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Gary Townsend - Founding partner and Chairman, GBT Capital Management, LLC, a macro long/short fund based in Chevy Chase, Maryland. Also, 2007-2013, a founding partner, CEO and Portfolio Manager of Hill-Townsend Capital LLC, a long/short equity financial sector fund. Mr. Townsend has 35 years... More
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  • U.S. Futures Higher As SPX Closes At 5-year, TRAN At All-Time High  0 comments
    Jan 18, 2013 9:01 AM | about stocks: MS

    This morning. U.S. equity markets confirmed an uptrend on November 23rd. The SPX subsequently gained +5.09%. The SPX is at a 5-year high (all-time high was 1526.75 on September 28, 2007). The TRAN is at an all-time high. The DJI's all-time high was 13,895.63, set on September 28, 2007. Today, U.S. futures are modestly higher. Asian markets posted strong gains, with particular strength in Japan. Spanish 10-year sovereign debt yields are above 5%. European equity markets are higher.

    Technical indicators are positive. The SPX, DJI, Nasdaq, and NYSE composite are well above their 20-, 50-, 100-, and 200-day moving averages. Other indicators suggest that most indexes are near risk/exhaustion levels.

    This morning's economic reporting is limited to the January University of Michigan confidence report. Most focus is on 4Q2012 earnings, which this week features most of the largest U.S. banks. This morning, MS reported $0.45 EPS ex-DVA, compared to the $0.27 estimate.

    U.S. Treasury yields are higher, with the 10-year at 1.858%, compared to 1.879% the prior day. U.S. repo rates are at 15 bps, unchanged from the prior day. Spanish and Italian 10-year debt yields are at 5.10% and 4.16%, respectively. The dollar is mixed. U.S. options markets are neutral to bullish. The CBOE skew rose +0.35% to 120.53, from 120.13 the prior day. Commodities prices are mixed.

    In pre-market futures trading, March SPX equity futures are moderately higher, and near the top of their 1475-1477 range. After a fair value adjustment of -0.11 points, SPX equity futures are at 1477.00, up +1.14 points. The SPX opens at 1480.94, +2.09%, +4.17%, +3.70%, and +6.23% 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.

    In 2013, the SPX is up +3.84%. The SPX is +37.8% above the 1074.77 October 4, 2011, intraday low. The SPX closed up +13.4% in 2012. Next resistance is at 1486.52. First support is at 1473.99.

    This year, the BKX is up +4.56%, outperforming the SPX. Last year, financial stocks outperformed the broader market, as the BKX closed up +30.2%, compared to the +13.4% SPX gain. Tis week, the BKX is up +0.04%. Last week, the BKX closed off -0.24%. The prior 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.

    Thursday. On greater volume, U.S. equity markets closed moderately higher, with the SPX at a 5-year and TRAN at new all-time highs. Futures were modestly higher, but markets moved higher on somewhat better than expected 4Q2012 earnings, moving to a mid-afternoon high. The NYSE composite rose +0.64%, followed by the DJI, SPX, and Nasdaq, which rose +0.63%, +0.59%, and +0.56%, respectively. Market breadth was strongly positive, and up volume led down volume y a large margin. NYSE volume rose +18.4% to 710.01 million shares, 1.02x the 20-day moving average.

    Trading desks reported continued consolidation, a "grind" higher, suggesting greater resistance as new highs are struck. The buy is biased toward "beta and cyclical" banks, technology, industrials, and basic materials. Sentiment is mixed, as investors cite improving fundamentals, but concern that markets have moved too quickly in the past 7 weeks. From its 1472.63 prior close, the SPX opened above 1476 in early trading and rallied to a 2:30 1485.16 intraday high. The index eased through the final hour to its 1480.94 close. Market volatility fell in early trading, but reversed higher in late in the session. From 13.42 at the prior close, the VIX fell to an early 13.16 intraday low, then reversed higher to 13.70 late in the session before easing to close at 13.57, up +1.12%.

    On -8.27% decreased volume, the DJ Transports rose +0.66%, compared to the DJI's +0.63% gain. The index opened higher and ground higher through the session to a mid-afternoon 5,685.40 high. The index closed at 5,681.28, another all-time closing high. The index closed +4.13%, +8.48%, +110.5%, and +10.7% above its respective 20-, 50-, 100-, and 200-day moving averages.

