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Earnings Season Continues To Surprise Positively, U.S. Equity Futures Move Ahead

|Includes:BPFH, Capital One Financial Corporation (COF), F, KO, MMM, SBNY, SIVB, SNV, STI, UMPQ, ZION
This morning.  Earnings reports continue this morning with the release of 1Q2011 reports from Ford (F, positive EPS and revenue beats), 3m (MMM, positive EPS and revenue beats) and Coca Cola (KO, modest disappointment on EPS and revenues).  Equity markets are in a confirmed uptrend.  Volatility rose in yesterday’s slow trade, but remains at low levels.  Equity futures are moderately higher.  Commodity prices are mixed.  U.S. Treasury prices are slightly stronger.  The U.S. dollar is at its weakest since late 2009.  After a fair value adjustment of +0.50 points, June SPX equity futures are at 1337.10, up +5.80 points.  The SPX opens at 1335.25, -0.58% below its February 18th post-Lehman high and +1.48% above its 50-day moving average.  Next resistance is at 1338.04.  Next support is at 1331.96.
On Monday, U.S. equity markets closed mixed on light volume.  Markets gapped much higher, held strength throughout the day, and closed near their intraday highs.  After several strong technology company earnings reports, Nasdaq posted the best gain, closing up +2.10%, though still below its February high.  The DJI closed at a new post-Lehman high.  Market breadth was positive, and up volume led down volume by a large margin.  Volatility declined through the day.  Distribution days number 3 on the NYSE, 2 on the DJI, and 1 on the Nasdaq and SPX.  Distribution days, which indicate institutional selling, pressure uptrends and push markets back into correction.
Earlier today, most Asian equity markets closed lower.  On earnings disappointments, the Nikkei closed down -1.17%.  Japan’s economy is expected to contract in 1Q2011, and may contract also in 2Q2011.  Financials were the 3rd best performing segment, but closed down -0.34%.  In China, the Hang Seng and Shanghai Composite closed down -0.54% and -0.88%, respectively.   On the SHCOMP, volume was light, falling -18.9% from the prior day.  Traders attributed the day’s weakness to earnings disappointments and a report that China tightened capital targets for its largest banks.  The index traded higher in early trading, but lost ground through mid-day.  Afternoon rallies failed, and the index closed at 2938.98, near its intraday lows.  Chinese equity markets are in a confirmed uptrend.  The past three day’s losses have been on lower volume, avoiding distribution days.  The index is up +9.77% since it correction-low close on January 25th.  After a four day holiday, European equity markets opened higher, with gains attributed to strong earnings.  The EuroStoxx 50, FTSE, and DAX, are up +0.29%, +0.31%, and +0.41%, respectively.  On the EuroStoxx, financials are the 3rd best performing market segment, up +0.50%.  The FTSE will be closed Friday for the Royal wedding. 
Despite sovereign debt and other macro-concerns, LIBOR levels are below those seen prior to last year’s sovereign debt crisis.  Overnight USD LIBOR is 0.13500%, down from 0.13550% the prior day and compared to 0.25188% at year-end.  USD 3-month LIBOR is 0.27275%, down from 0.27375% the prior day and compares to 0.30950% at year-end.  A recent rule change regarding bank deposit rates at the Fed, may have pushed some of U.S. deposits offshore.  In early trading, the dollar is slightly weaker against the euro and yen, but slightly better against the pound.  The dollar has trended lower since last June and now trades well below its 50-, 100-, and 200-day moving averages.  The euro trades at US$1.4607, compared to US$1.4582 Monday and US$1.4561 the prior day.  The Euro trades well above its 50-, 100-, and 200-day moving averages.  The dollar trades at ¥81.72, compared to ¥81.83 Monday and ¥81.88 the prior day.  The yen trades above its 200-day moving average ¥82.47, which is trending lower.  U.S. Treasury yields are slightly lower, with 2- and 10-year maturities yielding 0.636% and 3.350%, respectively, compared to 0.636% and 3.363% Monday.  The yield curve narrowed to +2.714%, from +2.727% the prior day.  In the past year, the 2- and 10-year spread has varied from a low of +1.959% on August 26, 2010 and a high of +2.889% on February 3, 2011.  Commodities prices are mixed, with mixed petroleum, higher natural gas, lower precious metals, higher aluminum and copper, and lower agricultural prices.
U.S. news and economic reporting.  Bank earnings reports have largely concluded.  Economic releases focus on the February CaseShiller home prices, April consumer confidence, and the April Richmond Fed manufacturing index.  The FOMC holds a two-day meeting.  Post-meeting, Bernanke initiates post-meeting press conferences at 12:30 Wednesday.
Overseas news.   In 2010, the European Union’s budget deficit was 6.0% of GDP, down from 6.3% in 2009.  In 2010, Greece’s budget deficit was 10.5% of GDP, higher than forecasts from either Greek governmental or European Union authorities. 
Company news/research:
·         SBNY – reports 1Q11 GAAP and operating EPS of $0.82 and $0.73, compared to estimates of $0.71. 
