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Gary Townsend - Founding partner and Chairman, GBT Capital Management, LLC, a macro long/short fund based in Chevy Chase, Maryland. Also, 2007-2013, a founding partner, CEO and Portfolio Manager of Hill-Townsend Capital LLC, a long/short equity financial sector fund. Mr. Townsend has 35 years... More
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  • U.S. Equity Futures Edge Lower, Consolidating Recent Gains 0 comments
    May 3, 2011 8:48 AM | about stocks: L, C, GNW, EFX, V, ONB, EWBC, FULT, STBA, MBFI, NPBC, AB, ACV, CNA, DISH, HUM, TEVA, CEPH, ACI, ICO, MA, BBX
    This morning.  U.S. equity futures are modestly lower.  Equity markets are in a confirmed uptrend.  The dollar is slightly stronger.  Commodity prices are generally lower.  U.S. Treasury prices are little changed.  After a fair value adjustment of -0.23 points, June SPX equity futures are at 1353.40, down -4.30 points.  The SPX opens at 1361.22, -0.18% below the April 29 multi-year high and +3.26% above its 50-day moving average.  Next resistance is at 1368.34.  Next support is at 1356.35.
     
    On Monday, U.S. equity markets initially traded higher, but quickly lost momentum and ended modestly lower on lower volume. Market breadth was negative. Economic reports were mixed, with better than expected construction spending, higher ISM manufacturing than expected, but higher prices paid. The DJI closed down only -0.02%, the SPX -0.18%, the NYSE -0.25%, and Nasdaq -0.33%.  Volatility rose, though it remains at low levels ending at 15.99.  The number of distribution days was unchanged at 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, Asian equity markets closed mixed.  The Nikkei was closed for holiday. In China, the Hang Seng and Shanghai Composite closed down -0.37% and up +0.71%, respectively.  On the SHCOMP, volume rose +10.4% from the prior day.  The index closed at 2932.19. After shrugging off early weakness, the SHCOMP reversed from an intraday low of 2890 to close at the intraday high. For the 5th consecutive close, the index ended below the 2954.6 50-day moving average.  Traders attributed the day’s mixed result to interest rate concerns, as India again raised domestic interest rates. Financials were the 9th worst performing segment, up +0.18%. Chinese equity markets are in a confirmed uptrend, but came under pressure last week after five consecutive lower closes, including a distribution day last Wednesday.  The index is up +9.51% since it correction-low close on January 25th.  European equity markets are lower.  The EuroStoxx 50, FTSE, and DAX, are down -0.72%, -0.27%, and -0.88%, respectively.  On the EuroStoxx, financials are middling performs, down -0.52%. 
     
    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 0.13400%, compared to 0.13375%, last Thursday and 0.25188% at year-end.  USD 3-month LIBOR is 0.27225%, compared to 0.27300% last Thursday and 0.30950% at year-end.  In early trading, the dollar is stronger against the euro and pound, and slight worse against the yen.  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$1.4792, compared to US$1.4830 Monday and US$1.4807 the prior day.  The Euro trades well above its 50-, 100-, and 200-day moving averages.  The dollar trades at ¥80.78, compared to ¥81.23 Monday and ¥81.19 the prior day.  The yen trades better than its 200-day moving average ¥82.28, which is trending lower.  U.S. Treasury yields are little changed, with 2- and 10-year maturities yielding 0.593% and 3.264%, respectively, compared to 0.601% and 3.279% Monday.  The yield curve narrowed to +2.671%, from +2.678% 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 generally lower, with lower petroleum, natural gas, mixed precious metals, higher aluminum, lower copper, and mixed agricultural prices.
     
    U.S. news and economic reporting.  Economic releases focus on March factory orders.
     
    Overseas news.    Today, news reports indicate Portugal may need at least a €100 billion bailout, 25% higher than the initial €80 billion proposed by the European Union and the IMF.  In April, the U.K. manufacturing purchaser managers index decelerated more than expected.  Today, India raised its benchmark interest rate by 50 basis points, higher than the estimated 25 basis point increase. 
     
    Company news/research:
     
    ·         MA – reported 1Q11 GAAP EPS of $4.29, beating estimates of $4.09.
    ·         HIG – reported 1Q11 GAAP and operating EPS of $1.16 and $0.98, beating estimates of $0.95.
    ·         BBX – will raise $30 million common equity to achieve mandatory capital ratios.
     