    Technical factors improved. SPX relative strength (RSI) rose to 67.40, from 64.47 the prior day. The CBOE put/call skew rose to 120.53, from 120.13 the prior day. U.S. Treasury bond prices fell.

    This week, the SPX, DJI, Nasdaq, and NYSE composite are up +0.60%, +0.93%, +0.46%, and +0.61%, respectively. Last week, the Nasdaq closed up +0.65%, while the SPX, DJI, and NYSE composite rose +0.39%, +0.27%, and +0.53%, respectively. The prior week, the Nasdaq, SPX, DJI, and NYSE composite closed up +4.77%, +4.57%, +3.84%, and +4.23%, respectively. In January and this year, the SPX, DJI, Nasdaq, and NYSE composite are up +3.84%, +3.75%, +3.86%, and +4.56%, 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 1474 (the 5-day moving average), then 1469 (the 10-day moving average). Resistance is then 1485 (the January 17th intraday high).

    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 sharply higher after a better than expected Chinese 4Q2012 GDP report. In Tokyo, the NKY closed up +2.86% on a +6.74% volume increase. In Hong Kong, the HSI rose +1.12% on a +47.0% volume increase. In Shanghai, the SHCOMP rose +1.41% on a +5.32% volume increase. The NKY, HSI, and SHCOMP closed above their respective 20-, 50-, 100-, and 200-day moving averages.

    Commentary focused on China's +7.9% 4Q2102 GDP growth.

    This week, the NKY is up +1.03%, while the HSI and SHCOMP are up +1.45% and +3.30%, 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 +4.98%. The HSI is up +4.17%. The SHCOMP is up +2.11%. In 2012, the NKY rose +1.37%. The HSI rose +22.9%. The SHCOMP rose +3.17%.

    In Japan, the NKY closed Friday at 10,913.30, up from 10,609.64 at Thursday's close. The index opened at 10,790 and generally rallied through the day to end at the intraday high. The NKY closed +5.79%, +13.3%, +17.7%, and +19.5% above its respective 20-, 50-, 100-, and 200-day moving averages. All market segments closed at least +0.01% higher. Leaders were technology, basic materials, and industrials, which rose at least +3.04%. Financials rose +2.63%. Laggards were health care, telecommunications, and utilities.

    In China, the Hang Seng closed at 23,601.78, up from 23,339.76 at the prior close. The index opened at the 23,510, and after some mid-morning volatility, rallied through the close to end just shy of the 23,606.50 intraday high. The index closed +2.49% and +5.75% above its respective 20- and 50-day moving averages. All market segments closed at least +0.35% higher. Leaders were oil and gas consumer services, and basic materials, which rose at least +1.30%. Financials rose +1.06%. Laggards were industrials, consumer goods, and utilities.

    In Shanghai, the SHCOMP opened at 2,295 and trended lower through late afternoon to its 2,286.06 intraday low, but then rallied to a mid-afternoon 2,324.47 intraday high. The index closed -6.35% below its 2,474.07 March 14th high. The SHCOMP closed +3.40% and +9.20% above its respective 20- and 50-day moving averages. All market segments closed at least +1.13% higher. Leaders were consumer goods, utilities, and consumer services, which rose at least +1.58%. Financials rose +1.41%. Laggards were technology, oil and gas, and health care.

    In Europe, the majorequity indexes are mixed. The Euro Stoxx50 and DAX are off -0.12% and -0.15%, respectively, while the FTSE 100 and CAC 40 are up +0.45% and +0.06%, respectively. All are above their respective 20-, 50-, 100- and 200 day moving averages. The Spanish IBEX 35 is up +0.02%, while the Italian FTSE MIB is down -0.43%. Commentary focused on the Chinese GDP report.

    From its prior 2,718.93 close, the Euro Stoxx 50 opened higher to an early 2,731.04 intraday high, but reversed lower by mid-session to its 2,711.35. The index currently is 2,716.08. Most market segments are lower. Leaders are consumer services, financials, and consumer goods, which are at least +0.00% higher. Laggards are oil and gas, utilities, and health care, which are down at least -0.78%.

