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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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  • U.S. Futures Ease Higher; Tokyo Surges On Weak Yen; DAX At Record 0 comments
    May 10, 2013 8:45 AM

    This morning. The U.S. equity market uptrend resumed on April 29th. Thursday, U.S. equity indexes closed modestly lower, though on lower volume. The SPX, DJI, Nasdaq, and NYSE composite all closed above their respective 5-, 10-, 20-, and 50-day moving averages. The SPX closed +1.13% above resistance at 1608.53, which suggests that markets will move still higher.

    Today, in Asia, Japanese markets closed with exceptional gains as the yen weakened through US$1:101. Chinese equity markets posted moderate gains. Commentary focused on the currency, corporate, and earnings developments. In Europe, equity markets are moderately higher. Commodities are mostly lower. In the U.S., there are no scheduled economic reports. A meeting of the G-7 finance ministers is a focus, but little substantive is expected. Notably, there is no criticism of Japanese currency policy.

    U.S. Treasury 10-year yields advanced to 1.853%, from 1.811% the prior day. U.S. repo rates are 12 bps, unchanged from 12 bps the prior day. Spanish and Italian 10-year debt yields are 4.21% and 3.89%, respectively, up from recent low yields. The U.S. dollar is stronger. U.S. options markets are neutral to bearish. CBOE skew rose +1.47% to 119.08, but remains within a neutral range.

    The SPX closed at 1626.67, down -0.37% from the prior day's 1632.69 record high close. The index is up +2.81% since April 28th, and +51.4% above the 1074.77 October 4, 2011, intraday low. This week, the SPX is up +0.76%, compared to last week's +2.03% gain. In May, the index is up +1.82%. In April, the SPX closed up +1.81%, compared to a +3.60% gain in March. In 2013, the SPX is up +14.1%. In 2012, the SPX closed up +14.5%. Next resistance is at 1633.42. First support is at 1621.50.

    Thursday, the BKX fell -0.71%, underperforming the SPX. This week, the BKX is up +2.44%. Last week, the BKX closed up +0.64%, compared to a gain of +3.15% the prior week. In May, the BKX is up +2.55%. In April, the BKX rose +1.07%, compared to a gain of +4.26% in March. This year, the BKX is up +13.8%, 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, June SPX equity futures are higher, and near the bottom of a 1624-1629 range. After a fair value adjustment of -1.33 points, SPX equity futures are at 1526.00, up +2.83 points. The SPX opens +2.50% and +3.76% above its respective 20- and 50-day moving averages, and +6.75%, and +10.7% above its respective 100- and 200-day moving averages.

    Thursday. On lower and below average volume, U.S. equity markets closed modestly lower, off the prior day's record SPX, DJI, and TRAN closes. In Europe, the DAX set another record close. The NYSE composite fell -0.57%, followed by the SPX, DJI, and Nasdaq, which fell -0.37%, -0.15%, and -0.12%, respectively. Market breadth was positive, with gainers 0.92:1 losing stocks. Most SPX market segments closed lower. Leaders were health care and consumer services, which rose at least +0.01%, and industrials, which lost -0.01%. Laggards were financials, telecommunications, and utilities, which fell at least -0.74%.

    NYSE volume fell -8.21% to 670.10 million shares, from 730.02 million shares the prior day, 0.92x the 20-day moving average volume.

    From its 1632.69 prior day record close, the SPX opened modestly lower, but retreated following a weaker than expected March wholesale sales report at 10:00. The index traded narrowly around 1628 into the afternoon session, but rallied higher to a mid-afternoon 1635.01 intraday high. The index weakened into late afternoon to a late 1623.09 intraday low, but improved into the close. The index closed at 1626.67, -0.37% below its record high. Market volatility rose. From its prior 12.66 close, the VIX opened at 12.90 and traded narrowly higher through the morning session. The index weakened to 12.80 by mid-afternoon, then surged to 13.50 in late afternoon. The index eased into the close. The index closed at 13.13, up +3.71%. The all-time closing low was 11.26, set June 30, 1993.

    On -29.6% lower volume, the DJ Transports fell -1.13%, compared to the DJI's -0.15% loss, and -1.13% off the May 10th record high close. From its prior 6,411.14 close, the index opened modestly lower, but trended lower through the session to a late 6,326.66 intraday low. The index closed at 6,338.99. The index +3.41% and +3.33% above its respective 20- and 50-day moving averages, and +7.42%, and +15.6% above its respective 100- and 200-day moving averages.

