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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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  • European Equities Sell Off; U.S. Futures Move Lower 0 comments
    Feb 6, 2013 9:22 AM

    This morning. U.S. equity markets confirmed an uptrend on November 23rd. The SPX subsequently gained +7.25% and progressed to a February 1st 1513.17 5-year high (-0.89% off the 1526.75 September 28, 2007, all-time closing high). Today, U.S. futures are moderately lower after yesterday's gains. Asian markets closed higher, as Tokyo rebounded strongly after the prior day's distribution. European equity markets are lower, with greatest weakness in Frankfurt and Italy.

    Technical indicators are generally positive, and the Nasdaq recaptured its 20-day moving average. The SPX, DJI, Nasdaq, and NYSE composite are all above their 20-, 50-, 100-, and 200-day moving averages. All major indexes had bullish price flips yesterday, initiating sell setups, after posting bearish price flips the prior day. In general, markets appear to be searching for direction. Major U.S. indexes are approximately +1.00% higher in February. Continental bourses are more than -1.50% lower.

    Economic reporting is light. In the U.S., details of the Justice Department's civil fraud suit against Standard and Poors (subsidiary of McGraw-Hill, MHP) are now available. In Europe, attention focuses on electoral developments in Italy and possibly Spain, where scandal threatens the ruling party's hold on a parliamentary majority. Italian parliamentary elections occur on February 24-25.

    U.S. Treasury yields are lower, with the 10-year at 1.987%, compared to 1.998% the prior day. U.S. repo rates are 3 bps, down from 10 bps the prior day. Spanish and Italian 10-year debt yields are 5.35% and 4.47%, respectively, well above their mid-January lows. The U.S. dollar is mixed, as the yen continues to weaken. U.S. options markets are neutral to bullish. Tuesday, the CBOE skew rose +0.51% to 123.22, from 122.60 the prior day. Commodities prices are mostly lower.

    This week, the SPX is down -0.12%, compared to last week's +0.68% increase. In February, the SPX is up +0.88%, compared to January's +4.87% rise. The SPX is -1.01% off its 1526.75 September 28, 2007, all-time high. The SPX is +40.6% above the 1074.77 October 4, 2011, intraday low. In 2013, the SPX is up +5.97%. In 2012, the SPX closed up +13.4%. Next resistance is at 1518.93. First support is at 1499.68.

    This week, the BKX is up +0.31%. Last week, the BKX rose +1.13%, compared to +1.20% the prior week. In February, the BKX is +1.99%, compared to January's +4.97% increase. This year, the BKX is up +7.06%, 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. In January, the BKX closed up +1.20%.

    In pre-market futures trading, March SPX equity futures have trended lower and are now near the bottom of the 1499-1508 range. After a fair value adjustment of +0.84 points, SPX equity futures are at 1500.25, down -6.84 points. The SPX opens at 1511.29, +1.57%, +4.21%, +5.06%, and +7.88% 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.

    Tuesday. On higher volume, U.S. equity markets closed with moderate gains, largely recovering the prior day's losses. Economic reports focused on non-manufacturing PMIs worldwide. The Nasdaq rose +1.29%, followed by the SPX, NYSE composite and DJI, which rose +1.04%, +0.76%, and +0.71%, respectively. Market breadth was positive, and up volume led down volume. All SPX market segments closed at least +0.20% higher. Leaders were technology, financials, and health care, which rose at least +1.20%. Laggards were basic materials, utilities, and telecommunications. NYSE volume rose +1.12% to 701.59 million shares, 0.99x the 20-day moving average.

    Trading desks reported surprise at the day's rally, which came without much clear explanation of the day's strength. Desks cite relative macro calm, economic growth improvement, strong earnings, and "reasonable" valuations. Desk flows were the opposite of Monday's. Shorting activity remains slight. Sentiment remains mixed, as investors cite improving fundamentals, but concern that markets have moved too quickly in the past 8 weeks, or that some tail-risk event could spur a more obvious sell-off.