    This week, the Euro Stoxx50 is down -0.10%, while the FTSE 100, CAC 40, and DAX are up +0.62%, +1.07%, and +0.15%, respectively. Last week, the Euro Stoxx50 and FTSE 100 rose +0.31% and +0.52%, respectively. The CAC 40 and DAX closed down -0.64% and -0.78%, respectively. The prior 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 +3.01%, +4.43%, +2.87%, and +1.46%, 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 0.15800%, down from 0.15850% the prior day. USD 3-month LIBOR is 0.30200%, unchanged from 0.30200% the prior day, and compares to the January 4, 2013, peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread is 14.00 bps, compared to 13.50 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 9.70 bps, up from 9.15 bps the prior day, and down from the December 27, 2011, high of 98.80 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.
    • The 3-month Euro basis swap is -17.107 bps , compared to -16.067 bps the prior day, but up from a trough of -147.00 bps on December 14th and within a normal -10 bps and -40 bps range.
    • Spanish 10-year debt yields are 5.11%, compared to 5.13% the prior day. Italian 10-year debt yields are at 4.16%, compared to 4.20% the prior day. German 10-year debt yields are 1.60%, compared to +1.61% the prior day.
    • The U.S. government overnight repo rate is 15 bps, unchanged from 15 bps the prior day. The January 2,, 2013, 45 bps rate was the highest since late 2008.
    • U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.258% and 1.865%, respectively, compared to 0.262% and 1.879% Thursday. The yield curve narrowed, with the 2 to 10 year spread at +1.606%, compared to 1.618% 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, weaker compared to the Japanese yen, but stronger vis the euro and British pound. The dollar trades at US$79.842, compared to a US$79.888 intraday low and US$79.649 the prior day, and worse compared to its US$80.095 50-day, US$80.009 100-day, and US$80.891 200-day averages. The euro trades at US$1.3351, compared to a US$1.3334 intraday low and US$1.3376 the prior day. The euro trades better compared to its US$1.3072 50-day and US$1.2990 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥89.81, compared to ¥89.88 the prior day. The yen trades worse than its 50-day moving average ¥84.43.
    • Citigroup Economic Surprise Index rose to 5.20, from 3.30 the prior day. The index is down from a peak of 60.70 on November 13th. The index is worse than its respective 6.81 5-day and 16.31 10-day moving averages. From its July 19th -65.30 low, the index improved rapidly and turned positive on September 5th, but the index signaled exhaustion on December 20th, and from 55.76 has subsequently moved rapidly lower. After a lag, the CESIUSD correlates with EPS revisions.
    • Commodities prices are mostly mixed, with mixed energy, higher precious metals, higher aluminum and copper, and mixed agriculture prices.


    Volatility, Skew:
     

    • The VIX rose +1.12% to 13.57, from 13.42 at the prior close. The VIX is -14.2% below its 15.82 20-day moving average. Its 30-day high is 22.72, set December 28th.
    • At mid-session, the Euro Stoxx 50 volatility index (V2X) is up +0.34% to 15.97, from 15.94 at the prior day's close, and near 5-year lows. The V2X index trades -4.66% below its 16.75 20-day moving average, -25.2% below the 21.35 30-day high, and +6.92% above the 14.93 30-day low.
    • The Hang Seng volatility index (VHSI) closed at 14.14, down -4.72% from 14.84 the prior day. The VHSI index trades -7.93% below its 15.36 20-day moving average. On January 10th, the VHSI closed at its lowest level since 2005.
    • CBOE skew rose +0.33% to 120.53, from 120.13 at the prior day's close, and above 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:
     

    • January University of Michigan confidence, with 75.0 survey and 72.9 prior.


    Overseas News:
     

    • China - Real 4Q2012 GDP YoY rose 7.9%, compared to 7.8% survey and 7.4% prior. December YoY industrial production rose +10.3%, compared to 10.2% survey and +10.1% prior.
    • Japan - November final industrial production fell -1.4%, compared to -1.7% prior.
    • United Kingdom - December retail sales fell -0.3%, compare dot +0.1% survey and +0.2% revised prior.


    Company Ratings/News:
     

    • MS - Reports $0.45 EPS ex-DVA, compared to $0.27 consensus EPS.


