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Gary Townsend - Founding member 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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  • China Drops On Mortgage Curbs, U.S. Futures Lower 0 comments
    Mar 4, 2013 9:32 AM

    This morning. The U.S. equity market correction began on February 25th, in the wake of a strong uptrend that began last November 23rd. The SPX subsequently gained +8.64% and progressed to a February 19th 1530.94 all-time high, +0.27% better than the previous 1526.75 September 28, 2007, all-time closing high. Friday, U.S. indexes reversed early losses to end with modest gains. The SPX closing at 1518.20, -0.83% off its 1530.94 February 19th closing high. Indexes closed higher in February.

    Today, Asian indexes closed mixed, with pronounced weakness in Shanghai after stronger than expected mortgage origination rules, which are designed to cool property markets. The SHCOMP is now down -7.61% from recent highs. At mid-day, European exchanges are modestly mixed.

    U.S. technical indicators improved modestly, as the SPX closed above its 5-, 10-, and 20-day moving averages. All above their 50-, 100-, and 200-day moving averages.

    U.S. Treasury yields are lower, with the 10-year at 1.853%, compared to 1.841% the prior day. U.S. repo rates are 18 bps, down from 22 bps the prior day. Spanish and Italian 10-year debt yields moved lower to 5.07% and 4.81%, respectively, above their mid-January lows. The U.S. dollar is mixed. U.S. options markets are neutral to bearish. The CBOE skew rose +1.05% to 128.19, from 126.86 the prior day. Commodities prices are mostly lower.

    The SPX is +41.3% above the 1074.77 October 4, 2011, intraday low. Last week, the SPX closed up +0.17%, compared to a loss of -0.28% the prior week. In 2013, the SPX is up +6.45%. In 2012, the SPX closed up +13.4%. Next resistance is at 1524.97. First support is at 1506.46.

    Last week, the BKX closed down is down -0.64%, compared to -1.11% the prior week. In February, the BKX closed up +0.28%, compared to January's +4.97% increase. This year, the BKX is up +5.60%, underperforming 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 pre-market futures trading, March SPX equity futures are moderately lower, and near the middle of a 1511-1516 range. After a fair value adjustment of +0.03 points, SPX equity futures are at 1513.25, down -5.22 points. The SPX opens +0.37%, +2.32%, +4.76%, and +7.50% 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.

    Friday. On lower volume, U.S. equity markets reversed moderate early losses and reversed higher in late morning, then traded narrowly through the session to close with modest gains. On the day, the Nasdaq rose +0.30%, compared to the DJI, SPX, and NYSE composite, which rose +0.25%, +0.23%, and +0.06%, respectively. Market breadth was modestly positive, with gainers 1.29:1 losing stocks. Most SPX market segments closed higher. Leaders were consumer services, health care, and telecommunications, which rose at least +0.36%. Laggards were industrials, oil and gas, and basic materials, which fell at least -0.15%.

    Commentary focused on the sequester, weak European PMIs, and a better than expected U.S. ISM manufacturing report. NYSE volume fell d-26.2% to 743.40 million shares, 1.02x the 20-day moving average volume.

    Trading desks reported a quiet day. Sentiment is negative, though shorting activity remains subdued.

    From its 1514.68 prior close, the SPX opened lower and fell to an early session 1501.48 intraday low. The index rallied after February manufacturing ISM at 10:00, and reversed higher by 11:00. The index traded narrowly through the afternoon to end at 1518.20, -0.83% below its 1530.94 February 20th all-time closing high. Market volatility fell. From its 15.51 prior close, the VIX opened above 16.00 and rose to an early 16.82 intraday high, but then reversed lower by late morning and traded narrowly through the close, ending at 15.36, down -0.97%. The VIX closed at 12.31 on February 19th. The all-time closing low was 11.26, set June 30, 1993.

    On -17.8% lower volume, the DJ Transports fell -0.14%, compared to the DJI's +0.25% gain. The index fell in early trading to its 5923.49 intraday low, then rallied back to breakeven by mid-session. The index closed at 5,984.90, compared to 5,993.35 the prior day. The index closed +1.23%, +5.02%, +11.1%, and 14.5% above its respective 20-, 50-, 100-, and 200-day moving averages.

    Technical factors were little changed, as the SPX closed above its 5-, 10-, and 20-day moving averages. SPX relative strength (RSI) rose to 56.64, from 55.34 the prior day, in a neutral range. The CBOE put/call skew rose +1.05% to 128.19, from 126.86 the prior day. U.S. Treasury bond prices rose.