    From its 1495.71 prior close, the SPX gapped higher to open at 1502 and rallied to a mid-afternoon 1514.96 intraday high. The index eased in the final hour to end at 1511.29. The index ended -1.01% off its 1,526.75 September 2007 all-time high. Market volatility fell. From the 14.67 prior close, the VIX opened at 1421 and trended lower to a late afternoon 13.39 low, then rose to end at 13.72, down -6.42%. The VIX is up +10.4% from the January 22nd 12.43 low close. The all-time closing low was 11.26, set June 30, 1993.

    On -7.75% lower volume, the DJ Transports rose +1.10%, compared to the DJI's +0.71% gain. The index opened at 5,840 and rallied with the broader market to a mid-afternon 5,895.11 intraday high, then eased to close at 5,884.39, a new all-time high. The index closed +2.71%, +8.36%, +12.4%, and +13.8% above its respective 20-, 50-, 100-, and 200-day moving averages.

    Technical factors improved, as the SPX closed back above resistance at 1504 and 1499, and the Nasdaq recaptured its 20-day moving average. SPX relative strength (RSI) rose to 65.25, from 59.65 the prior day, in the high end of a neutral range. The CBOE put/call skew rose +0.51% to 123.22, from 122.60 the prior day. U.S. Treasury bond prices fell.

    This week, the SPX, DJI, Nasdaq, and NYSE composite are down -0.12%, -0.22%, -0.24%, and -0.50%, respectively. Last week, the SPX, DJI, Nasdaq, and NYSE composite rose +0.68%, +0.82%, +0.93%, and +1.13%, respectively. The prior week, the SPX, DJI, Nasdaq, and NYSE composite rose +1.14%, +1.80%, +0.48%, and +1.20%, respectively. In February, the SPX, DJI, Nasdaq, and NYSE composite are up +0.88%, +0.86%, +0.94%, and +0.41%, respectively.

    In January, the SPX, DJI, Nasdaq, and NYSE composite closed up +5.04%, +5.77%, +4.06%, and +5.21%, respectively. In December, the NYSE composite led 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 2013, the SPX, DJI, Nasdaq, and NYSE composite are up +5.97%, +6.68%, +5.04%, +5.64%, respectively. All closed at least +5.91% higher in 2012.

    Immediate SPX support is 1504, then 1502 (the 5- and 10-day moving averages). Resistance is 1519 and 1526.75 (the September 28, 2007, all-time high).

    Distribution day count. Lower volume accompanied yesterday's losses, avoiding distributions. Since the uptrend confirmation on November 23rd, the Nasdaq, NYSE composite, and S&P 500 have distribution counts of 4, 3, and 2, respectively.

    In Asia, equity markets closed higher, but with an exceptional gain in Tokyo, which nearly doubled the prior day's -1.90% loss. In Tokyo, the NKY rose +3.77% on a -8.26% volume decrease. In Hong Kong, the HSI rose +0.47% on a -33.5% volume decrease. In Shanghai, the SHCOMP rose +0.06% on a -22.7% volume decrease. Chinese equity markets will be closed all next week for the New Year holiday.

    Notably, the HSI closed -1.12% below its 20-day moving average. The NKY and SHCOMP closed above their respective 20-, 50-, 100-, and 200-day moving averages. Commentary focused on announcement of a Chinese government plan to reduce the wealth gap and increase minimum wages.

    This week and month, the NKY and SHCOMP are up +0.64% and +2.43%, respectively, while the HSI is down -1.96%. Last week, the NKY closed up +2.42%, HSI rose +0.60%, and the SHCOMP soared +5.57%. The prior week, the NKY finished up +0.12%, the HSI closed down -0.09%, and SHCOMP closed down -1.11%. In February, the NKY, HSI, and SHCOMP are up +2.06%, down -1.99%, and up +2.06%, respectively, compared to gains of +7.15%, +4.73, and +5.12% the prior month. In 2013, the NKY is up +10.8%. The HSI is up +2.65%. The SHCOMP is up +7.29%. In 2012, the NKY rose +1.37%. The HSI rose +22.9%. The SHCOMP rose +3.17%.

