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Gary Townsend - Founding partner and Chairman, GBT Capital Management, LLC, a macro long/short fund based in Chevy Chase, Maryland. Also, 2007-2013, a founding partner, CEO and Portfolio Manager of Hill-Townsend Capital LLC, a long/short equity financial sector fund. Mr. Townsend has 35 years... More
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  • U.S. Equities Push Through Resistance, on Lower Volume; Futures Move Up Today 0 comments
    Sep 16, 2011 9:23 AM | about stocks: C, STI, BAC, NYCB, PBCT, COF, FMBI, FHN, PNFP, FRC, FCF, NPBC, STT
    This morning.  U.S. equity markets are in a confirmed uptrend.  After four consecutive days’ advance, the Nasdaq is up +1.07%, though other major indexes are lower.  Overall trading patterns suggest an improving equity outlook, but the strength and durability of the current uptrend have been in doubt since the August 22nd uptrend confirmation, which was immediately followed by a distribution day on August 23rd.  Equity options markets suggest a neutral to bearish short-term outlook.  Asian markets closed higher on mixed volume, with the better result in Japan.  Eurozone equities are higher, with German equities seeing their best rally in two years.  The U.S. dollar is slightly stronger.  Commodities markets are mixed.  U.S. Treasury prices are lower.  LIBOR markets suggest continued interbank lending credit concerns, though the coordinated central bank lending facility seems to have taken the edge off these concerns.  Euribor-OIS spreads are slightly lower.  After a fair value adjustment of -1.09 points, September SPX equity futures are at 1205.00, up +1.89 points.  The SPX opens at 1209.11, -11.3% below its recent April 29 multi-year closing high, +2.81% above its 20-day and -1.80% below its 50-day moving averages.  The SPX is -3.86% below its 1257.64 year-end close.  Next resistance is at 1215.67; next support is at 1196.00.

    Thursday. 
    U.S. equities rose through important resistance points and extended gains to four days, but volume fell.  The NYSE composite, SPX, DJI, and Nasdaq rose +1.81%, 1.72%, 1.66%, and 1.34%, respectively.  All segments closed higher, led by financials, oil and gas, and industrials.  Financials added +2.53%.  Utilities, health care, and telecommunications lagged but ended up at least +0.89%.  Volatility fell, with the VIX down -7.60% to end at 31.97, down from 34.60 at the prior close. 
    Since the August 23rd uptrend confirmation, distributions number 4 on the DJI, and 3 on the Nasdaq, SPX, NYSE composite, and BKX.  Distribution days signal institutional selling in the prior 25 trading days, or since the commencement of the most recent uptrend.  An accumulation of distribution days signal a weakening of an uptrend and increased probability that an uptrend will come under pressure or that a correction will ensue.
    In Asia, Japanese moved impressively higher on increased volume.  Chinese equity markets closed higher on increased volume in Hong Kong, but lower volume in Shanghai.  Trading desks attributed the gains to coordinated central bank facilities to provide dollar funding to Eurozone banks.
    In Japan, the Nikkei closed at 8664.16, up +2.25% on a +12.6% increase in volume.  The index gapped up more than +1%, but rallied through the day to end at the intraday high.  Except utilities, all market segments closed higher.  Oil and gas, basic materials, and industrials led with gains of +3.25%.  Financials rose +2.09%.  Health care, consumer services, and utilities wre the laggards.  The NKY closed below its 50-, 100-, and 200-day moving averages, and -13.3% below its 2010 close.
    In China, the Hang Seng closed at 19,455.31, up +1.43%.  Volume rose +29.7%.  Market segments were mixed.  Consumer goods, oil and gas, and technology led with gains of at least +2.12%.  Financials rose +1.96%.  Telecommunications, utilities, and consumer services closed at least -1.08% lower.  The HSI gapped immediately higher to an intraday high of 19652.53, and generally trended lower through the day’s remainder, closing near the intraday low.  The SHCOMP rose +0.13%, but volume fell -14.3%.  The index also gapped higher to a mid-morning intraday high of 2499.48, but found resistance and trended lower, trading back to a late afternoon losses before a final minute rally brought the index back to a small gain.  Market segments were mixed, led by consumer goods, basic materials, and health care led with gains of +0.28%.  Financials gained +0.26%.  Consumer goods, utilities, and telecommunications lagged with losses of at least -0.41%.  The SHCOMP closed at 2482.34, -11.6% below its 2010 close and -5.73% below its 50-day moving average.