    Last week, the SPX, DJI, and Nasdaq closed up +0.17%, +0.64%, and +0.25%, respectively, while the NYSE composite lost -0.23%. The prior week, the SPX, Nasdaq, and NYSE composite closed down -0.28%, -0.95%, and -1.22%, respectively while the DJI closed up +0.13%. In February, the SPX, DJI, and Nasdaq closed up +1.11%, +1.40%, and +0.57%, respectively, while the NYSE composite closed down -0.17%. In January, the SPX, DJI, Nasdaq, and NYSE composite closed up +5.04%, +5.77%, +4.06%, and +5.21%, respectively.

    In 2013, the SPX, DJI, Nasdaq, and NYSE composite are up +6.45%, +7.52%, +4.98%, +5.10%, respectively. All closed at least +5.91% higher in 2012.

    Immediate SPX support is 1513, then 1506. Resistance is 1520, then 1526 and 1531.

    Distribution day count. Markets are in correction.

    In Asia, equity markets continued the month's mixed performance, with a higher close in Tokyo, but pronounced weakness in China. In Tokyo, the NKY rose +0.40% on a +7.94% volume increase. In Hong Kong, the HSI fell -1.50% on a +4.98% volume increase. In Shanghai, the SHCOMP fell -3.65% on a +34.4% volume increase. The NKY closed +2.66% above its 20-day moving average. The HSI and SHCOMP closed -2.84% and -4.35% below their respective 20-day moving averages.

    Economic reporting was light. Commentary focused on new Chinese mortgage rules, designed to cool property markets.

    This week, the NKY is up +0.40%, while the HSI and SHCOMP are down -1.50% and -3.65%, respectively. Last week, the NKY closed up +1.90% higher, while the HSI and SHCOMP lost -2.82% and -4.86%, respectively. In February, the NKY ended up +3.78%, while the HSI lost -2.99%, and the SHCOMP closed -0.83% lower. The indexes gained +7.15%, +4.73, and +5.12% the prior month, respectively. In 2013, the NKY is up +12.1%. The HSI is down -0.53%. The SHCOMP is up +0.19%. In 2012, the NKY rose +1.37%. The HSI rose +22.9%. The SHCOMP rose +3.17%.

    In Japan, the NKY closed at 11,652.29, compared to 11,606.38 at Friday's close and -0.09% below its February 25th high. The index opened at 11,700 and climbed to a mid-morning 11,767.68 intraday high. The index trended lower through mid-afternoon to a 11,613.59 intraday low. The NKY recovered to 11,685 in the final hour, but eased into the close. The index ended +2.66%, +7.56%, +17.3%, and +24.4% above its respective 20-, 50-, 100-, and 200-day moving averages. Most market segments closed higher. Leaders were financials, utilities, and telecommunications, which rose at least +1.52%. Laggards were industrials, basic materials, and oil and gas, which fell at least -0.50%.

    In China, the Hang Seng closed at 22,537.81, down from 22,880.22 at the prior close, and -5.63% off its January 30th high. The index opened at the 22,866.51 intraday high, then fell to a mid-session 22,466.08 intraday low. The index traded narrowly through the close. The index closed -2.84% and -2.74% below its 20- and 50-day moving averages. Most market segments closed lower. Leaders were technology and consumer goods, which rose at least +0.22%, and utilities, which fell -0.53%. Laggards were basic materials, industrials, and financials, which fell at least -0.65%.

    In Shanghai, the SHCOMP closed at 2,273.40, down from 2,359.51 the prior day. The index gapped lower to open at the 2,333.06 intraday high and moved lower through the session to a final hour 2,259.52 intraday low. The index closed -7.61% below its 2,460.69 March 14, 2012 high, but closed up +16.0% from its December 3rd 1,959.77 low. The SHCOMP closed -4.35% below and -0.89% below its respective 20- and 50-day moving averages. All market segments closed at least -0.63% lower. Leaders were utilities, and health care, and oil and gas. Laggards were basic materials, industrials, and financials, which fell at least -3.88%.

    In Europe, the majorequity indexes are modestly mixed. The Eurostoxx50, FTSE 100, and DAX are down -0.02%, -0.41%, and -0.31%, respectively. The CAC 40 is up +0.19%. The Euro Stoxx50 remains below its 20- and 50-day moving averages. Today, the DAX is trading -0.01% below its 20-day moving average. The Spanish IBEX 35 is up +0.60%. The Italian FTSE MIB is down -0.67%.