·         SNV – reports 1Q11 GAAP and operating EPS of -$0.12 and -$0.09, compared to estimates of -$0.12.
1Q2011 Earnings.  The first quarter’s earnings results have so far exceeded EPS and revenue expectations.  Of the 130 S&P500 companies that reported earnings to date, 79% (103 of the 130) beat operating EPS estimates, versus the historical average of 62%.  In aggregate, companies have beat by an average of +9.5% (versus a historical average of +2%).  EPS is up +18.3% over the prior year.  Though challenged in the current operating environment, 92 companies (71%) reported increased revenues and 93 companies (72%) beat revenue estimates.  In the 1Q2011, analysts estimate the SPX will earn $24.32 per share, compared to $22.47 and $19.49 per share in 4Q10 and 1Q10, a +8.20% and +24.8% increase, respectively.  
Out of the 23 BKX members to have reported earnings thus far, 74% (17 of 23) have beat earnings estimates.  Revenues have so far disappointed (by -0.77% on average), with 57% of BKX members missing revenue estimates.  In the first quarter of 2011, analysts estimate the BKX will earn $0.93 per share, in-line with 4Q10 earnings and 175% above 1Q10 earnings of $0.34 per share.
Valuation.  The SPX trades at 13.6x estimated 2011 earnings (increased to $98.15 from $97.97) and 12.0x estimated 2012 earnings (increased to $111.34 from $111.13), compared to 13.7x and 12.0x respective 2011-12 earnings yesterday.  The 10-year average median Price/Earnings multiple is 20.0x.  Since the beginning of 2011, analysts increased 2011 and 2012 earnings estimates by +3.7%, and +3.8%, respectively.  Analysts expect 2011 and 2012 earnings to exceed 2010 earnings ($84.78) by +15.8% and +31.3%, respectively.
Large-cap banks trade at a median 1.54x tangible book value and 12.7x 2011 consensus earnings, compared to 1.51x tangible book value and 12.4x 2011 earnings yesterday.  These compare to the 10-year average median multiples of 3.08x tangible book value and 15.9x earnings.  Analysts expect 2011 and 2012 BKX earnings to exceed 2010 operating earnings by +32.3% and 71.6%, respectively. 
Monday’s equity markets. On lighter, post-holiday volume, equity markets closed mixed.  The Nasdaq finished ahead +0.20%, while the NYSE, DJI, and SPX finished off, -0.22%, -0.21%, and -0.16%, respectively.  All traded within tight ranges.  The trading session was quiet, as many global exchanges observed a traditional Easter Monday close.  In the U.S., markets opened lower, but near their intraday highs. All markets saw their intraday lows in the late morning and rebounded through the afternoon, though failing to turn positive.  The exception was the Nasdaq, which broke positive mid-day, and ended at its best level at the close.  It was a busy earnings reporting day, with 156 companies scheduled to report.  Economic news was generally positive with new home sales for March growing 11.1% versus estimates of 12%.  The Dallas Fed manufacturing index showed growth, but at a slower pace than anticipated.  Trading desks report a light day with a lack of conviction in either direction. The VIX finished at 15.77, up +7.35%.
Generally, technical indicators were positive, with the major indexes trading in very tight ranges.  The SPX has finished less than 1% below its February 18th high of 1344 eight times in April. The Nasdaq was the only market to test both support at 2812 as well as resistance at 2824/2826.  All of the major indices finished above their 50-, 100-, 200-day and 200-week moving averages. The Bloomberg NYSE new net highs were +203 versus Thursday’s +166, and well above the key moving averages. The relative strength index closed at 57.86, down from Thursday’s reading of 59.47, and in the higher end of a neutral range.
Market segments closed mixed. Technology, health care, and utilities were the only gainers. The laggards were led by basic materials, oil and gas, and consumer goods.
·         Financials were mixed. The KRX and BKX finished the day higher, up +0.51%, and +0.02%.  The XLF declined -0.12%.  Among the large, regional banks COF, STI, and ZION fared best, up +2.23%, +2.21%, and +1.52%, respectively.  In the smaller cap regional banks, BPFH, SIVB and UMPQ were the leaders, up at least +2.30%.  The BKX had 13 names up and 11 down.  The KRX had 29 names up, 20 down, and 1 unchanged. The BKX, KRX, and XLF all finished below their 20-, 50-, and 100-day moving averages, but above the 200-day and 200-week average.  While the broader indices have recovered their post-September 2008 losses, bank stocks have not, with the BKX closing -12.9% below its April 2010 high and -38.9% below its best level of 82.55 in September 2008.
Hill-Townsend Capital.  On the day, HTC lost -$131.4 thousand, underperforming the SPX, XLF, BKX, and KRX.  Our common equity positions fell -0.37%.  Our warrant positions rose +0.03%.   Our ETF position fell -0.68%.  Our preferreds fell -0.14%.  Our short positions fell -1.13%.  In April, we have a market value loss of -$1.059 million, or -2.23%, including interest and accrued dividends month-to-date.  We have underperformed the SPX (+0.71%), XLF (-1.89%), and KRX (-1.79%), but outperformed the BKX (-2.77%).  In 2011, our adjusted NAV is up +$34.9 thousand, or +0.08%.  We are underperforming the SPX (+6.17%) and XLF (+0.82%), but are outperforming the BKX and KRX (-3.31% and -0.84%, respectively).