    In Japan, the NKY closed at 11,463.75, compared to 11,046.92 at Tuesday's close, and set a new post-2008 high. The index gapped higher to open at 11,250, and rallied consistently to a late session 11,498.42. The NKY closed +5.91%, +12.8%, +20.4%, and +24.6% above its respective 20-, 50-, 100-, and 200-day moving averages. All market segments closed at least +2.23% higher. Leaders were consumer goods, industrials, and telecommunications, which rose at least +3.72%. Financials rose +3.43%. Laggards were oil and gas, technology, and utilities.

    In China, the Hang Seng closed at 23,256.93, up from 23,148.53 at the prior close. The index gapped higher to open at the 23,290, but by mid-morning dropped back to the 23,204.05 intraday low. The index rallied back to 23,280 by mid-session and rose to a an early afternoon 23,355.37 intraday high. The index eased lower through the session's remainder. The index closed -1.12% below and +1.66% above its respective 20- and 50-day moving averages. Most market segments closed higher. Leaders were telecommunications, industrials, and technology, which rose at least +0.60%. Financials rose +0.53%. Laggards were basic materials and oil and gas, which rose at least +0.27%, while consumer services fell -2.58%.

    In Shanghai, the SHCOMP closed at 2,434.48, up from 2,433.13 at the prior close. The index traded narrowly between a mid-morning 2,428.10 intraday low and 2,441.66 late session intraday high, and closed with a modest gain. The index closed -1.60% below its 2,474.07 March 14, 2012 high, but closed up +24.2% from its December 3rd 1,959.77 low. The SHCOMP closed +4.34% and +10.6% above its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were health care, technology, and financials, which rose at least +0.54%. Financials rose +0.54%. Laggards were industrials, utilities, and telecommunications, which fell at least -0.51%.

    In Europe, the majorequity indexes are mixed, with renewed weakness in Spain. The Euro Stoxx50, CAC 40, and DAX are down -0.94%, -0.74%, and -0.61%, respectively, while the FTSE 100 is up +0.33%. The Euro Stoxx50, CAC 40, and DAX are below their respective 20-day moving averages. The Euro Stoxx 50 is also below its 50-day moving average. The Spanish IBEX 35 is down -0.55%. The Italian FTSE MIB is down -1.03%.

    Commentary focused on earnings and Spanish and Italian electoral and other political developments.

    From its prior 2,651.21 close, the Euro Stoxx 50 opened modestly lower, but rallied to an early 2,658.47 intraday high. The index reversed lower by mid-morning and trended consistent lower to 2,621.70 at present, also its intraday low. All market segments are at least -0.33% lower. Leaders are technology, industrials, and consumer goods. Laggards are utilities, telecommunications, and financials, which are off at least -1.45%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -2.93%, -0.71%, -2.74%, and -2.42%, respectively. Last week, the Euro Stoxx50, CAC 40, and DAX fell -1.24%, -0.12%, and -0.31%, respectively. In February, the Euro Stoxx 50, CAC 40, and DAX are down -2.67%, -1.68%, and -1.70%, respectively, while the FTSE 100 is up +0.40%. In January, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +2.54%, +6.43%, +2.51%, and +2.15%, 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 2013, the Euro Stoxx50 is down -0.20%, while the FTSE 100, CAC 40, and DAX are up +6.85%, +0.79%, and +0.42%, 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 0.15400%, down from 0.15600% the prior day. USD 3-month LIBOR is 0.29300%, down from 0.29550% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread is 16.17 bps, compared to 16.65 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 12.40 bps, up from 11.30 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 -16.727 bps , compared to -16.237 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 5.35%, compared to 5.39% the prior day. The recent low was 4.89% on January 11th. Italian 10-year debt yields are at 4.47%, compared to 4.46% the prior day. Its recent low was 4.13% on January 11th. German 10-year debt yields are 1.63%, compared to +1.65% the prior day.
    • The U.S. government overnight repo rate is 3 bps, down from 10 bps the prior day. The January 2,, 2013, 45 bps rate was the highest since late 2008. The 0.00 bps low was on January 31, 2009.
    • U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.250% and 1.987%, respectively, compared to 0.254% and 1.998% Monday. The yield curve narrowed, with the 2 to 10 year spread at +1.737%, compared to 1.744% 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 and Japanese yen, but weaker compared to the British pound. The dollar trades at US$79.764, compared to a US$79.812 intraday low and US$79.488 the prior day, and worse compared to its US$79.801 50-day, US$79.959 100-day, and US$80.922 200-day averages. The euro trades at US$1.3531, compared to a US$1.3513 intraday low and US$1.3583 the prior day. The euro trades better compared to its US$1.3237 50-day and US$1.3071 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥93.70, compared to ¥92.63 the prior day. The yen trades worse than its 50-day moving average ¥86.97.
    • Citigroup Economic Surprise Index worsened to -29.90, from -29.30 the prior day, its 10th negative reading in the past 11 sessions, and compares to a recent November 13th 60.70 peak. The index is worse than its respective -29.20 5-day and -15.83 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 lower, with lower energy, lower precious metals, mixed aluminum and copper, and lower agriculture prices.