    Economic reporting is light. Commentary focuses on disappointing HSBC earnings.

    From its prior 2,616.75 close, the Euro Stoxx 50 opened weakly and fell to an early 2,595.35 intraday low, but then rallied back to breakeven in early afternoon. The index currently trades at 2,616.25. Market segments are mixed. Leaders are telecommunications, utilities, and health care, which are up at least +0.55%. Laggards are industrials, financials, and basic materials, which are at least -0.40% lower.

    Last week, the Euro Stoxx50 and CAC 40 fell -0.51% and -0.17%, respectively, while the FTSE 100 and DAX rose +0.68% and +0.60%. The prior week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +0.57%, +0.12%, +1.25%, and +0.90%, respectively. In February, the Euro Stoxx 50, CAC 40, and DAX closed down -2.57%, -0.26%, and -0.44%, respectively, while the FTSE 100 closed +1.34% higher. In January, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +2.54%, +6.43%, +2.51%, and +2.15%, respectively. In 2013, the Euro Stoxx550 is down -1.67%, while the FTSE 100, CAC 40, and DAX are up +6.97%, +0.66%, and +0.48%, 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%, unchanged from 0.15550% the prior day. USD 3-month LIBOR is 0.28310%, down from 0.28410% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread is 14.31 bps, compared to 14.66 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 13.50 bps, down from 13.95 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 -20.435 bps compared to -20.135 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 5.07%, compared to 5.10% the prior day. The recent low was 4.56% on January 11th. Italian 10-year debt yields are at 4.83%, compared to 4.79% the prior day. Its recent low was 4.13% on January 11th. German 10-year debt yields are 1.41%, compared to +1.41% the prior day.
    • The U.S. government overnight repo rate is 18 bps, unchanged from 22 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 0.230% and 1.841%, respectively, compared to 0.234% and 1.841% Friday. The yield curve widened, with the 2- to 10-year spread at +1.611%, compared to 1.607% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.174% on July 24, 2012, to a high of +1.998% on March 19, 2012.
    • The U.S. dollar is mixed, stronger compared to the Japanese yen and British pound. The dollar trades at US$82.366, compared to a US$82.465 intraday high and US$82.313 the prior day, and better compared to its US$80.243 50-day, US$80.208 100-day, and US$80.935 200-day averages. The euro trades at US$1.2989, compared to a US$1.2982 intraday low and US$1.3022 the prior day. The euro trades worse compared to its US$1.3296 50-day and US$1.3128 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥93.50, compared to ¥93.59 the prior day. The yen trades worse than its 50-day moving average ¥90.56.
    • Citigroup Economic Surprise Index rose to +7.70, from +2.80 the prior day, its 4th consecutive positive reading. The index is better than its respective +3.98 5-day and +0.18 10-day moving averages. From its July 19th -65.30 low, the index improved rapidly and turned positive last September 5th, but the index signaled exhaustion on December 20th, and from 55.76 moved lower to -30.80 on January 30th. After a lag, the CESIUSD correlates with EPS revisions.
    • Commodities prices are mostly lower, with lower energy, higher precious metals, lower aluminum and copper, and mixed agriculture prices.


    Volatility, Skew:
     

    • The VIX fell -0.97% to 15.36, from 15.51 at the prior close. The VIX is +8.65% above its 14.14 20-day moving average. Its 30-day high is 19.28. Its 30-day low is 12.08.
    • At mid-session, the Euro Stoxx 50 volatility index (V2X) is up +3.26% to 22.48, from 21.77 at the prior day's close. The V2X index trades +11.4% above its 20.19 20-day moving average, -13.2% below the 25.90 30-day high, and +54.8% above the 14.52 30-day low.
    • The Hang Seng volatility index (VHSI) closed at 16.87, up +11.9% from 15.08 the prior day. The VHSI index trades +14.4% above its 14.75 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.
    • CBOE skew rose +1.05% to 128.19, from 126.86 at the prior day's close, and above a neutral (115-120) range. Spikes in excess of 130 (as on February 15th and 18th and previously on September 21, and March 12, 15, and 16) correlate well with short-term market tops. The recent high close was 130.46 on February 15th and 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:
     

    • At 9:45, February ISM New York ISM, with 556.7 prior.


    Overseas News:
     

    • Australia - February AiG manufacturing was 45.6 compared to 40.2 prior.
    • Japan - February monetary basis YoY rose +15.0%, compared to +10.9% prior.
    • Eurozone - March Sentix investor confidence fell -10.6, compared to -4.3 survey and -3.9 prior.
    • United Kingdom - February construction PMI was 46.8, compared to 49.0 survey and 48.7 revised prior.


