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Gary Townsend
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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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Listening to Markets
  • U.S. Equity Futures Mixed on Slow News Day 0 comments
    Jun 6, 2011 9:11 AM | about stocks: AVB, EQR, KIM, JNS, SLM, GNW, COF, KEY, RF, FITB, FHN, HBHC, BPFH, PFS
    This morning.  U.S. equity markets are in correction.  U.S. equity futures are mixed.  Economic news flows is light. Over the weekend, there was no change in Chinese interest rates or bank reserve requirements. World equity markets are lower, reflecting the poor U.S. jobs report. U.S. Treasury yields are mixed.  The U.S. dollar is mixed.  Commodities markets are mixed, with weaker petroleum and agriculture, but stronger metals. OPEC meets later this week, and the Saudis are expected to increase production.  After a fair value adjustment of +2.86 points, June SPX equity futures are at 1296.20, down -2.86 points.  The SPX opens at 1300.16, -4.65% below its recent April 29 multi-year closing high and -2.35% below its 50-day moving average.  The SPX is -0.38% below April’s lowest closing low of 1305.14.  Next resistance is at 1309.43.  Next support is at 1294.39.
     
    Friday, U.S. equity markets closed lower on mixed volume.  The Nasdaq was the day’s worst performer, falling -1.46%. The SPX, DJI, and NYA composited declined -0.97%, -0.79%, and -0.72%, respectively. Oil and gas, utilities, and financials were the day’s best performers (oil and gas posted a +0.04% rise). Technology, industrials, and telecommunications were the day’s worst. The trading day began poorly with a much worse than expected May jobs report. Markets responded by gapping more than -1.0% lower at the open to the intraday SPX low of 1297.90. However, indexes began an immediate rally, assisted at 10:00 with a surprisingly strong May ISM non-manufacturing report, the first economic report in weeks to surprise to the upside. Markets rallied to 1310 around 1:00, but couldn’t press the rebound farther. Markets weakened and retested the day’s lows shortly after 3:00. Another weak, late rally failed, and indexes closed near their intraday lows. Market breadth was negative.  Notably, after an early spike to 19.87, volatility declined rapidly to an intraday low of 17.23 just before 11:00, with the VIX ending at 17.95, down -0.77% from 18.09 the prior day.  The Nasdaq and DJI recorded distribution days. The distribution day count is 7 on the Nasdaq and 6 on the DJI, SPX, and NYA.  Distribution days signal institutional selling in the past 25 trading days.  Trading desks reported a quiet, but orderly trade, better to the sell-side, with long sellers on the rallies and few short-sellers.
     
    Asian equity markets remain in correction, and Eurozone has returned to correction as well. Today is Asia’s 1st opportunity to respond to Friday’s employment report, though China is closed for holiday. The Nikkei closed down -1.18%, on a +20.7% increase in volume. All market segments closed at least -0.27% lower. Financials were middling performers, closing down -1.14%.  U.S. economic news and domestic post-earthquake economic concerns explained the day’s weakness.  The SHCOMP closed Friday at 2728.02, -10.8% below its recent April 18th 3057.33 high, -2.85% below its 2010 close, and below the 2843.64 200-day moving average.  However, the SHCOMP closed +2.50% above its 2011 low of 2661.45, set on January 25.  In Europe, equity markets are mixed, with better strength in industrials, basic materials, and financials.  Technology, utilities, and health care are the worst performers.  The EuroStoxx 50, FTSE, and DAX are lower, -0.93%, -0.88%, and -0.41%, respectively.  On the EuroStoxx, financials are worst performing segment, down -1.98%.
     
    Despite sovereign debt and other macro-concerns, LIBOR levels are at their lowest levels since early 2009, well below those seen prior to last year’s sovereign debt crisis.  Overnight USD LIBOR declined to 0.12600% from 0.12650% the prior day and 0.25188% at year-end.  USD 3-month LIBOR declined 0.25175%, compared to 0.25288% the prior day and 0.30950% at year-end.  The U.S. dollar is slightly stronger against the euro, yen, and pound.  The dollar, which has trended lower since last June, trades below its 50- and 100-day moving averages, but above its 200-day moving average.  The euro trades at US$1.4608, compared to US$1.4635 Friday and US$1.4491 the prior day.  After a sharp decline in early May, the Euro has risen back above its US$1.4391 50-day moving average.  The dollar trades at ¥80.08, compared to ¥80.34 Friday and ¥80.90 the prior day.  The yen trades better than its 50-day moving average ¥82.05.  U.S. Treasury yields are mixed, with 2- and 10-year maturities yielding 0.421% and 2.988%, respectively, compared to 0.425% and 2.986% Friday.  The yield curve widened to +2.567% from +2.561% 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 lower energy, higher precious metals, aluminum and copper, and lower agriculture.
     