    Technical factors were little changed. SPX relative strength (RSI) fell to 65.54, from 68.58 the prior day, in a neutral range. The CBOE put/call skew rose +1.47% to 119.08, from 117.35 the prior day, in a neutral range. U.S. Treasury bond prices rose, as the 10-year yield rose +4.44 bps to end at 1.8109%, from 1.7665% the prior day.

    This week, the SPX, DJI, Nasdaq, and NYSE composite are up +0.76%, +0.73%, +0.90%, and +2.44%, respectively. Last week, SPX, DJI, Nasdaq, and NYSE composite closed up +2.03%, +1.78%, +3.03%, and +1.86%, respectively. In May, the SPX, DJI, Nasdaq, and NYSE composite are up +1.82%, +1.64%, +2.41%, and +1.45%, respectively. In April, the SPX, DJI, Nasdaq, and NYSE composite are closed up +1.81%, +1.79%, +1.88%, and +1.86%, respectively.

    In 2013, the SPX, DJI, Nasdaq, and NYSE composite are up +14.1%, +15.1%, +12.9%, and +11.4%, respectively. All closed at least +5.91% higher in 2012.

    Immediate SPX support is 1623 (the 5-day moving average). Resistance is 1633.

    Distribution day count. The current uptrend began on April 29th. There have been no subsequent distributions.

    In Asia, equity market closed higher, with particular strength in Tokyo. The NKY rose +2.93% on a +16.5% volume increase. In Hong Kong, the HSI rose +0.47% on a -0.01% volume decrease. The SHCOMP rose +0.62% on a -8.31% volume decrease. Commentary focused on today's pronounced yen weakness and corporate and earnings developments.

    This week, the NKY is up +6.67%. The HSI is up +2.78%. The SHCOMP is up +1.88%. Last week, the NKY closed down -0.76%, the HSI rose +1.63%, and the SHCOMP closed up +2.45%. In May, the NKY is up +5.39%. The HSI is up +2.57%. The SHCOMP is up +3.16%. In April, the NKY closed up +11.8%, the HSI closed +1.96% higher, and the SHCOMP lost -2.62%. In 2013, the NKY is up +40.5%. The HSI is up +2.93%. The SHCOMP is down -0.98%. In 2012, the NKY rose +1.37%. The HSI rose +22.9%. The SHCOMP rose +3.17%.

    In Japan, the NKY closed Friday at 14,607.54, compared to 14,191.48 the prior day. The index gapped higher to open above 14,450 and immediately rallied to 14,550, where it traded narrowly until late morning, when it rallied further to 14,600, where it traded through the session's remainder. The index closed ended +7.13%, +14.4%, +24.8% and +41.6% above its respective 20-, 50-, 100, and 200-day moving averages. All market segments closed at least +0.32% higher. Leaders were technology, consumer goods, and telecommunications, which rose at least +3.61%. Financials rose +3.50%. Laggards were oil and gas, utilities, and health care.

    In China, the Hang Seng closed at 23,321.22, compared to 23,211.48 at the prior close. The index closed -2.10% below its January 30th yearly high, but +28.2% above its 18,185.59 June 4th yearly low. The index traded narrowly around breakeven through most of the session, but rallied higher in the final hour to finish just off its 23,330.60 intraday high. The index ended +4.39% and +4.10% above its respective 20- and 50-day moving averages. Most market segments closed higher. Leaders were basic materials, technology, and industrials, which rose at least +0.93%. Financials gained +0.52%. Laggards were telecommunications and consumer goods, which gained +0.13%, and utilities, which lost -0.58%.

    In Shanghai, the SHCOMP closed at 2,246.83, compared to 2,232.91 at Thursday's close. The index fell to an early 2,226.00 intraday low, but rallied by mid-morning to its 2,247.63 intraday high. The index fell back to breakeven by mid-session, but rallied through the afternoon's final two hours to close near the high. The index closed -8.69% below its 2,434.48 February 5th high, but up +14.7% from its December 3rd 1,959.77 low. The SHCOMP closed +1.58% above and -0.56% below its respective 20- and 50-day moving averages. All market segments closed at least +0.21% higher. Leaders were consumer goods, industrials, and basic materials, which rose at least +0.84%. Financials rose +0.55%. Laggards were health care, technology, and oil and gas.