    Company Ratings/News:
     

    • None.


    Price and Selling Exhaustion/Trend Reversal (based on TD sequential):
     

    • 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 7 in January, when the index closed at 1514.68, compared to 1498.11 the prior month and 1412.16 four months prior. The sell countdown stemming with the May 2011 perfection rose to 10. The index closed +5.97% in excess of the risk level, suggesting that the uptrend will continue. On a weekly basis, the SPX signaled selling exhaustion the week ended June 8th, during which the SPX traded to an intraweek 1266.74 low on June 4th, and then perfected a weekly buy setup with its 1325.66 close. 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 22nd, the index closed down -0.28% to 1515.60, compared to 1519.79 the prior week and 1513.17 close four weeks prior. The sell setup rose to 8. The index closed -0.64% below the 1525.36 risk level. 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 January 9th, a bullish price flip initiated a sell setup, which perfected on January 22nd. On Friday, the SPX rose +0.23% to close at 1518.20, compared to 1514.67 the prior day and 1487.85 4 days prior. The bullish price flip canceled a 5 buy setup rose and initiated a sell setup. The 12 sell countdown associated with the January 7th setup was unchanged. The index closed +2.80% above the 1476.89 risk level, based on the SPX's 8.95 point trading range on January 7th 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 February, the BKX +0.28% to end at 53.98, compared to 53.83 at the end of January and 49.60 four months prior. The sell setup rose to 6. 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, which perfected on February 1st. On February 22nd, the sell countdown associated with the September 21st perfection completed. On March 1st, the BKX closed at 54.15, down -0.64% from 54.50 the prior week and 54.73 four weeks prior. The bearish price flip initiated a buy setup. The index closed -4.88% below the 56.93 risk level, which is based on the prior week's 1.08 point range and 55.85 high. The index closed -4.88% below the risk level. 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. 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, which perfected on February 13th. Friday, the index rose +0.31% to 54.15, from 53.98 the prior day and 53.02 four days prior. The bullish price flip canceled a 7 buy setup and initiated a sell setup. The index closed +2.32% 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 February at 15.51, compared to 14.28 at the end of January and 18.60 at the end of October. The buy setup rose to 2. 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 +8.40% to end at 15.36, compared to 14.17 the prior week, and 12.90 4 weeks prior. The sell setup rose to 2. The 11 buy countdown associated with the August 10th perfection rose was unchanged. 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. Friday, the VIX fell -0.97% to close at 15.36, compared to 15.51 at the prior close and 18.99 at the 4 days' prior close. The bearish flip canceled a 1 sell setup and initiated a buy setup. The 10 buy countdown associated with the January 16th perfection was unchanged. The VIX closed +9.56% above 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 February at 1.3067, compared to 1.3579 the prior month and 1.2860 4 months prior. The sell setup rose to 7. The 8 sell countdown is unchanged. 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 March 1st, the index fell -1.30% to end at 1.3022, from 1.3194 the prior week and 1.3640 4 weeks prior. The buy setup progressed to 2. Since February 1st, the 9 sell countdown associated with the September 28th perfection is unchanged. The cross closed -2.68% below 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 until 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 11th, the sell countdown stemming from the November 27th completed, setting a 1.3393 risk level. On January 24th, a bullish price flip initiated a sell setup which rose to an unperfected 9 on February 5th. On February 14th, a bearish price flip initiated a sell setup, which subsequently perfected on February 26th. With Friday's -0.27% lower close, the EURUSD cross ended at 1.3022, compared to 1.3057 the prior day and 1.3063 four days prior. The buy countdown associated with the February 26th perfection progressed to 2. The cross closed -2.77% below the risk level.
    • USGG10YR - On a monthly basis, the USGG10YR began a downward trend from 5.0506% in May 2006, perfecting a sell setup in April 2008 (at 3.7295%) and completing the associated buy countdown in June 2011 (at 3.1600%), when it produced a 1.1121% risk factor. A subsequent 9 buy setup perfected in May 2012, with the rate at 1.5578%. In September 2012, a bullish price flip initiated a sell setup. The rate ended February at 1.8756%, compared to 1.9849% the prior month and 1.6335% 4 months prior. The sell setup rose to 6. On a weekly basis, the index perfected a buy setup on June 8th, but subsequent trends were weak until a December 7th bullish rate flip initiated a sell setup, which perfected on February 1st, when the rate ended at 2.0149%. The rate has subsequently shown little trend, and the associated sell setup is unchanged at 1. The rate ended the most recent week at 1.8412%, compared to 1.9619% the prior Friday and 2.0149% four weeks prior. The bearish rate flip initiated a buy setup. 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%, a bullish rate flip that initiated 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 February 12th, a bullish price flip initiated a sell setup. On Friday, the rate ended at 1.8412%, compared to 1.8756% the prior day and 1.8637% four days prior. The sell setup rose to 8. The 11 sell countdown associated with the December 19th perfection was unchanged.
