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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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  • Tokyo Equities Rebound; Europe Mixed; U.S. Futures Ease Lower 0 comments
    May 24, 2013 8:53 AM

    This morning. The U.S. equity market uptrend resumed on April 29th. Thursday afternoon, U.S. equity indexes narrowed early losses to end modestly lower. For a 2nd consecutive session, the SPX, DJI, Nasdaq, and NYSE composite all closed below their respective 5-day moving averages. The SPX closed +2.61% above 1608.53 resistance. Short-term relative strength indicators (RSI) fell from 62.10, from 64.64, the prior day, and an overbought 72.51 at Tuesday's close.

    Today, in Asia, Tokyo opened higher, reversed lower after mid-session, but reversed higher later in the session to end with moderate gains. The NKY's RSI edged higher to 55.37, from 53.46 the prior day, but down from an overbought 82.61 at Wednesday's close. Commentary focused on BOJ monetary policy and Japanese sovereign bond yields, which have recently moved higher. In Europe, equity markets are mixed. Commodities are lower.

    U.S. Treasury 10-year yields are lower at 2.0107%, compared to 2.0157% at the prior close. U.S. repo rates are 6 bps, up from 4 bps the prior day. Spanish and Italian 10-year debt yields are 4.41% and 4.15%, respectively, up from recent low yields. The U.S. dollar is weaker. U.S. options markets are mixed, unchanged from bearish to bullish the prior day. CBOE skew is a neutral 116.92, down from 117.16 the prior day.

    The SPX closed at 1650.51, down -0.29% from 1655.35 the prior day. The index is up +4.31% since April 26th, and +53.7% above the 1074.77 October 4, 2011, intraday low. This week, the SPX is down -1.02%. Last week, the SPX closed up +2.07%. In May, the index is up +3.31%. In April, the SPX closed up +1.81%, compared to a +3.60% gain in March. In 2013, the SPX is up +15.7%. In 2012, the SPX closed up +16.3%. Next resistance is at 1658.83. First support is at 1638.86.

    Thursday, the BKX fell -0.39%, underperforming the SPX. This week, the BKX is down -0.74%. Last week, the BKX rose +4.44%, compared to the prior week's +2.79% gain. In May, the BKX is up +6.68%. In April, the BKX rose +1.07%, compared to a gain of +4.26% in March. This year, the BKX is up +18.3%, outperforming 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 lower, but near the top of a 1639-1645 range. After a fair value adjustment of -1.79 points, SPX equity futures are at 16645.00, down -3.21 points. The SPX opens +1.24% and +3.78% above its respective 20- and 50-day moving averages, and +6.72%, and +11.3% above its respective 100- and 200-day moving averages.

    Thursday. On slightly lower, but above average volume, U.S. equity markets narrowed moderate early losses to end modestly lower. The NYSE composite fell -0.44%, followed by the SPX, Nasdaq, and DJI, which fell -0.29%, -0.11%, and -0.08%, respectively. Market breadth was negative, with gainers 0.72:1 losing stocks. Most SPX market segments closed lower. Leaders were telecommunications, which rose +0.52%, and technology and health care, which fell at least -0.12%. Laggards were consumer goods, financials, and utilities, which fell at least -0.42%.

    NYSE volume fell -0.18% to 853.14 million shares, from 854.70 million shares the prior day, 1.20x the 20-day moving average volume.

    From its 1655.35 prior day close, the SPX gapped lower to open below 1640 and fell to an early 1635.53 intraday low. The index moved back above 1650 by late morning, and traded briefly higher just before 3:00, but eased lower through the final hour. The SPX closed at 1650.51, down -1.02% from its May 17th record close. Market volatility rose. From its prior 13.82 close, the VIX opened at nearly 15.00, but fell back below 14.00 by mid-session and then traded narrowly higher to the close. The index closed at 14.07, up +1.81%. The all-time closing low was 11.26, set June 30, 1993.

    On +35.2% greater volume, the DJ Transports rose +0.21%, compared to the DJI's -0.08% loss. From its prior 6,416.26 prior close, the TRAN set an early 6,339.48 intraday low, but rallied and reversed higher in mid-afternoon. The index closed at 6,429.79, its intraday high and -1.82% off its 6,549.16 May 17th record close. The index closed +1.39% and +3.60% above its respective 20- and 50-day moving averages, and +6.83%, and +15.8% above its respective 100- and 200-day moving averages.