    Volatility, Skew:
     

    • The VIX fell -6.48% to 13.72, from 14.67 at the prior close. The VIX is +2.37% above its 13.40 20-day moving average. Its 30-day high is 22.72, set December 28th. Its 30-day low is 12.29.
    • At mid-session, the Euro Stoxx 50 volatility index (V2X) is up +3.40% to 19.92, from 19.26 at the prior day's close. The V2X index trades +23.1% above its 16.17 20-day moving average, -6.74% below the 21.35 30-day high, and +37.1% above the 14.52 30-day low.
    • The Hang Seng volatility index (VHSI) closed at 14.33, down -2.05% from 14.63 the prior day. The VHSI index trades +4.99% above its 13.65 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.
    • CBOE skew rose +0.51% to 123.22, from 122.60 at the prior day's close, and above a neutral (115-120) range. Spikes in excess of 130 (as last on September 21, but 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 correlates with 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:
     

    • MBA mortgage applications for the week ended February 1st rose +3.4%, compared to -8.1% the prior week.


    Overseas News:
     

    • Germany - December factory orders MoM were +0.8%, compared to +0.7% survey and -1.8% prior.
    • Portugal - December Industrial sales MoM fell -8.2%, compared to -5.6% revised prior.
    • United Kingdom - January new car registrations rose +11.5%, compared to +3.7% prior.


    Company Ratings/News:
     

    • None.