    In Europe, equities markets gapped higher, traded back to small mid-morning losses, but rallied back to moderate gains at mid-day.  Stocks have had their best rally in two years.  All market segments are higher.  Utilities, consumer services, and financials lead with gains of at least +1.62%.  Technology, industrials, and basic materials lag with gains of at least +0.07%.
    Libor, LOIS, Currencies, Treasuries, Commodities:
    ·         Interbank lending rates continue to reflect increased stress, as concerns heighten regarding the health of Eurozone banks in a stressed economic environment. Overnight USD LIBOR fell to 0.14677%, compared to 0.14722% Thursday, but down from 0.25188% at year-end.  USD 3-month LIBOR rose to 0.35133%, from 0.35022% the prior day, the highest level of the year.
    ·         The US Libor-OIS (LOIS) spread fell to 28.1 bps, from 28.3 bps the prior day and 12.0 bps at the end of 2010.  Euribor-OIS fell to 75.2 bps, from 76.9 bps Thursday, and compares to 40.6 bps at the end of 2010.  A rise in the LOIS indicates an increased intra-bank lending risk premium.
    ·         The U.S. government overnight repo rate is 16 bps, unchanged from 16 basis points the prior day, and well off from a recent high of 33 bps on August 2nd.
    ·         The U.S. dollar is slightly stronger against the euro, yen, and pound.  The dollar trades at US$76.507, compared to US$76.241 the prior day, and above its US$74.832 50-day, US$74.822 100-day, and US$76.125 200-day averages. The euro trades at US$1.3815, compared to US$1.3877 Thursday and US$1.3755 the prior day.  The euro trades below its US$1.4210 50-day and US$1.4289 100-day averages.  In Japan, the dollar trades at ¥76.69, compared to ¥76.70 Thursday and ¥76.62 the prior day.  The yen trades better than its 50-day moving average ¥77.520.
    ·         U.S. Treasury yields are slightly lower, with 2- and 10-year maturities yielding 0.189% and 2.079%, respectively, compared to 0.189% and 2.082% Thursday.  The yield curve narrowed to +1.890% from +1.893% the prior day.  In the past year, the 2- and 10-year spread has varied from a low of +1.742% on September 12, 2011 to a high of +2.910% on February 4, 2011.
    ·         Commodities prices are mixed, with mixed petroleum, mixed precious metals, higher aluminum and copper, and higher agricultural prices.
    U.S. news and economic reporting.   Today’s economic reporting focuses net long-term TIC flows and the University of Michigan September preliminary confidence.
    Overseas news: Today, Eurozone finance ministers begin a two day meeting focused on the region’s sovereign debt and bank crisis.  Today, IMF Managing Director Lagarde warned Greece may not receive the next tranche of its bailout package. 
    Company news/ratings changes:
    ·         C – initiated at hold at Wells Fargo, valuation range of $30 - $32
     
    2Q2011 Earnings.  The second quarter’s earnings results exceeded revenue and earnings expectations.  Of the 475 S&P500 companies that reported earnings to date, 76% (358 out of 475) beat operating EPS estimates, versus the historical average of 62%.  In aggregate, companies beat EPS expectations by an average of +4.9% (versus a historical average of +2%).  EPS is up +16.4% over the prior year.  Though challenged in the current operating environment, 84% of companies reported increased revenues over the prior year and 71% beat revenue estimates.  In the third quarter of 2011, analysts estimate the SPX will earn $24.98 per share, compared to $24.84 and $21.49 per share in 2Q11 and 3Q10, a +0.6% and +16.2% increase, respectively. 
    With all 24 BKX members reporting earnings, 88% (21 of 24) beat earnings estimates on an operating basis.  Revenues also exceeded expectations, with 79% of BKX members beating estimates.  For the second quarter of 2011, the BKX earned $1.12 per share, beating $0.97 estimates and compared to $0.96 and $0.61 per share in 1Q11 and 2Q10 (a +17% and +84% increase, respectively)
    Valuation.  The SPX trades at 12.1x estimated 2011 earnings ($99.59) and 10.8x estimated 2012 earnings ($111.79), compared to 11.9x and 10.6x respective 2011-12 earnings yesterday.  The 10-year average median Price/Earnings multiple is 20.0x.  Since the beginning of 2011, analysts increased 2011 and 2012 earnings estimates by +5.3%, and +4.2%, respectively.  Analysts expect 2011 and 2012 earnings to exceed 2010 earnings ($84.78) by +17.5% and +31.9%, respectively. 