    Technical factors worsened. SPX relative strength (RSI) slipped to 62.10, from 64.64 the prior day, in a neutral range. The CBOE put/call skew fell -0.20% to a neutral 116.92, from 117.16 the prior day. U.S. Treasury bond prices rose, as the 10-year yield fell -2.38 bps to end at 2.0157%, from 2.0395% the prior day.

    This week, the SPX, DJI, Nasdaq, and NYSE composite are down -1.02%, -0.39%, -1.13%, and -1.15%, respectively. Last week, the SPX, DJI, Nasdaq, and NYSE composite rose +2.07%, +1.56%, +1.82%, and +1.42%, respectively. In May, the SPX, DJI, Nasdaq, and NYSE composite are up +3.31%, +3.06%, +3.92%, and +2.06%, 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 +15.7%, +16.7%, +14.6%, and +12.1%, respectively. All closed at least +5.91% higher in 2012. Immediate SPX support is 1638. Resistance is 1661 (the 5-day moving average).

    Distribution day count. The current uptrend began on April 29th. The SPX, DJI, Nasdaq, and NYSE composite have distribution counts of one.

    In Asia, equity markets closed mixed on lower volume. For a 2nd consecutive day, Japanese equity markets were volatile, opening higher, but reversing direction twice during the session. Ultimately, the NKY closed up +0.89% on a -22.5% volume decrease. The HSI fell -0.23% on a -43.6% volume decrease. The SHCOMP rose +0.58% on a -18.2% volume decrease. The SHCOMP is higher in May. All are higher in 2013. Commentary focused on Japanese 10-year bond yields, and BOJ governor Kuroda's communication skills.

    This week, the NKY closed down -3.47%, and the HSI closed down -2.01%, but the SHCOMP closed up +0.25%. Last week, the NKY closed up +3.63%. The HSI closed down -1.02%. The SHCOMP closed up +1.60%. In May, the NKY is up +5.42%. The HSI is down -0.52%. The SHCOMP is up +5.08%. 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 +40.6%. The HSI is down -0.17%. The SHCOMP is up +0.86%. In 2012, the NKY rose +1.37%. The HSI rose +22.9%. The SHCOMP rose +3.17%.

    In Japan, the NKY closed at 14,612.45, compared to 14,483.98 the prior day. The index opened above 14,700 and rallied to an early 15,007.50 intraday high. The index traded narrow around 14,900 through early afternoon, when profit taking sent the index to a mid-afternoon test of support at 14,000. The index rallied from the 13,981.52 intraday low, reversing higher in the final half hour to end with a moderate gain. The index closed ended +0.96%, +8.74%, +19.4%, and +37.4% above its respective 20-, 50-, 100-, and 200-day moving averages. Most market segments closed higher. Leaders were technology, utilities, and consumer goods, which rose at least +1.20%. Financials rose +1.13%. Laggards were telecommunications, which rose +0.09%, and health care and oil and gas, which fell at least -0.07%.

    In China, the Hang Seng closed at 22,618.67, compared to 22,669.68 at the prior close. The index closed -5.05% below its January 30th yearly high, but +24.4% above its 18,185.59 June 4, 2012 yearly low. The index traded narrowly around breakeven through the morning session, but sold off to 22,470.53 early in the afternoon. The index recovered to breakeven by mid-afternoon, but eased in the final hour to end modestly lower. The index ended -1.31% below and +0.63% above its respective 20- and 50-day moving averages. Most market segments closed at higher. Leaders were technology, consumer services, and utilities, which rose at least +0.73%. Financials lost -0.44%. Laggards were telecommunications, oil and gas and industrials, which fell at least -0.47%.

    In Shanghai, the SHCOMP closed at 22,288.53, compared to 2,275.67 at the prior close. The index traded opened above 2,280 and traded immediately to its 2,292.60 intraday high. In early afternoon, the index reversed briefly lower to the 2,270.26 intraday low, but quickly reversed higher and rallied through the close. The index closed -5.99% below its 2,434.48 February 5th high, but up +16.8% from its December 3rd 1,959.77 low. The SHCOMP closed +2.27% and +1.82% above its respective 20- and 50-day moving averages. All market segments closed at least +0.11% higher. Leaders were consumer services, technology, and health care, which rose at least +1.49%. Laggards were financials, utilities, and oil and gas.