    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 sell setup, which progressed to 6 in January, when the index closed at 1498.11, compared to 1426.19 the prior month and 1440.67 four months prior. The sell countdown stemming with the May 2011 perfection rose to 9. The index closed +4.81% in excess of the 1429.36 risk level, suggesting 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. On January 31st, the sell countdown associated with August 10th perfection completed and generated a 1525.36 risk level. In the week ending February 1st, the index closed up +0.68% at 1513.17, compared to 1502.96 the prior week and 1472.12 close four weeks prior. The sell setup rose to 5. 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. After a bearish price flip on January 8th, a bullish price flip on January 9th initiated a sell setup, which perfected on January 22nd and validated a 9-13-9 sell pattern, suggesting the likelihood of a market top in the next 12 trading sessions. On Tuesday, the SPX rose +1.04% to close at 1511.29, compared to 1495.71 the prior day and 1501.96 4 days prior. The bullish price flip canceled a 1 sell setup and initiated a buy setup. The sell countdown stemming from the January 22nd perfection was unchanged at 6. The index closed +2.33% above 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. The buy countdown would complete with a close below 28.72, the February 2009 close with an 8 buy countdown. In September 2012, it initiated a sell setup, which rose to 3 in November. In January, the BKX rose +4.97% to end at 53.83, compared to 51.28 at the end of December and 49.58 four months prior. The sell setup rose to 5. 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 February 1st, the BKX closed at 54.73, up +1.13% from 54.12 the prior week and 53.73 four weeks prior. The December 7th sell setup perfected. The sell countdown associated with the September 21st perfection rose to 10. 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. 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 up +1.55% at 54.90, compared to 54.06 the prior day and 53.94 four days prior. The sell setup rose to 3. The index closed +3.74% above the 52.92 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 January, the VIX fell -23.9%, after rising +13.6% in December, and falling -14.7% in November. The VIX ended January at 14.28, compared to 18.02 at the end of December and 22.72 at the end of September. The bearish price flip canceled last month's bullish price flip, and initiated a buy 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 rose +0.08% to end at 12.90, compared to 12.89 the prior week, and 13.83 4 weeks prior. The buy setup rose to 5. The buy countdown associated with the August 10th perfection was unchanged at 10. 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. On January 18th, a bearing flip initiated a new buy setup and a buy countdown stemming from the January 16th setup perfection. Tuesday, the VIX fell -6.48% to close at 13.72, compared to 14.67 at the prior close and 14.32 at the 4 days' prior close. The bearish price flip canceled a bullish price flip and initiated a buy setup. The buy countdown associated with the January 16th perfection was unchanged at 3. The VIX closed -2.14% below the 14.02 support 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 January at 1.3579, compared to 1.2986 the prior month and 1.2579 4 months prior. The sell setup rose to 5. The buy countdown is 8. 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. On January 18th, the index completed a sell setup at 1.336. The week of February 1st, the index ended at 1.3650, compared to 1.3464 the prior week and 1.3069 4 weeks prior. The sell countdown associated with the September 28th perfection rose to 9. The cross closed 1.97% above the 1.3381 risk level, which is based on the April 6, 2012 1.3381 high and 0.298 day's range. 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 Tuesday's +0.51% lower close, the EURUSD cross was 1.3583, compared to 1.3514 the prior day and 1.3567 four days prior. The cross closed +1.42% above the risk level. The bearish price flip canceled a 1 sell setup and initiated a buy setup.
    • 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 January at 1.9849%, compared to 1.6156% the prior month and 1.5484% 4 months prior. The sell setup rose to 5. The buy countdown pertaining to the May 2012 perfection was unchanged at 3. 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 2.0149%, up from 1.9487% the prior Friday and 1.8991% four weeks prior. The December 7th sell setup rose perfected, initiating a sell countdown. 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 Tuesday, the rate ended at 1.9980%, compared to 1.9548% the prior day and 1.9920% four days prior. The bearish price flip canceled a 1 sell setup and initiated a buy setup. The sell countdown associated with the December 19th perfection was unchanged at 9.
    • 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 January at 11,138.66, up from 10,395.18 the prior month and 8,928.29 four months prior. The sell setup rose to 3. 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 February 1st, the index closed at 11,191.34, compared to 10,926.65 the prior week and 10,688.11 four weeks' prior. The sell countdown rose to 7. The index closed +9.85% above resistance. 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 +3.77% to 11,463.75, from 11,046.92 the prior day and 11,138.66 four days prior. The bullish price flip canceled a 1 sell setup and initiated a buy setup. The index closed +8.72% 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 January at 23,729.53, compared to 22,656.92 the prior month and 21,641.82 four months prior. The sell setup rose to 5, with a countdown of 12. 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 February 1st, the index closed at 23,721.84, compared to 23,580.43 the prior week and 22,331.09 four weeks prior. The sell setup perfected. The sell countdown stemming from the November 9th perfection rose to 10. The index closed -2.22% 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. The index perfected another sell setup on December 14th, and completed the associated countdown on January 23rd, when it set a 23,881.32 risk level. On Wednesday, the HSI closed up +0.47%, compared to 23,148.53 the prior day, and 23,729.53 four days prior. The buy setup rose to 2. The index closed -2.61% below resistance.
    • 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 January 2013 at 2,385.42, above support at 1,987.13, and compared to 2,269.13 the prior month and 2,086.17 four months prior. The sell setup rose to 2. 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 February 1st, the index closed the week up +5.57% at 2,419.02, compared to 2,291.30 the prior week and 2,276.99 four weeks prior. The sell setup rose to 8. The buy countdown associated with the July 13th perfection was unchanged at 11. The index closed -4.98% below the 2,411.27 weekly resistance level, 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. Wednesday, the index rose +0.06% to 2,434.48, compared to 2,433.13 at the prior close and 2,385.42 4 days prior. The sell setup rose to 8. The sell countdown associated with the January 14th perfection was unchanged at 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 6 in January. The index closed at 2,705.09, compared to 2,635.91 the prior month and 2,454.26 four months 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. On January 18th, the sell setup that began on November 23rd perfected. Also, the sell countdown that began August 10th completed. In the week ended February 1st, the index fell -1.28% to close at 2,708.97, from 2,744.18 the prior week and 2,709.35 at the 4 weeks' prior close. The sell countdown stemming from the January 18th perfection was unchanged at 1. There is no setup. 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. Tuesday, the index rose +0.99% to 2,651.21, compared to 2,625.17 the prior day and 2,732.12 at the prior 4 days' close. The buy setup rose to 4. The index closed -4.86% below the risk level.