Our NAV ended at $46.065 million, compared to $46.197 million the prior day and $47.484 million at the end of March.  Our cash position is -$3.304 million, -7.17% of NAV, compared to $3.578 million, -7.74% f NAV the prior day.
NYSE Indicators.  In one of the year’s slowest trades, volume fell -14.1% to 697.93 million shares, from 812.78 million shares Thursday, 0.70x the 50-day moving average.  Market breadth was negative, and up volume trailed down volume.  Advancing stocks lagged decliners by -259 (compared to +952 Thursday), or 0.84:1.  Up volume trailed down volume by 0.65:1.
SPX.  On lower volume, the SPX fell -2.13 points, or -0.16%, to 1335.25.  Volume fell -19.3% to 563.50 million shares, down from 697.88 million shares Thursday and below the 781.03 million share 50-day moving average.  For the 128th consecutive day, the SPX’s 50-day moving average closed above its 200-day moving average (1315.83 vs. 1214.63, respectively).  The SPX closed above its 200-week moving average (1170.76).
The SPX opened lower.  By 9:45, the index fell through 1335.  A rebound took the index briefly back to break-even by 9:50 setting the intra-day high of 1337.55.   At 10:00, the index’s momentum turned negative.  The SPX fell through 11:15, setting the intra-day low then of 1331.47.  A rally lasted through 12:15, and the SPX returned to the 1335 level.  By 2:00, a second rally took the index back above 1336.  Momentum turned neutral, and the index traded sideways between 1334 and 1336 through the close.   
Technical indicators are mixed but improving.  While moving day averages are configured bullishly and the market has resumed its uptrend, the SPX has not achieved new highs nor broken through important resistance levels, indicating potential weakness.  The index closed above 1300 for the 22nd straight session.  The index closed above its April 2010 highs for the 98th straight session.  The SPX closed (by +0.82%) above its 20-day moving average (1324.34) for the third consecutive session.  The index closed (by +1.48%) above its 50-day moving average for the third straight session.  The index closed (by +3.29%) above its 100-day moving average for the 26th straight session.  The SPX closed +9.93% above its 200-day moving average.  All moving day averages increased.  The directional momentum indicator is positive for the second straight session, and the trend is decreasing.  Relative strength fell to 58.81 from 60.11, a neutral range.  Next resistance is at 1338.04; next support is at 1331.96. 
BKX.  On lower volume, the KBW bank index rose +0.01 points, or +0.02%, to 50.48.  Volume fell -12.8% to 97.18 million shares, down from 111.41 million shares Thursday and below the 121.97 million share 50-day average.  The index closed +17.45% above its August 30 closing low of 42.98, the trough of the recent prior correction, but -12.89% and -9.26% below its April  23,  2010, and February 14, 2011 closing highs, respectively. 
Financials outperformed the market for the second straight session, and regionals outperformed large-cap banks.  The BKX opened flat and fluctuated early.  At 9:40, the index set its intra-day low of 50.43, slightly in negative territory.  A 9:45 rally took the index to its intra-day high at 10:00 of 50.70.  Between 10:00 and 11:00, the BKX fluctuated in a 50.60 to 50.70 range before breaking lower at 11:00.  By 11:20, the index reached 50.50, but a rebound took hold then in-line with the broader market.  By 12:15, the index returned to the 50.60 level.  Through the afternoon, the BKX slowly retraced gains back to break-even, reaching that level by 3:15 and trading flat into the close.  
Technical indicators are turning negative.  The BKX has remained bound on the upside by the 50-day moving average (now at 52.33 and falling) and has fallen through the 100-day moving average (52.40).  It remains modestly above a rising 200-day moving average (49.51).  The 20-day moving average has been below the 50-day moving average since March 11th  and crossed below the 100-day moving average on April 15th.  The 50-day moving average crossed below the 100-day moving average on April 21st.  The index closed below the 20-, 50-, and 100-day moving averages for the eighth, 12th, and eighth consecutive sessions, respectively.  The index closed above 50 for the 86th straight day.  The BKX closed above its 200-day moving average for the 92nd straight session.  The 20-, 50-day, and 200-day moving averages fell, with the 200-day moving average falling for the first time since March 1st.  The 20-day closed (by -0.68 points) below the 50-day for the 29th straight day, but the negative divergence contracted.  The 50-day moving average closed (by +2.82 points) above the 200-day moving average for the 70th straight session, but the positive divergence contracted.  The 100-day moving average closed (by +2.89 points) above the 200-day moving average for the 53rd straight session, and the positive divergence expanded.  The directional movement indicator is negative for the eighth consecutive day, and the trend is increasing.  Relative strength rose to 35.69 from 35.53, the low end of a neutral range.  Next resistance is 50.65; next support at 50.37.