    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 11th, the index closed up +0.39% at 1472.05, compared to 1466.47 the prior week and 1413.58 close four weeks prior. The sell setup rose to 2. The sell countdown associated with August 10th perfection rose to 11. 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 Thursday, the SPX rose +0.56% to close at 1480.94, compared to 1472.63 the prior day and 1472.05 4 days prior. The sell setup rose to 7. The index closed +0.27% below the January 7th 1476.89 risk level, based on the SPX's 8.95 point trading range on January 6th and high of 1467.94.
    • 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 11th, the BKX closed at 53.18, down -0.24% from 53.73 the prior week and 49.26 four weeks prior. The sell setup rose to 6. The sell countdown associated with the September 21st perfection rose to 8. 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 index closed at 53.62, up +0.15% from 53.54 the prior day and 53.18 four days prior. The bullish price flip initiated a sell setup. The index closed +1.38% above the 52.89 risk level, which is based on the index's October 5th 0.88 point intraday range and 52.04 intraday high.
    • 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 -2.46% to end at 13.36, compared to 13.83 the prior week, and the 17.00 close 4 weeks prior. The buy setup rose to 2. The buy countdown associated with the August 10th perfection rose to 8. 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. On January 16th, the VIX perfected the buy setup begun on December 31st. Thursday, the VIX rose +1.12% to 13.57, compared to 13.42 at the prior close and 13.36 at the 4 days' prior close. The VIX closed -3.21% below the 14.02 support level, and -27.2% 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 11th, the index ended at 1.3343, compared to 1.3069 the prior week and 1.3163 4 weeks prior. The sell setup rose to 8. The sell countdown associated with the September 28th perfection rose to 6. 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. On January 11, the sell countdown stemming from the November 27th completed, setting a 1.3393 risk level. With Thursday's +0.65% higher close, the EURUSD cross was 1.3376, compared to 1.3289 the prior day and 1.3343 four days prior. The sell setup rose to 7.
    • 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 1.8677%, down from 1.8958% the prior Friday and 1.7015% four weeks prior. The sell setup rose to 6. 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, with a 1.9213% risk level, based on the October 25th 1.8542% high and 0.0671% intraday range. On December 19th, the rate perfected its sell setup and initiated a sell countdown. On January 9th, a bearish price flip initiated a buy setup. On Thursday, the rate ended at 1.8794, compared to 1.8185% the prior day and 1.8677% four days prior. The higher close canceled the buy setup rose at 6. The sell countdown associated with the December 19th perfection rose to 5.
    • 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. The index initiated a sell setup on October 26th, and on December 21st, the sell setup perfected, initiating a sell countdown. Notably, on December 28th, the index closed at 10,395.18, +2.01% above 10,190.35 resistance (its April 4th weekly high), suggesting further upside. On January 11th, the index closed at 10,801.57, compared to 10,688.11 the prior week and 9,737.56 four weeks' prior. The sell countdown rose to 4. On a daily basis, the NKY perfected an upward setup on March 27th, and two consecutive downward setups on April 12th, and May 14th, with completed downward countdowns on May 16th and June 4th. The index rallied through August 21st, but then strung together multiple lower closes, perfecting a downward setup on September 5th. The index subsequently rallied, initiating a sell setup on September 7th, which it perfected on September 20th. A buy setup commenced on September 21st, which was perfected on October 3rd. Subsequent trend and momentum were weak until November 15th, when a bullish price flip initiated a sell setup and countdown. The sell setup perfected on November 30th. 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. Friday, the index rose +2.86% at 10,913.3, compared to 10,609.64 the prior day and to 10,801.57 four days prior. The index closed +3.50% above resistance.
    • 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 11th, the index closed at 23,264.07, compared to 23,331.09 the prior week and 22,605.98 four weeks prior. The sell setup rose to 7. The sell countdown rose to 7. The index closed -4.11% below resistance at 24,260.77, the April 29, 2011, intraweek high. 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. A 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, when it set a resistance level of 22,496.70. The index perfected another sell setup on December 14th. On Friday, the HSI closed up +1.12% at 23,601.78, compared to 23,339.76 the prior day, and 23,413.26 four days prior. The index closed +4.91% above resistance. The sell setup rose to 5. The sell countdown associated with the December 14th perfection was unchanged at 9.
    • 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 11th, the index closed the week down -1.49% at 2,243.00, compared to 2,276.99 the prior week and 2,150.63 four weeks prior. The sell setup rose to 5. The buy countdown associated with the July 13th perfection was unchanged at 11. The index closed -6.98% below weekly resistance level is 2,411.27, the May 18, 2012, intraweek high. 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. On January 14th, the sell setup that began on December 25th perfected; also, the bullish price flip initiated a follow-on sell setup. Friday, the index closed up +1.41% at 2,317.07, compared to 2,2884.91 at the prior close and 2,311.74 4 days prior. The sell setup rose to 5. The sell countdown associated with the December 25th sell setup was unchanged 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 11th, the index rose +0.31% to close at 2,717.79, compared to 2,709.35 the prior week and 2,630.54 at the 4 weeks' prior close. The sell setup rose to 8. The sell countdown rose to 12. 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 and set a 2,786.57 risk level, based on the prior day's 2,711.25 high and 51.46 intraday range. Thursday, the index rose +0.61% to 2,718.93, from 2,702.54 the prior day and 2,717.79 at the prior 4 days' close. The bullish price flip initiated a sell setup.