    In Europe, the major equity indexes are mixed. The Euro Stoxx50, FTSE 100, and DAX are down -0.09%, -0.51%, and -0.32%, respectively. The CAC 40 is up +0.31%. The Spanish IBEX 35 is down -0.57%, and Italian FTSE MIB is down -0.46%. On the Euro Stoxx50, the index sold opened higher and traded to 2,793.92 by mid-morning, but reversed lower by mid-session to its 2,757.93 intraday low. The index currently trades at 2,775.69. Most market segments are lower. Leaders are industrials, consumer services, and health care, which are at least +0.30% higher. Laggards are consumer goods, financials, and technology, which are down -0.12%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -1.53%, -0.92%, -0.58%, and -0.90%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +1.18%, +1.48%, +1.05%, and +1.44%, respectively. In May, the Euro Stoxx50, FTSE 100, CAC 40 and DAX are up +2.32%, +3.559%, +3.15%, and +5.16%, 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 +5.27%, +12.9%, +9.26%, and +9.33%, 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 0.13500%, down from 0.13890% the prior day. USD 3-month LIBOR is 0.27275%, unchanged from 0.27275% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US Libor-OIS (LOIS) spread is 16.025 bps, compared to 15.625 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 12.95 bps, down from 13.00 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 -14.286 bps, compared to -14.468 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 4.36%, from 4.29% the prior day and up from the 4.039% May 3rd low. Italian 10-year debt yields are at 4.09%, compared to 4.03% the prior day, and up from the 3.822% May 3rd low. German 10-year debt yields are 1.45%, compared to 1.44% the prior day. Japanese 10-year debt yields are 0.83%, compared to +0.86% the prior day.

    · The U.S. government overnight repo rate is 6 bps, up from 4 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 little changed, with 2- and 10-year maturities yielding 0.247% and 2.011%, respectively, compared to 0.247% and 2.016% Thursday. The yield curve narrowed -0.57 bps, with the 2- to 10-year spread at +1.764%, compared to 1.769% 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 weaker compared to the euro, British pound and Japanese yen. The dollar trades at US$83.499, compared to a US$83.433 intraday low and US$83.800 the prior day, and better compared to its $82.805 50-day, US$81.756 100-day, and US$80.969 200-day averages. The euro trades at US$1.2978, compared to a US$1.2993 intraday high and US$1.2934 the prior day. The euro trades worse than its US$1.2982 50-day and US$1.3126 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥101.55, compared to ¥102.02 the prior day. The yen trades worse than its 50-day moving average ¥98.30.

    · Citigroup Economic Surprise Index improved to -17.80, from -19.40 the prior day. The index is mixed compared to its respective -18.32 and -14.83 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 higher agriculture prices.

    Volatility, Skew:

    · The VIX closed at 14.07, up +1.81% from 13.82 at the prior close. The VIX is +6.76% above its 13.18 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 18.12, down -1.35% from 18.34 at the prior day's close. The V2X index trades +1.91% above its 17.78 20-day moving average, -22.9% below the 23.49 30-day high, and +15.0% above the 15.76 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 17.50, down -4.79% from 18.38 the prior day. The VHSI index trades +10.5% above its 15.84 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE skew fell -0.20% to 116.92, from 117.16 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. Economic Reporting and News:

    · April Durable goods order rose 3.3%, compared to +1.5% survey and -5.9% revised prior. Ex-transportation rose +1.3%, compared to +0.5% survey and -1.7% revised prior.

    · April non-defense capital goods shipments, excluding aircraft, fell -1.5%, compared to -0.5% survey and +0.5% revised prior.

    Overseas Economic Reporting and News:

    · France - May business confidence rose to 92, compared to 89 survey and 88 prior.

    · Germany - Final QoQ 1Q2013 GDP rose +0.1%, compared to +0.1% survey and prior.