    1Q2011 Earnings.  The first quarter’s earnings results have so far exceeded EPS and revenue expectations.  Of the 313 S&P500 companies that reported earnings to date, 76% (237 of the 313) beat operating EPS estimates, versus the historical average of 62%.  In aggregate, companies have beat by an average of +8.2% (versus a historical average of +2%).  EPS is up +22.6% over the prior year.  Though challenged in the current operating environment, 238 companies (76%) reported increased revenues and 220 companies (70%) beat revenue estimates.  In the first quarter of 2011, analysts estimate the SPX will earn $24.32 per share, compared to $22.47 and $19.49 per share in 4Q10 and 1Q10, a +8.2% and +24.8% increase, respectively.  
     
    With all 24 BKX members reporting, 75% (18 out of 24) beat operating EPS estimates.  Bank revenues disappointed slightly(by -0.78% on average), with 58% of BKX members missing estimates.  Eleven banks (46%) reported increased revenues over the prior year’s quarter.  In the first quarter of 2011, the BKX earned $0.95 per share, a +4.4% increase over 4Q10 EPS of $0.91 and 180% above 1Q10 EPS of $0.34. 
     
    Valuation.  The SPX trades at 13.8x estimated 2011 earnings (increased to $98.75 from $98.55) and 12.2x estimated 2012 earnings (increased to $111.86 from $111.71), compared to 13.8x and 12.2x 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 +4.4%, and +4.2%, respectively.  Analysts expect 2011 and 2012 earnings to exceed 2010 earnings ($84.78) by +16.5% and +31.9%, respectively.
     
    Large-cap banks trade at a median 1.54x tangible book value and 13.1x 2011 consensus earnings, compared to 1.56x tangible book value and 13.1x 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 +32.7% and 71.6%, respectively. 
     
    Monday’s equity markets. On lighter volume, equity markets closed modestly lower. The DJI, SPX, NYSE, and Nasdaq finished down -0.02%, -0.18%, -0.25%, and -0.33%, respectively.  Markets initially rose, mostly on the stunning news that bin Laden had been killed overnight. Markets saw their highs mid-morning, but had given back some of their gains by midday, and struggled to remain positive through the afternoon.  At 3 pm, most markets had turned negative, and all ended the day lower.  Economic news was generally positive with the release of construction spending (1.4% vs. 0.4% est.) and the ISM Manufacturing Index (60.4 vs. 59.5 est.), both higher than forecast.  Earnings season continued with AB, ACV, CNA and DISH beating analyst’s estimates, while HUM and L missed analyst’s forecasts.  Mergers continued with TEVA buying CEPH and ACI buying ICO.  However, despite the positive macro and earnings news,  markets could not extend April’s gains. The Nasdaq had been up for the previous 8 sessions, the DJI and SPX had been positive for 7 of the previous 8 sessions.  Recent gains had pushed the SPX’s valuation to 15.5x the reported operating earnings.  This was  near the 2011 high of 15.8 reached in February.  Trading desks reported some profit taking, but still a lack of heavy selling or any shorting activity.  The VIX finished the day at 15.99, up +8.41%.
     
    Technical indicators are generally positive.  All the major indices tested resistance levels on this morning’s pop, but never tested support levels on the afternoon’s decline.  All the major averages finished above their 50-, 100-, 200-day, and 200-week moving averages.  The Bloomberg NYSE new net highs were +320 versus Friday’s +319, and well above the key moving averages.  The relative strength indicator fell to 65.61 from 67.85 on Friday and is in the higher end of a neutral range.
     
    Market segments were mixed. Health care, consumer services, and consumer goods were the leaders, while technology, basic materials, and oil and gas were the laggards.
     
     
    Financials ended lower negative Monday, with the KRX, XLF, and BKX off -0.83%, -0.43%, and -0.39%, respectively.  The initial tenor was positive at the open, but faded with the rest of the market.  Among the larger cap financials, L, C, and ICE were the laggards, each off at least -1.79%. Gainers in the large cap space were led by GNW, EFX, and V, each up at least +1.31%. Among the smaller regional banks, ONB (+2.13%), EWBC (+1.61), and FULT (+1.03%) were the leaders, while  STBA (-3.97%), MBFI (-3.29%), and NPBC (-2.92%) were the laggards. The BKX finished the day with 9 names up, 14 down, and 1 unchanged. The KRX finished the day with 11 up, 38 down, and 1 unchanged. The BKX finished the day below its 20-, 50-, and 100-day moving averages but above the 200-day and 200-week averages. The XLF closed beneath its 50- and 100-day averages but above the 20-, 200-day and 200-week average. The KRX was above all the major moving averages.  While the broader indices have recovered their post-September 2008 losses, bank stock have not, with the BKX closing -11.4% below its April 2010 high and -37.8% below its best level of 82.55 in September 2008.
     