    • 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 February at 11,559.36, up from 11,138.66 the prior month and 9,446.01 four months prior. The sell setup rose to 4. 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. For the week ending February 22th, the index closed up +1.90% at 11,385.94, compared to 11,173.83 the prior week and 10,926.65 four weeks' prior. The 8 sell countdown was unchanged. The index closed +11.7% 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. Though the index subsequently moved higher, it was without strong trend. The most recent sell setup was canceled by a initiated with a bullish price flip on February 15th. Monday, the index rose +0.40% to 11,652.29, from 11,606.38 the prior day and 11,398.81 four days prior. The bullish price flip canceled a 2 buy setup and initiated a sell setup. The index closed +10.5% above the risk level.
    • 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. After four consecutive month increases, the HSI ended February at 23,020.27, compared to 23,729.53 the prior month and 22,030.39 four months prior. The sell setup rose to 6. The sell countdown stemming from the May 2011 perfection completed and set a 27,194.16 risk level. 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, which perfected on February 1st. On March 1st, the index closed at 22,880.22, compared to 22,782.44 the prior week and 23,721.84 four weeks prior. The buy setup rose to 4. The 10 sell countdown stemming from the November 9th perfection was unchanged. The index closed -7.10% 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 Monday, the HSI fell -1.50% to 22,537.81, compared to 22,880.22 the prior day, and 22,519.69 four days prior. The sell setup progressed to 3. The index closed -5.63% below the risk level.
    • 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. In May 2011, the SHCOMP assumed a downward trend and perfected a buy setup on January 31, 2012. The associated buy countdown rose to 6 in November 2012, but is subsequently unchanged. In December, a bullish price flip initiated a sell setup. In February, the index closed at 2,365.59, compared to 2,385.42 the prior month and 2,068.88 four months prior. The sell setup rose to 3. On a weekly basis, the SHCOMP last perfected a buy setup on April 8, 2011. The index has subsequently trended lower, with a downward perfected setup on September 23, 2011, and January 6, 2012 countdown completion, when it closed at 2,163.40. The index rallied to a high of 2,476.22 during the week ending March 16th, but without perfecting an upward setup. On July 13th, the index perfected a buy setup. In subsequent weeks, it traded below the sales exhaustion target of 2148.45 to a 1980.12 close on November 30th, when the buy countdown reached 11. On December 14th, a bullish price flip initiated a sell setup at 2,059.47. That setup perfected on February 8th, with a 2,432.40 close, up +18.1%. On March 1st, the index closed the week down -4.86% at 2,314.16, compared to 2,432.40 the prior week and 2,317.07 four weeks prior. The bearish price flip sell initiated a buy setup. The 1 sell countdown associated with the February 8th perfection was unchanged. 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. Monday, the index fell -3.65% to 2,273.40, from 2,359.51 at the prior close and 2,293.34 4 days prior. The bearish price flip canceled a 2 sell setup and initiated a buy setup. The 11 sell countdown associated with the January 14th perfection is unchanged.
    • 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 7 in February. The index closed at 2,633.55, compared to 2,702.98 the prior month and 2,503.64 four months prior. On a weekly basis, the index trends are more pronounced, having perfected an sell setup on March 16th (at 2,511.42), followed by a buy setup initiation on March 30th, which perfected on May 25th, when the index closed at 2,161.87, down -13.9%. On June 15th, a bullish price flip initiated a sell setup with a 2,181.23 close. The index subsequently rallied to perfect a sell setup on August 10th, when it closed at 2,362.69, up +9.29%. A bullish price flip the week of November 23rd (2,557.03 close) initiated a sell setup that perfected on January 18th at 2,709.59, up +5.97%. The sell countdown associated with the August 10th perfection also completed on January 18th, when the index closed at 2,709.59, up +24.2% over the June 15th bullish price flip. Since January 18th, the subsequent trend is lower. In the week ended March 1st, the index fell -0.51% to close at 2,616.75, compared to 2,630.05 the prior week and 2,710.08 at the 4 weeks' prior close. The buy setup rose to 4. The 1 sell countdown stemming from the January 18th perfection was unchanged. 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 (2,155.65 close) and completed its sell countdown on July 20th (2,237.33 close) On September 13th, the index perfected a sell setup with a 2,543.22 close. Daily trends were weak through November 16th, without sustained upward or downward setups and countdowns. Strong gains on November 19th initiated an upward setup with a 2,495.21 close. On November 29th, the index perfected an upward setup at 2,581.69. On January 3rd, the index completed the associated countdown (with a 2,701.22 close) and set a 2,786.57 risk level, based on the prior day's 2,711.25 high and 51.46 intraday range. Friday, the index fell -0.64% to 2,616.75, compared to 2,633.55 the prior day and 2,651.86 at the prior 4 days' close. The sell setup progressed to 3. The index closed -6.09% below the risk level.