    In Europe, the major equity indexes are higher, with the DAX at record highs. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +0.75%, +0.57%, +0.67%, and +0.67%, respectively. The Spanish IBEX 35 and Italian FTSE MIB are up +0.52% and +1.37%, respectively. On the Euro Stoxx50, the index opened at 2,780 and rallied to an early 2,805.30 intraday high. The index currently trades at 2,794.30. All market segments are at least +0.33%. Leaders are health care, telecommunications, and technology, which are up at least +1.01%. Laggards are consumer goods, oil and gas, and financials.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +1.04%, +2.57%, +1.02%, and +2.39%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX were up +2.99%, +0.53%, +2.70%, and +3.94%, respectively. In May, the Euro Stoxx50, FTSE 100, CAC 40 and DAX are up +2.97%, +3.06%, +2.49%, and +5.08%, respectively. In April, the Euro Stoxx50, FTSE 100, CAC 40, and DAX gained +3.35%, +0.29%, +3.36%, and +1.52%, respectively. In 2013, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +5.94%, +12.4%, +8.56%, and +9.24%, 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 0.14600%, down from 0.14750% the prior day. USD 3-month LIBOR is 0.27510%, unchanged from 0.27510% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US Libor-OIS (LOIS) spread is 15.06 bps, compared to 15.31 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 12.80 bps, up from 12.70 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 -14.026, compared to -14.786 bps the prior day, and up from a trough of -147.00 bps on December 14, 2011 and within a normal -10 bps and -40 bps range.

    · Spanish 10-year debt yields rose to 4.20%, from 4.19% the prior day. Italian 10-year debt yields are at 3.89%, compared to 3.88% the prior day, to another new recent loan yield. German 10-year debt yields are 1.35%, compared to 1.27% the prior day.

    · The U.S. government overnight repo rate is 12 bps, up from 12 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 higher, with 2- and 10-year maturities yielding 0.225% and 1.858%, respectively, compared to 0.220% and 1.881% Thursday. The yield curve widened, with the 2- to 10-year spread at +1.634%, compared to 1.591% 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 +1.804% on March 11, 2013.

    · The U.S. dollar is stronger compared to the euro, Japanese yen, and British pound. The dollar trades at US$82.977, compared to a US$83.039 intraday high and US$82.793 the prior day, and better compared to its $82.534 50-day, US$81.361 100-day, and US$80.902 200-day averages. The euro trades at US$1.3004, compared to a US$1.2982 intraday low and US$1.3043 the prior day. The euro trades mixed compared to its US$1.3006 50-day and US$1.3153 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥101.70, compared to ¥100.59 the prior day, at a fresh 4-year low. The yen trades worse than its 50-day moving average ¥96.87.

    · Citigroup Economic Surprise Index improved to -6.90, from -7.90 the prior day. The index is worse compared to its respective -4.50 and -4.15 5-day and 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. The index turned positive on February 25th and moved to a March 25th high of 30.20, but turned negative again on April 17th. After a lag, the CESIUSD correlates with EPS revisions.

    · Commodities prices are mostly lower, with lower energy, lower precious metals, lower aluminum and copper, and mixed agriculture prices.

    Volatility, Skew:

    · The VIX closed at 13.13, up +3.71% from 12.66 at the prior close. The VIX is -6.37% below its 14.02 20-day moving average. Its 30-day high is 18.20. Its 30-day low is 11.99. The index's all-time closing low is 11.26 on June 30, 1993. The long-term average is 20.28.

    · At mid-session, the Euro Stoxx 50 volatility index (V2X) is 17.07, down -0.86% from 17.22 at the prior day's close. The V2X index trades -12.4% below its 19.48 20-day moving average, -27.3% below the 23.49 30-day high, and +0.21% above the 17.03 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 14.70, up +0.27% from 14.66 the prior day. The VHSI index trades -10.2% below its 16.36 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE skew rose +1.47% to 119.08, from 117.35 at the prior day's close, and within 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 closes were 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:

    · G-7 finance ministers meet this weekend.

    Overseas News:

    · Italy - March industrial production fell -0.8%, compared to -0.3% survey and -0.9% revised prior.

    · Portugal - March construction works index was 47.9, compared to 46.8 revised prior.