    U.S. news and economic reporting.  Today’s economic reporting is light. Tomorrows reports are limited to June IBD/TIPP economic optimism and the JOLTs jobs openings for April, both at 10:00.  Wednesday’s reports include April consumer credit and MBA mortgage applications.  The Fed Beige Book is released Wednesday afternoon.   
     
    Overseas news.  Following a conclusive defeat in this past weekend’s elections, Portuguese Prime Minister Socrates said he would resign and the opposition party’s Pedro Coelho will soon organize a new government.  Yesterday, 80,000 demonstrators protested further austerity measures in Greece.  This weekend, Yemeni President Saleh traveled to Saudi Arabia for medical treatment following Friday’s attack.  Press reports indicate that U.S. drones killed al-Qaeda’s military chief, who was bin-Laden’s assumed successor. 
     
    Company news/research:
     
    ·         CMA – upgraded to buy at Susquehanna, price target raised to $42 from $37
    ·         WFC – downgraded to sell (from neutral) at Rochdale, price target reduced to $22 from $32.50
    ·         FFBC – upgraded to buy at Sandler O’Neill, price target of $18
     
    1Q2011 Earnings.  The first quarter’s earnings results have exceeded EPS and revenue expectations.  Of the 470 S&P500 companies that reported earnings to date, 72% (338 of the 470) beat operating EPS estimates, versus the historical average of 62%.  In aggregate, companies have beat by an average of +7.0% (versus a historical average of +2%).  EPS is up +19.7% over the prior year.  Though challenged in the current operating environment, 355 companies (75%) reported increased revenues and 317 companies (67%) 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 13.1x estimated 2011 earnings ($99.29) and 11.6x estimated 2012 earnings ($112.52), compared to 13.2x and 11.7x respective 2011-12 earnings Friday.  The 10-year average median Price/Earnings multiple is 20.0x.  Since the beginning of 2011, analysts increased 2011 and 2012 earnings estimates by +5.0%, and +4.9%, respectively.  Analysts expect 2011 and 2012 earnings to exceed 2010 earnings ($84.78) by +17.1% and +32.7%, respectively.
     
    Large-cap banks trade at a median 1.41x tangible book value and 12.3x 2011 consensus earnings, compared to 1.44x tangible book value and 12.3x 2011 earnings Friday.  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 +32.9% and 70.9%, respectively. 
     
    Fridays equity markets. On mixed volume, equity markets closed lower. The Nasdaq, SPX, DJI, and NYSE all finished lower, off -1.48%, -0.97%, -0.79%, and -0.67%, respectively. The markets began the day markedly lower after the disappointing May jobs report. After an initial sell-off, markets rallied immediately through 1:00, lost momentum in quiet trading and slid through the day’s remainder to end just above the intraday lows. Markets were predisposed to sell off and ended with a fifth straight weekly drop, the longest slump for the DJI since 2004.  Trading desks report that this sell-off was orderly and interestingly, with few short sellers.  Buyers are discouraged from buying the dips and are content to be on the sidelines for the most part. The VIX finished the week at 17.95, off -0.77%.
     
    Technical indicators are generally negative. The markets all tested their first support level, but without volume that would indicate conviction.  For the SPX, first support was 1306 with 1299 secondary support.  Resistance for the SPX was 1318, which was never approached Friday.  All the major indexes finished the day below their 50- and 100-day moving averages, but above their 200-day moving average.  The Bloomberg NYSE new net highs were -25 versus Thursday’s -6. The relative strength indicator finished lower at 40.55 versus Thursday’s 43.37 and in the lower neutral range.
     
    Market segments were barely mixed.  Oil and gas, the only positive segment, while utilities and financials were the other leaders, but lower. Technology, industrials, and telecommunications were the laggards.
     
    Despite a place among the leaders, financials closed lower. The KRX, BKX, and XLF were off -1.48%, -0.89%, and -0.65%, respectively.  Though the financials finished the day lower, they behaved better than the broader market and briefly traded higher intraday.  Investors continue to de-risk on strength. Value investors appear to adding to long positions on weakness. Among broader financials, REITS were the leaders with AVB, EQR, and KIM all reflecting investors’ desire for yield.  The laggards included JNS, SLM, and GNW, each off at least -2.99%.  The BKX began the day lower, but gained through the morning and turned positive briefly at mid-day.  After noon, the BKX began to slide, with some brief rally attempts, but finished near its intraday lows.  The BKX finished the day with 1 name up and 23 names lower. The sole gainer was FITB which finished +0.32% higher. BKX laggards included COF, KEY, and RF, off at least -1.85%.  The KRX finished with 2 names up and 48 names lower.  The leaders in the KRX were FHN and HBHC, up +0.2% and +0.03%, respectively. The laggards in the KRX were BPFH, PNFP, and PFS, off at least -2.91%. The BKX, KRX and XLF were below their 50-, 100-, and 200-day moving averages. While the broader indices have recovered their post-September 2008 losses, bank stocks have not, with the BKX closing -17.7% below its April 2010 high and -42.2% below its best level of 82.55 in September 2008.
     