    4Q2012 Earnings. Early 4th quarter earnings reports are positive, beating on both EPS and sales/revenues. Of 59 reporting companies, 42 or 71.2% surprised positively on earnings, beating by an average +8.60%. Of reporting companies, 39 or 66.1% have reported sales and revenues in excess of estimates.

    Valuation. The SPX trades at 14.2x estimated 2012 earnings ($103.41), 13.4x estimated 2013 earnings ($110.68), and 12.0x estimated 2014 earnings ($123.40). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2012 and 2013 earnings to exceed actual 2011 earnings ($96.97) by +8.89% and +16.6%, respectively.

    Options. Options markets are neutral to bullish. Composite options are bullish, index options are bullish, and equity options markets are neutral. The composite put/call ratio is 0.79 compared to 0.87 the prior day, and better compared to its 5- and 10-period moving averages of 0.84 and 0.85, respectively. The index put/call ratio fell to 0.84, from 0.84 the prior day, and better compared to its 5- and 10-period moving averages of 0.89 and 0.88, respectively. The equity put/call ratio closed the day at 0.75 compared to 0.88 the prior day, and better than its 5- and 10-period moving averages of 0.85 and 0.84, respectively.

    NYSE Indicators. Volume rose 18.4% to 710.01 million shares, from 599.78 million shares the prior day, 1.02x the 699.16 million share 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by 1,557 (compared to -265 the prior day), or 3.17:1. Up volume led down volume by 2.14:1.

    BKX. Volume rose +61.2%,and the KBW bank index closed at 53.62, up +0.151% from 53.54 at the prior close. Volume rose to 102.89 million shares, from 63.669 million shares the prior day, or 1.64:1x the 62.801 million share 15-day moving average. The index opened lower and set an early 53.30 intraday low, but reversed higher after 10:00 and traded narrowly through the day to end with a moderate gain. Large cap banks underperformed the regional banks, as the KRX rose +1.11%.

    This week, the BKX is up +0.04%. Last week, the BKX fell -0.24%. On the month and for the year, the BKX is up +4.565%. 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 -7.47% below its April 23, 2010 close (the post-2008 high point), but +64.7% above the 32.56 low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, which is up +37.0% in the same period. Technical indicators are positive as the index closed +2.25%, +6.80%, +7.40%, and +12.0% 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 +10 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 +2.24 points) above the 50-day. The 50-day moving average has closed (by +2.32 points) above the 200-day moving average since February 22nd. The 100-day moving average closed (by +2.04 points) above the 200-day moving average since March 19th, and the gap expanded +4 bps.

    The directional movement indicator is positive and widened to 14.831, from 13.925 the prior day. Relative strength rose to 65.0565, from 64.571 the prior day, in a neutral range. Next resistance is 53.84; next support at 53.35.

    Themes: SPX, DJI, CCMP, NYA, FTSE, DAX, TRAN, BKX, KRE, RTY, USGG10YR, EURUSD, JPYIUSD, SHCOMP, HSI, NKY, UKX, CAC Stocks: MS
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