    · United Kingdom - March MoM construction output rose +12.1%, compared to +15.0% survey and +8.7% 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 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 in April progressed to 9, when the index closed at 1597.57, compared to 1569.19, compared to 1514.68 the prior month and 1426.19 four months prior. The sell countdown stemming with the May 2011 perfection rose to 12. The index closed +11.8% 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 4th, a bullish price flip initiated a sell setup, which perfected the week ending March 1. On January 31st, the sell countdown associated with August 10th perfection completed and generated a 1525.36 risk level. In the week ending May 3rd, the index closed up +2.03% at 1614.42, compared to 1582.24 the prior week and 1553.28 close four weeks prior. The sell setup progressed to 2. The sell countdown associated with the March 8th perfection progressed to 6. The index closed +5.84% above 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 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, w6hich completed on January 7th. On January 9th, a bullish price flip initiated another sell setup, which perfected on January 22nd. On March 6th, the sell countdown associated with the January 7th setup perfected and set a 1561.74 risk level, based on the March 6th 18.27 range and 1543.47 intraday high. On March 13th, the sell setup perfected. On April 29th, the sell countdown associated with the March 13th perfection completed and set a 1608.53 risk level, which superseded the prior risk level. On Thursday, the SPX fell -0.37% to close at 1626.67, from 1632.69 the prior day and 1614.42 4 days prior. The sell setup progressed to 6. The index closed +1.13% above the 1608.53 risk level, which based on the SPX's April 11th 11.18 point trading range and 1597.35 intraday high.

    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 April, the BKX rose +1.07% to end at 56.88, compared to 56.28 at the end of March and 51.28 four months prior. The sell setup rose to 8.

    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 and set a 56.93 risk level. On May 3rd, the BKX closed at 56.94, up +0.64% from 56.58 the prior week and 55.14 four weeks prior. The sell setup progressed to 2. The sell countdown associated with the February 1st perfection progressed to 6. The index closed +0.02% above the 56.93 risk level, which is based on the February 22nd week's 1.08 point range and 55.85 high.

    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. On March 14th, the sell setup closed above 57.22 and perfected. On March 19, a bearish price flip initiated a buy setup with a 56.84 close. On April 1st, the buy setup perfected. Thursday, the index closed at 58.33, down -0.71% from 58.75 the prior day and 56.94 four days prior. The sell setup progressed to 5. The 6 buy countdown associated with the April 1st perfection is unchanged since April 18th.

    VIX - On a monthly basis, the VIX perfected a sell setup in October 2007. The associated sell countdown progressed to a deferred 13 in June 2012, but is subsequently unchanged. In January, the VIX fell -23.9%, initiating a buy countdown. The VIX ended April at 13.52, compared to 12.70 at the end of March and 18.02 at the end of December. The buy setup progressed to 4.

    On a weekly basis, the VIX perfected a buy setup on January 27, 2012, and a sell setup on June 8th, followed by another perfected buy setup on August 10th. On April 12th, the VIX completed the buy countdown associated with the August 10th setup, which also established a 9.17 risk level. The week ending May 3rd, the VIX fell 5.58% to end at 12.85, from 13.61 the prior week, and 13.92 weeks prior. The bearish flip cancelled a 4 sell setup and initiated a buy setup.

    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. On March 1st, a bearish flip initiated a buy setup. On March 11th, the buy countdown associated with the January 16th perfection completed, and set a 10.41 risk level. On March 15th, the buy setup associated with March 1st flip perfected. Thursday, the VIX rose +3.71% to 13.13, from 12.66 at the prior close and 12.85 at the 4 days' prior close. The bullish index flip canceled a 5 buy setup progressed and initiated a sell setup. The buy countdown associated with the March 15th perfection is a deferred 13. The VIX closed +26.1% above the risk level.

    EUR, USD Cross - On a monthly basis, Euro Dollar cross perfected a buy setup on May 30, 2008, at 1.554. Subsequent monthly trends were weak until December 31, 2009, when a monthly decline of -4.56% 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 buy 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 retest the July 2010 lows. In March, a bearish price initiated a buy setup. The cross ended April at 1.3168, up +2.75% compared to 1.2815 the prior month and 1.3579 4 months prior. The buy setup progressed to 2. The 9 buy countdown progressed was 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. The cross completed a buy countdown on July 27th, and set a 1.1964 risk level. 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 May 3rd, the index fell -0.43% to end at 1.3114, from 1.3030 the prior week and 1.2991 4 weeks prior. The sell setup progressed to 5. The 11 sell countdown associated with the September 28th perfection was unchanged. The cross closed +9.61% above the 1.1964 risk level.

    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. On April 4th, a bullish price flip initiated a sell setup, which perfected on April 12th. With Thursday's -0.894% lower close, the EURUSD cross ended at 1.3043, from 1.3153 the prior day and 1.3114 four days prior. The lower close cancelled a sell setup and initiated a buy setup. The sell countdown associated with the April 12th perfection progressed to 5. The cross closed -2.61% 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 April at 1.6717%, compared to 1.8487% the prior month and 1.7574% 4 months prior. The bearish rate flip canceled a 7 sell setup and initiated a buy setup.