    · Italy - May consumer confidence fell to 85.9, from 86.9 survey and 86.3 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 17th, the index closed up +2.07% at 1667.47, compared to 1633.70 the prior week and 1555.25 close four weeks prior. The sell setup progressed to 4. The sell countdown associated with the March 8th perfection progressed to 8. The index closed +9.32% 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 May 14th, the May 2nd sell setup perfected and initiated a sell countdown. On Thursday, the SPX fell -0.29% to close at 1650.51, from 1655.35 the prior day and 1667.47 4 days prior. Together with the previous day's decline, the drop was sufficient to produce a bearish price flip and to initiate a buy setup. The 5 sell countdown associated with the May 14th perfection was unchanged. The index closed +2.61% above the 1608.53 risk level, which is 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 17th, the BKX closed at 61.13, up +4.44% from 58.53 the prior week and 54.85 four weeks prior. The sell setup progressed to 4. The sell countdown associated with the February 1st perfection progressed to 8. The index closed +7.38% 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 19th, a bearish price flip initiated a buy setup with a 56.84 close. On April 1st, the buy setup perfected. On May 3rd, a bullish price flip initiated a sell setup. On May 15th, the sell setup perfected. Thursday, the index closed at 60.68, down -0.39% from 60.92 the prior day and 61.13 four days prior. The bearish price flip initiated a buy setup. The 5 sell countdown associated with the May 15th perfection was unchanged.

    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 17th, the VIX fell -1.11% to end at 12.45, from 12.59 the prior week, and 14.97 weeks prior. The bearish flip cancelled a 1 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 +1.81% to 14.07, from 13.82 at the prior close and 12.45 at the 4 days' prior close. The May 20th sell setup progressed to 4. The buy countdown associated with the March 15th perfection is a deferred 13. The VIX closed +35.2% 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 17th, the index fell -1.15% to end at 1.2839, from 1.2989 the prior week and 1.3052 4 weeks prior. The buy setup progressed to 2. The 11 sell countdown associated with the September 28th perfection was unchanged. The cross closed +7.43% 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 +0.59% higher close, the EURUSD cross ended at 1.2934, from 1.2858 the prior day and 1.2839 four days prior. The bullish price flip canceled a 2 buy setup and initiated a sell setup. The sell countdown associated with the April 12th perfection progressed to 7. The cross closed -3.43% 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 1.9506%, compared to 1.8973% the prior Friday and 1.7049% four weeks prior. The sell setup progressed to 3. The sell countdown associated with the February 1st perfection progressed to 3.

    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 May 15th, the May 3rd buy setup perfected. On Thursday, the rate ended at 2.0157%, from 2.0395% the prior day and 1.9506% four days prior. The May 22nd sell setup progressed to 2. The May 20th sell countdown progressed to 3.

    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 24th, the index closed down -3.47% at 14,612.45, from 15,138.12 the prior week and 13,779.35 four weeks' prior. The index closed -0.23% 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. On March 27th, a bearish price flip initiated a buy setup, which perfected on April 15th. On May 7th, a bullish price flip initiated a sell setup. On May 17th, the sell setup perfected; also, the sell countdown associated with the April 26th perfection completed. The completion set a 15,412.34 risk level, which is based on the May 16th 15,155.72 intraday high and 276.21 point range. On Friday, the index rose +0.89% to 14,612.45, from 14,483.98 the prior day and 15,360.81 four days prior. The buy setup progressed to 2. The 4 sell countdown associated with the May 17th perfection was unchanged. The index closed -5.19% below the risk level.

    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 24th, the index closed at 22,618.67, down -2.01% from 23,082.68 the prior week and 22,547.71 four weeks prior. The sell setup progressed to 5. The buy countdown associated with the April 5th perfection progressed to 2. The index closed +1.17% 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 fell -0.23% to 22,618.67, from 22,669.68 the prior day and 23,493.03 four days prior. The buy setup progressed to 2. The May 2nd 8 sell countdown was unchanged. The index closed -5.29% 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 24th, the index closed the week up +0.25% at 2,288.53, from 2,282.87 the prior week and 2,177.91 four weeks prior. The sell setup progressed to 3. The sell countdown associated with the February 8th perfection progressed to 4.

    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 +0.58% to 2,288.53, from 2,275.67 at the prior close and 2,299.99 4 days prior. The buy setup progressed to 2. The buy countdown associated with the April 9th perfection progressed to 11.