    NYSE Indicators.  Volume rose +1.43% to 975.24 million shares, from 961.53 million shares the prior day, 0.98x the 50-day moving average.  Market breadth was positive, and up volume led down volume.  Advancing stocks led decliners by +917 (compared to +691 Thursday), or 1.88:1.  Up volume led down volume by 1.48:1.
     
    SPX.  On lower volume, the SPX fell -2.39 points, or -0.18%, to 1361.42.  Volume fell -35.8% to 733.17 million shares, down from 1.142 billion shares Friday and below the 791.85 million share 50-day moving average.  For the 133nd consecutive day, the SPX’s 50-day moving average closed above its 200-day moving average (1318.27 vs. 1221.42, respectively).  The SPX closed above its 200-week moving average (1170.06).
     
    The SPX gapped higher at the open, fueled by Osama bin Laden’s demise.  The SPX immediately crossed first level resistance at 1366 and reached 1368 at the opening bell.  By 9:45, stocks had retraced some gains back to 1366, but a second rally took hold that, at 10:30, had lifted the index above 1370 and to its intra-day high of 1370.58.  Stocks traded sideways for the next hour.  A sell-off at 11:20 returned the index to 1366 by 11:45.  A second sell-off at 12:15 sent the index into negative territory and to 1361 at 12:30.   Buyers bought the dip, and the index ascended through 2:15, retaking break-even at 1:15 and reaching 1365 at 2:15.  Momentum reversed, and by 2:45, the SPX had crossed back into negative territory.  A sharp move lower at 3:30 sent the SPX below its primary support level of 1360 and to the intra-day low of 1358.59 at 3:45.  Buyers lifted equities back above the 1360 into the close, but the index could not retake its break-even line and finished with a modest loss for the first time in five sessions.   
     
    Technical indicators are positive.   The index closed above 1300 for the 27th straight session.  The index closed above its April 2010 highs for the 103rd straight session.  The SPX closed (by +2.12%) above its 20-day moving average (1332.95) for the eighth consecutive session.  The index closed (by +3.26%) above its 50-day moving average for the eighth straight session.  The index closed (by +4.74%) above its 100-day moving average (1299.63) for the 31st straight session.  The SPX closed +11.45% above its 200-day moving average.  All moving day averages increased.  The directional momentum indicator is positive for the seventh straight session, and the trend is increasing.  Relative strength fell to 67.36 from 69.13, the high end of a neutral range.  Next resistance is at 1368.34; next support is at 1356.35. 
     
    BKX.  On lower volume, the KBW bank index fell -0.20 points, or -0.39%, to 51.33.  Volume fell -11.0% to 101.18 million shares, down from 113.63 million shares Friday and below the 124.32 million share 50-day average.  The index closed +19.43% above its August 30 closing low of 42.98, the trough of the recent prior correction, but -11.42% and -7.73% below its April  23,  2010, and February 14, 2011 closing highs, respectively. 
     
    Financials underperformed the market, and regionals underperformed large-cap banks.  The BKX gapped higher at the open, immediately crossing first level resistance of 51.69 and reach 51.74 just after the bell.  Between the open and 10:00, the index fluctuated around the 51.70 level and set its intra-day high of 51.77 at 10:00.  At 10:30, financials lost momentum and began to decline.  By 11:25, gains had retraced back to break-even at 51.53, and by 12:30, the index had fallen through first level support to its intra-day low of 51.28.  A small rally at 12:45 took the index back to 51.40 by 1:30, but the BKX could retain any positive momentum.  Financials traded between 51.30 and 51.40 through the close, finishing at the lower end of that range.   
     
    Technical indicators are negative, but the broader market’s strength has provided the BKX support.  The BKX has remained bound on the upside by the 50-day moving average (now at 51.94 and falling), has broken through 100-day moving average support, but has held above the 200-day moving average (49.59).  The 20-day moving average (51.46) has remained below the 50-day moving average since March 11th  and crossed below the 100-day moving (52.54) 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 first, 17th, and 13th consecutive sessions, respectively.  The index closed above 50 for the 91st straight day.  The BKX closed above its 200-day moving average for the 97th straight session.  The 20- and 50-day moving averages fell.  The 20-day closed (by -0.48 points) below the 50-day for the 34th straight day, but the negative divergence contracted.  The 50-day moving average closed (by +2.35 points) above the 200-day moving average for the 75th straight session, but the positive divergence contracted.  The 100-day moving average closed (by +2.95 points) above the 200-day moving average for the 58th straight session, but the positive divergence contracted for the first time since the cross.  The directional movement indicator is positive for the third consecutive session, and the trend is declining.  Relative strength fell to 47.68 from 50.16 51.65, a neutral range.  Next resistance is 51.64; next support at 51.15.
     
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