    Large-cap banks trade at a median 1.18x tangible book value, and 10.7x and 8.6x 2011 and 2012 consensus earnings, respectively, compared to 1.12x tangible book value and 10.0x/8.3x 2011/2012 earnings yesterday.  These compare to the 10-year average median multiples of 3.08x tangible book value and 15.9x earnings.  Analysts expect 2011 and 2012 BKX earnings to exceed 2010 operating earnings by +35.7% and +65.2%, respectively.
    Options.  Options markets are turning bearish.  Composite options markets are bearish, equity options markets are neutral to bearish, and index options markets are bearish.  The composite put/call ratio closed at 1.01, compared to 1.03 yesterday and below its 5- and 10-period moving averages of 1.17 and 1.16, respectively.  The index put/call ratio closed at 1.23, compared to 1.32 yesterday and below the 5- and 10-period moving averages of 1.50 and 1.51, respectively.  The equity put/call ratio closed the day at 0.68, compared to 0.65 yesterday and below its 5- and 10-period moving averages of 0.73 and 0.73, respectively.
    Friday’s equity markets.  Markets proved muscular enough to move through important resistance levels at 1200 on the SPX, 11400 on the DJI, and 2600 on the Nasdaq, through volume fell on all the major exchanges.  The NYSE, SPX, DJI and Nasdaq all gained, up +1.81%, +1.72%, +1.66%, and +1.34%, respectively.  Futures were indicated higher in the pre-session, but trimmed gains after applications for unemployment benefits rose to the highest level since the end of June.  Equities opened higher and gained through the first half hour.  A report from the Philadelphia Federal Reserve that manufacturing contracted in September for a second straight month sent stocks lower.  Markets soon shrugged off this news and headed higher through the balance of the morning and afternoon.  Beyond U.S. economic news, word that the Federal Reserve, the Bank of Japan, and the Swiss National Bank were coordinating three month loans to euro-area banks for the rest of the year gave market participants hope that the interbank lending aspect of the euro debt crisis may have a solution.  Banks in the euro-zone had  difficulties obtaining overnight loans used to fund their dollar-denominated assets as money funds had stepped away from providing these funds. The VIX finished the day at 31.97, off -7.60%.
    Trading desks reported a busy open and then a generally quiet day overall. This has been the norm for the past few sessions where investors seem to be made their investments early and then retreated to the sidelines for the balance of the day.  Trading desks also reported that larger institutions were adding to positions and that hedge funds seemed to be on the sidelines. Traders noted a lack of conviction with this recent market run-up and a feeling that this move could be slightly overdone, considering that the news that is driving the markets seems thin. Markets broke through resistance levels, but only after several attempts had failed.  Investors remain very sensitive to headlines and especially so to anything remotely positive about Europe. Friday is quadruple witching day with the quarterly expiration of stock index futures, stock index options, stock options and single stock futures all expire. The Bloomberg NYSE new net highs were +10.00 versus the previous day’s reading of -21.00. The relative strength indicator climbed to 49.67 from the previous reading of 42.46, still in the lower end of a neutral range.
    Market segments were positive. Financials, oil and gas, and industrials were the leaders, while utilities, health care and telecommunications were the laggards.
    Financials outperformed the broader indices. The XLF, BKX, and KRX were all higher, up +2.54%, +2.29%, and +1.98%, respectively. Financials were bid higher as investors reacted to positive news concerning overnight funding for European area banks. The Federal Reserve, the Bank of Japan and the Swiss National Bank have teamed together to provide 3 month loans to euro zone banks which should stimulate growth within those respective economies. The financials have been very headline sensitive and reactive as August data showed large increases in short positions in STI (+122%), BAC (+49%), and USB (+40%) over the second half of August. The BKX traded higher, but was flattish for the middle part of the day. The BKX began to lift to new highs just before 2:00 and carried that positive momentum into the close. The BKX finished the day with 22 names higher, 1 lower and 1 unchanged. C, BAC, and STT were the leaders, while NYB, PBCT, and COF were the laggards. The KRX finished the day with 49 names higher and 1 lower. The leaders were FMBI, FHN, and PNFP, while the laggards were FRC, FCF, and NPBC. The BKX, KRX, and XLF all finished below their 50-, 100-, and 200-day moving averages.  While the broader indexes have recovered their post-September 2008 losses, bank stocks have not, with the BKX closing -32.96% below its April 2010 high and -52.94% below its best level of 82.55 in September 2008.