    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 17th, the index rose +1.18% to end at 2,803.49, compared to 2,763.68 the prior week and 2,575.16 at the 4 weeks' prior close. The sell setup progressed to 4. The sell countdown stemming from the January 18th perfection progressed to 7. The index closed +0.91% above the risk level.

    On a daily basis, 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 -2.05% to 2,776.78, from 2,835.01 the prior day and 2,817.99 at the prior 4 days' close. The bearish price flip initiated a buy countdown. The 10 sell countdown associated with the May 3rd perfection was unchanged. The index closed -0.35% below the risk level.

    1Q2013 Earnings. Of 485 reporting companies, 342 or 70.5% surprised positively on earnings, with a +4.86% surprise average. Of reporting companies, 228 or 47.1% reported sales or revenues in excess of estimates. The average sales/revenue surprise is -0.69%.

    Valuation. The SPX trades at 16.0x 2012 earnings ($103.41), 15.0x estimated 2013 earnings ($110.15), and 13.5x estimated 2014 earnings ($122.52). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2013 and 2014 earnings to grow +6.52% and +11.2%, respectively.

    Options. Options markets are mixed at bearish to bullish, unchanged from bearish to bullish the prior day. Composite options are neutral, index options are bullish, and equity options markets are bearish. The composite put/call ratio is 1.00, compared to 1.02 the prior day, and worse compared to its 5- and 10-period moving averages of 0.91 and 0.87, respectively. The index put/call ratio is 0.98, compared to 0.99 the prior day, and worse compared to its 5- and 10-period moving averages of 0.97 and 0.94, respectively. The equity put/call ratio closed the day at 1.02, compared to 1.05 the prior day, and better compared to its 5- and 10-period moving averages of 0.88 and 0.84, respectively.

    NYSE Indicators. Volume fell -0.18% to 853.14 million shares, from 854.70 million shares the prior day, 1.20x the 709.23 million share 20-day moving average. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -494 (compared to -1,725 the prior day), or 0.72:1. Up volume was 0.76:1 down volume.

    BKX. On lower volume, the KBW bank index fell -0.39% to 60.68, from 60.92 the prior day close. The index opened below 60.30 and immediately tested support at 60.00, but rallied strongly through mid-day, when it briefly turned positive with a 61.03 intraday high. The index eased back to 60.40 by mid-afternoon and then eased higher into the close. Volume fell -5.20% to 70.746 million shares, from 74.626 million shares the prior day, or 1.26:1x the 56.299 million share 15-day moving average.

    Large cap banks underperformed the regional banks' performance, as the KRX fell -0.18%.

    This week, the BKX is down -0.74%. Last week, the BKX closed up +4.44%. The prior week, the BKX rose +2.79%. In May, the BKX is up +6.68%. In April, the BKX rose +1.07%. For the year, the BKX is up +18.3%, better than the SPX's +15.7% rise. In 2012, the index rose +30.2%, compared to a +13.4% rise in the SPX.

    The BKX has closed above 60 since May 15th, and crossed above 50 on December 17th. The BKX closed +4.71% above its 57.95 April 23, 2010 close (the prior post-2008 high point), and +86.4% 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 +53.6% in the same period.

    The index closed -48.4% below its March 30, 2007, record 121.16 high.

    Technical indicators worsened. For a 2nd consecutive session, the index closed below its 5-day moving average, though it remains above its 10-, 20-, and 50-day moving averages. The index closed +3.17% and +6.20% above its respective 20- and 50-day moving averages. The index closed +8.87% and +15.8% above its respective 100- and 200-day moving averages. The index has closed above its 100-day moving average since last August 7th. The 20-day moving average rose +19 bps. The 50-day moving average rose +8 bps. Its 100-day moving average rose +9 bps, and the 200-day moving average rose +7 bps. The 20-day closed (by +1.68 points) above the 50-day, and the gap widened +13 bps. The 50-day moving average closed (by +4.72 points) above the 200-day moving average, and the gap was unchanged. The 100-day moving average closed (by +3.31 points) above the 200-day moving average since March 19th, and the gap widened +2 bps.

    The directional movement indicator narrowed to +24.489, from +34.311 the prior day. Relative strength dropped to 66.38, from 68.86 the prior day, still near the top of a neutral range. Next resistance is 61.15; next support is at 60.09.

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