    4Q2012 Earnings. Earnings reports are positive, beating on both EPS and sales/revenues. Of 294 reporting companies, 217 or 73.8% surprised positively on earnings, beating by an average +5.00%. Of reporting companies, 194 or 66.2% have reported sales and revenues in excess of estimates.

    Valuation. The SPX trades at 14.5x estimated 2012 earnings ($103.41), 13.7x estimated 2013 earnings ($110.64), and 12.2x estimated 2014 earnings ($123.57). 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 +16.1%, respectively.

    Options. Options markets are neutral to bullish. Composite options are neutral, index options are bullish, and equity options markets are neutral. The composite put/call ratio is 0.93, compared to 1.05 the prior day, and worse compared to its 5- and 10-period moving averages of 0.94 and 0.93, respectively. The index put/call ratio fell to 0.98, from 1.42 the prior day, and is better compared to its 5- and 10-period moving averages of 1.09 and 1.02, respectively. The equity put/call ratio closed the day at 0.93 compared to 0.84 the prior day, and is worse than its 5- and 10-period moving averages of 0.89 and 0.89, respectively.

    NYSE Indicators. Volume rose +1.12% to 701.59 million shares, from 693.883 million shares the prior day, 0.99x the 708.56 million share 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +1,376 (compared to -1732 the prior day), or 2.70:1. Up volume was 3.42:1 times down volume.

    BKX. Volume fell +25.3%, and the KBW bank index closed at 54.90, up +1.55% from 54.06 at the prior close. Volume rose to 74.972 million shares, from 59.816 million shares the prior day, or 1.20:1x the 62.666 million share 15-day moving average. The index gapped higher to open at 54.40 and rose to 54.80 by mid-morning. In the afternoon session, the index trended higher to a late session 55.06 high, but eased into the close. Large cap banks outperformed the regional banks, as the KRX rose +1.17%.

    This week, the BKX is up +0.31%. Last week, the BKX rose +1.13%, compared to compared to +1.20% the prior week. In February, the BKX is up +1.99%. In January, the BKX rose +4.97%, compared to +5.60% and -2.10% in December and November, respectively. The index rose +0.04% in October, and +5.06% and +3.67% in September and August, respectively. For the year, the BKX is up +5.97%. 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 -5.26% below its April 23, 2010 close (the post-2008 high point), but +66.0% above the 32.56 low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, which is up +40.6% in the same period. Technical indicators are positive as the index closed +2.16%, +6.33%, +8.28%, and +13.9% above its 20-, 50-, 100-, and 200-day moving averages. Its 20-, 50-, 100-, and 200-day moving averages 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 +7 bps. The 50-day moving average rose +13 bps. Its 100-day moving average rose +6 bps, and the 200-day moving average rose +3 bps. The 20-day closed (by +2.11 points) above the 50-day, but the gap narrowed -6 bps. The 50-day moving average closed (by +3.41 points) above the 200-day moving average. The 100-day moving average closed (by +2.48 points) above the 200-day moving average since March 19th, and the gap expanded +3 bps.

    The directional movement indicator is positive, and widened to 17.314, from 15.603 the prior day. Relative strength rose to 66.30, from 60.21 the prior day, in a neutral range. Next resistance is 55.22; next support at 54.43.

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