving average rose +7 bps, and the 200-day moving average rose +2 bps. The 20-day closed (by +1.55 points) above the 50-day. The 50-day moving average has closed (by +1.96 points) above the 200-day moving average since February 22nd. The 100-day moving average closed (by +1.74 points) above the 200-day moving average since March 19th, and the gap expanded +5 bps.
The directional movement indicator is positive, but narrowed to 24.845, from 27.671 the prior day. Relative strength fell to 67.43, from 70.46 the prior day, moving into an overbought range. Next resistance is 53.52; next support at 52.98.