    NYSE Indicators.  Volume fell -15.3% to 1.008 billion shares, 1.09x the 50-day moving average, from 1.190 billion shares Wednesday.  Market breadth was negative, and up volume lagged down volume.  Advancing stocks lagged decliners by -180 (compared to -1943 Wednesday), or 0.89:1.  Up volume lagged down volume by 0.80:1.
     
    SPX.  On lower volume, the SPX fell -12.78 points, or -0.97%, to 1300.16.  Volume fell -5.02% to 723.30 million shares, down from 764.56 million shares Thursday and below the 729.20 million share 50-day moving average.  For the 155th consecutive day, the SPX’s 50-day moving average closed above its 200-day moving average (1331.39 vs. 1248.04, respectively).  The SPX closed above its 200-week moving average (1166.57).
     
    The SPX gapped lower at the open, falling below the 1300 level, and below the April and May lows.  At 9:33, the index set its intra-day low of 1297.90.  Through 10:45, the index rallied back through 1300 and to the 1308 level.  The rally was sold, and by 11:45, the index retraced back to 1303.  A second hour-long rally from 11:45 to 12:50 took the index to its intra-day high of 1309.80 at 12:50.  Momentum faded through the afternoon, and the index lost ground.  By 2:00, the SPX traded at the 1305 level, and by 3:15, the index fell below 1300.  The SPX fluctuated at the 1300 level into the close, and finished just above that threshold. 
     
    Technical indicators are mixed, but worsening.  The index’s May 2nd failure at the 1370 level moved stocks into correction.  The SPX broke through both the 50- and 100-day moving averages last week, and closed below the 100-day moving average for the third straight day.  The index last crossed the 100-day moving average to the downside on May 14th, 2010 and remained below it until September 9th.  While the index’s recent correction has stalled the 50-day average’s positive momentum, the 50-day average has remained above the 100-day moving average by a small, but consistent, margin.  After opening below 1300 and testing that level into the closing bell, the index finished above 1300 for the 50th straight session.  The index closed above its April 2010 highs for the 126th straight session.  The SPX closed (by -2.36%) below its 20-day moving average (1331.60) for the third straight session.  The index closed (by -2.35%) below its 50-day moving average for third straight session.  The index closed (by -1.34%) below its 100-day moving average (1317.85) for the third straight session.  The SPX closed +4.18% above its 200-day moving average.  The 20-day moving average fell for the 10th straight session.  The directional momentum indicator is negative for the third straight day, and the trend is weak but increasing.  Relative strength fell to 37.80 from 42.06, the low end of a neutral range.  Next resistance is at 1309.43; next support is at 1294.39. 
     
    BKX.  On lower volume, the KBW bank index fell -0.43 points, or -0.89%, to 47.69.  Volume fell -22.5% to 68.90 million shares, down from 88.88 million shares Thursday and below the 93.71 million share 50-day average.  Recent low financial index volumes versus historical averages relates to Citigroup’s May 6th 10-1 reverse split.  The BKX closed +11.0% above its August 30 closing low of 42.98, the trough of the recent prior correction, but -17.7% and -14.3% below its April 23,  2010, and February 14, 2011 closing highs, respectively. 
     
    Financials outperformed the market, and large-cap banks outperformed regionals.  The BKX gapped lower at the open, reaching the 47.50 level.  At 9:33, the index set its intra-day low of 47.48.  By 10:10, financials rallied back to break-even.  Through 12:30, the BKX fluctuated at the break-even line until a quick rally lifted the index to its intra-day high of 48.35 at 12:50.  Like the broader markets, financials fell through the afternoon.  The index turned negative by 1:25, broke down through 48.00 at 1:55, and hit the 47.60 level just prior to the close. 
     
    Technical indicators are mostly negative.  The market’s correction has withdrawn support for financial stocks.  The index has remained bound on the upside by the 50-day moving average (now at 50.80 and falling), broke down through 100-day support on April 13th, and fell below 200-day moving average support on June 1st.  The 20-day moving average (49.65) has remained below the 50-day moving average since March 11th  and crossed below the 100-day moving average (now at 52.06) 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-, 100-, and 200-day moving averages for the 17th, 40th, 36th, and third consecutive sessions, respectively.  The index closed below 50 for the eighth time in nine sessions.  The 20-, 50-, and 100-day moving averages fell.  The 20-day closed (by -1.15 points) below the 50-day for the 57th straight day, and the gap expanded.  The 50-day moving average closed (by +0.95 points) above the 200-day moving average for the 98th straight session, but the gap narrowed and indicates a cross in the next few weeks.  The 100-day moving average closed (by +2.22 points) above the 200-day moving average for the 80th straight session, but the gap narrowed.  The directional movement indicator is negative for the 20th straight session, and the trend is strong and increasing.  Relative strength fell to 32.16 from 34.49, the low end of a neutral range.  Next resistance is 48.20; next support at 47.33.
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