    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 1.7382%, compared to 1.6633% the prior Friday and 1.7182% four weeks prior. The bullish rate flip cancelled a 4 buy setup and initiated a sell setup. The 1 sell countdown associated with the February 1st perfection is unchanged.

    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 19th, the rate perfected its sell setup and initiated a sell countdown. On February 20th, a bearish rate flip initiated a buy setup, which perfected on March 4th. On April 8th, the buy setup perfected. On April 15th, the buy countdown associated with the March 4th perfection completed and set a 1.6098% risk level, based on the April 5th 10.61 bps range between the intraday high and low rate and 1.7159% close. On Thursday, the rate ended at 1.8109%, from 1.7665% the prior day and 1.7382% four days prior. The buy setup progressed to 5. The 7 buy countdown associated with the April 8th perfection was unchanged.

    NKY - On a monthly basis, the NKY perfected a buy setup on April 30, 2009 (at 8,828.26), but subsequently traded narrowly until November, 2012, when the index rose +5.80%, following an increase of +1.50% in October, and initiated a sell setup. The index closed April at 13,860.86, up +11.8% from 12,397.91 the prior month and 10,395.18 four months prior, its 7th consecutive monthly gain. The sell setup rose to 6.

    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. 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. The sell countdown associated with the December 21st perfection completed April 5th and set a 14.645.46 risk level, based on the 1,419.84 point range on that day and 13,225.62 intraday high. For the week ending May 10th, the index closed up +6.67% at 14,607.54, from 13,694.04 the prior week and 13,485.14 four weeks' prior. The index closed -0.26% below the risk level.

    On a daily basis, the November 15th bullish price flip initiated a sell setup, which perfected on November 30th. The associated sell countdown completed on December 28th. 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 until a March 4th bullish price flip initiated a sell setup. On March 15th, the sell setup perfected with its close above the March 12th 12,461.97 intraday high. The associated sell countdown completed on April 26th, and set a 14,115.54 risk level, based on the April 26th 13,983.87 intraday high and 131.67 point range. On March 27th, a bearish price flip initiated a buy setup, which perfected on April 15th. Friday, the index rose +2.93% to 14,607.54, from 14,191.48 the prior day and 13,694.04 four days prior. The sell setup progressed to 4. The sell countdown associated with the April 26th perfection rose to 8. The index closed +3.49% above the risk level, suggesting further upside.

    HSI - On a monthly basis, the HSI perfected a buy countdown on March 31, 2009, and two subsequent perfected upward setups on December 31, 2009 and May 31, 2011. In February, the index closed at 23,020.27, completing the sell countdown stemming from the May 2011 perfection. The completed countdown set a 27,194.16 risk level. A bullish price flip in September 2012 initiated a sell setup. The index ended April at 22,737.01, up +1.96% from 22,299.63 the prior month and 22,656.92 four months prior. The sell setup progressed to 8. The index closed -16.4% below the risk level.

    On a weekly basis, the HSI perfected a sell setup on March 2, 2012, and the associated sell countdown completed on September 21, 2012, and set a 22,357.00 risk level, based on the September 14, 2012, when it set a 22,357.00 risk level. The index perfected two sell setups on November 9th and February 1st. A buy setup initiated the following week and perfected on April 5th, initiating a sell countdown. On May 10th, the index closed at 23,321.22, from 22,689.96 the prior week and 22,089.05 four weeks prior. The sell setup progressed to 3. The 1 sell countdown associated with the April 5th perfection was unchanged. The index closed +4.31% above the risk level.

    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 April 19th, a bullish price flip initiated a sell setup, which perfected on May 2nd and initiated a sell countdown. On Friday, the HSI rose +0.47% to 23,321.22, from 23,211.48 the prior day and 22,915.09 four days prior. The sell countdown progressed to 6. The index closed -2.35% 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. In December, a bullish price flip initiated a sell setup. In April, the index closed at 2,177.91, down -2.62% from 2,236.62 the prior month and 2,269.13 four months prior. The bearish price flip canceled a 4 sell setup and initiated a buy setup. The buy countdown associated with the January 2012 perfection progressed to 7.

    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 May 10th, the index closed the week up +1.88% at 2,246.83, from 2,205.50 the prior week and 2,206.78 four weeks prior. The bullish price flip cancelled a 7 buy setup and initiated a sell setup. The sell countdown associated with the February 8th perfection progressed to 2.