    4Q2012 Earnings. Earnings reports are positive, beating on both EPS and sales/revenues. Of 484 reporting companies, 358 or 74.2% surprised positively on earnings, beating by an average +5.09%. Of reporting companies, 307 or 64.0% have reported sales and revenues in excess of estimates.

    Valuation. The SPX trades at 14.7x estimated 2012 earnings ($103.41), 13.7x estimated 2013 earnings ($110.74), and 12.3x estimated 2014 earnings ($123.42). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2013 and 2014 earnings to grow +7.09% and +11.5%, respectively.

    Options. Options markets are neutral to bearish. Composite options are neutral, index options are neutral, and equity options markets are bearish. The composite put/call ratio is 1.18, compared to 0.96 the prior day, and worse compared to its 5- and 10-period moving averages of 1.07 and 1.04, respectively. The index put/call ratio rose to 1.23, from 1.07 the prior day, and worse compared to its 5- and 10-period moving averages of 1.11 and 1.17, respectively. The equity put/call ratio closed the day at 1.16 compared to 0.92 the prior day, and worse compared to its 5- and 10-period moving averages of 1.08 and 1.00, respectively.

    NYSE Indicators. Volume fell -26.2% to 743.40 million shares, from 1.007 billion shares the prior day, 1.02x the 725.76 million share 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +377 (compared to +72 the prior day), or 1.29:1. Up volume was 1.16:1 down volume.

    BKX. Volume rose +48.9%, and the KBW bank index closed at 53.93, down -0.09% from 54.03 at the prior close. Volume rose to 86.667 million shares, from 58.192 million shares the prior day, or 1.30:1x the 66.916 million share 15-day moving average. The index traded narrowly through the morning session, with a 53.75 early session low, but rallied through the afternoon to 54.44 by mid-afternoon. The index weakened to 54.20 by 3:00 and fell rapidly in the final minutes to end down on the session.

    Large cap banks underperformed the regional banks, as the KRX rose +0.29%.

    This week, the BKX is down -0.95%. Last week, the BKX fell -1.11%, compared to a gain of +0.20% the prior week. In February, the BKX closed up +0.28%. In January, the BKX rose +4.97%, compared to a gain of +5.60% in December and a loss of -2.10% in November. For the year, the BKX is up +5.27%, worse than the SPX's +6.20% rise. 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 -6.56% below its 57.95 April 23, 2010 close (the post-2008 high point), and +66.3% above the 32.56 low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, which is up +41.3% in the same period.

    Technical indicators were little changed. The index closed -0.84% below its 20-day moving average, but +1.12%, +5.23%, and +11.0% above its respective 50-, 100-, and 200-day moving averages. The 20-day moving average regained a positive slope, while the 50-, 100-, and 200-day moving averages retained their positive slopes. 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 2 bps. The 50-day moving average rose +7 bps. Its 100-day moving average rose +4 bps, and the 200-day moving average rose +4 bps. The 20-day closed (by +1.06 points) above the 50-day, but the gap narrowed -6 bps. The 50-day moving average closed (by +4.74 points) above the 200-day moving average, and the gap expanded by +3 bps. The 100-day moving average closed (by +2.65 points) above the 200-day moving average since March 19th, and the gap rose +1 bp.

    The directional movement indicator is -7.911, compared to -2.261 the prior day. Relative strength rose to 50.57, from 49.17 the prior day, in a neutral range. Next resistance is 54.59; next support at 53.47.

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