    On a daily basis, 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. On March 26th, a bearish price flip initiated a buy setup, which perfected on April 9th and canceled a deferred sell countdown. Friday, the index rose +0.62% to 2,246.83, from 2,769.44 at the prior close and 2,231.17 4 days prior. The sell setup progressed to 5. The 7 buy countdown associated with the April 9th perfection was 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. The index closed at 2,712.00, compared to 2,624.02 the prior month and 2,635.91 four months prior. The sell setup progressed to 9, but did not perfect.

    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. The completion set a 2,785.45 risk level. Since January 18th, the subsequent trend is lower. In the week ended May 3rd, the index rose +2.99% to end at 2,763.68, compared to 2,683.43 the prior week and 2,585.28 at the 4 weeks' prior close. The sell setup progressed to 2. The sell countdown stemming from the January 18th perfection progressed to 5. The index closed -0.78% below the risk level.

    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. On March 14th, the March 4th sell setup perfected. On March 18th, a bearish price flip initiated a buy setup, which perfected on March 28th, and initiated a buy countdown. On April 23rd, a bullish price flip initiated a sell countdown, which perfected on May 3rd. The perfection initiated a sell countdown. Thursday, the index fell -0.41% to2,773.16, from 2,784.62 the prior day and 2,763.68 at the prior 4 days' close. The 4 sell countdown was unchanged. The index closed -0.48% below the risk level.

    1Q2013 Earnings. Of 450 reporting companies, 322 or 71.6% surprised positively on earnings, with a +5.13% surprise average. Of reporting companies, 215 or 47.9% reported sales or revenues in excess of estimates. The average sales/revenue surprise is -0.67%.

    Valuation. The SPX trades at 15.7x 2012 earnings ($103.41), 14.7x estimated 2013 earnings ($110.29), and 13.3x estimated 2014 earnings ($122.55). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2013 and 2014 earnings to grow +6.72% and +11.1%, 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 0.98, compared to 0.87 the prior day, and worse compared to its 5- and 10-period moving averages of 0.88 and 0.90, respectively. The index put/call ratio rose to 1.02, from 0.88 the prior day, and worse compared to its 5- and 10-period moving averages of 0.95 and 0.98, respectively. The equity put/call ratio closed the day at 0.99, compared to 0.87 the prior day, and worse compared to its 5- and 10-period moving averages of 0.85 and 0.87, respectively.

    NYSE Indicators. Volume fell -8.21% to 670.10 million shares, from 730.02 million shares the prior day, 0.91x the 734.59 million share 20-day moving average. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -865 (compared to +942 the prior day), or 0.55:1. Up volume was 0.52:1 down volume.

    BKX. Volume fell -15.1%, and the KBW bank index closed at 58.33, down -0.71% from 58.75 at the prior close. The index moved lower at the open, but traded narrowly around 58.60 until late in the session, when the index traded off to 58.30. Volume fell to 46.926 million shares, from 55.294 million shares the prior day, or 0.92:1x the 51.284 million share 15-day moving average.

    Large cap banks underperformed the regional banks' performance, as the KRX fell -0.65%.

    This week, the BKX is up +2.44%. Last week, the BKX rose +0.64%. In May, the BKX is up +2.55%. In April, the BKX rose +1.07%. For the year, the BKX is up +13.8%, worse than the SPX's +14.1% 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 +0.66% above its 57.95 April 23, 2010 close (the prior post-2008 high point), and +79.2% above the 32.56 intraday low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, with the SPX up +51.4% in the same period.

    Technical indicators improved. The index moved well above its 5-, 10-, 20-, and 50-day moving averages. The index closed +3.54% and +3.77% above its respective 20- and 50-day moving averages. The index closed +6.45%, and +12.9% above its respective 100- and 200-day moving averages. 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 +9 bps. Its 100-day moving average rose +9 bps, and the 200-day moving average rose +6 bps. The 20-day closed (by +0.13 points) above the 50-day, and the gap narrowed by -1 bp. The 50-day moving average closed (by +4.54 points) above the 200-day moving average, and the gap widened +1 bp. The 100-day moving average closed (by +3.13 points) above the 200-day moving average since March 19th, and the gap widened +2 bps.

    The directional movement indicator narrowed to +17.228, from +19.180 the prior day. Relative strength fell to 63.53, from 67.66 the prior day, in a neutral range. Next resistance is 58.65; next support is at 58.11.

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