    NYSE Indicators.  Volume fell -11.2% to 964.0 million shares, from 1.085 billion shares Wednesday, 0.81x the 1.186 billion share 50-day moving average.  Market breadth was positive, and up volume led down volume.  Advancing stocks led decliners by +1,586 (compared to 1,430 the prior day), or 3.23:1.  Up volume led down volume by 8.06:1.
    SPX. On lower volume, the SPX rose +20.43 points, or +1.72%, to 1209.11.  Volume fell -9.58% to 802.48 million shares, down from 887.53 million shares Wednesday and below the 929.80 million share 50-day moving average.  For the 23rd straight session, the SPX’s 50-day moving average closed below its 200-day moving average (1231.29 vs. 1283.53 respectively)The SPX closed above its 200-week moving average (1147.79).
    The SPX gapped higher at the open to the 1198 level, fueled by a global central bank-coordinated euro-dollar funding announcement.  The index failed at the 1200 level at the open and fell to 1195 by 9:45, but momentum quickly reversed and the index broke through 1200 at 10:00 and reached 1204 by 10:05.  Buying power appeared exhausted, and the index lost momentum, falling through 1200 at 10:30 and reached 1190.67 at 11:00, setting the intra-day low but still in positive territory.  From 11:00 through 3:00, the index staged a methodical rally, breaching 1200 at 12:10 and reaching 1209 by 3:00.  Profit taking took hold at 3:00, and the index fell to 1203 at 3:30.  Buyers stepped back in at 3:30 and lifted the index into the close to finish at its intra-day high.     
    Technical indicators are neutral to negative.  Markets, in correction since July 27th, resumed an uptrend with August 23rd’s gains in higher volume.  The SPX closed below 1300 for the 34th straight session and above 1200 for the first time in nine sessions.  The index closed below its April 2010 highs for the 29th time in the last 30 sessions.  The 50-day moving average has been below the 100-day moving average since July 11thThe SPX closed (by +2.81%) above its 20-day moving average (1176.06) for the second straight session.  The index closed (by -1.80%) below its 50-day moving average for the 36th straight session.  The index closed (by -5.12%) below its 100-day moving average (1274.33) for the 35th straight session.  The SPX closed -5.80% below its 200-day moving average, closing below that average for the 31st straight session.  The 20- and 200-day moving averages rose.  The directional momentum indicator is negative for the 35th straight session but has narrowed considerably, and the trend is moderate and declining.  Relative strength rose to 53.11 from 49.23, the highest level since July 26th and in a neutral range.  Next resistance is at 1215.67; next support is at 1196.00.
    BKX.  On lower volume, the KBW bank index rose +0.87 points, or +2.29%, to end at 38.85, its 31st close below the prior 52-week low of 42.70 from August 25, 2010 and its 28th straight sub-40 close.  Volume fell -7.88% to 83.95 million shares, down from 91.13 million shares Wednesday and below the 110.07 million share 50-day averageThe BKX closed -9.61% below its August 30, 2010 closing low of 42.98, the trough of the last year’s correction, and -32.96% and -30.16% below its April 23, 2010, and February 14, 2011 respective closes.
    Financials surged late in the day to lead all other market segments, and large-cap banks outperformed regional banks.  The BKX gapped higher at the open to the 38.35 level and reached 38.50 at 9:32 before declining through 9:55 to the 38.25 level.  A sharp and short-lived rally at 9:55 lifted the index to 38.60 by 10:05, but the index quickly reversed momentum.  By 10:35, the index had fallen to 38.10 and at 11:00, it reached 38.02, the intra-day low but still positive on the day.  The index rallied from 11:00 through 11:25 to the 38.30 level and traded sideways through 2:00.  A strong rally took hold at 2:00 that lifted the index to higher highs.  The rally dispatched two sell-offs at 2:15 and 3:00, and continued through the close.  The index finished at its intra-day high.   
    Technical indicators are negativeBank stocks significantly underperformed the broader market during the May-June correction and the late July-mid August sovereign debt crisis sell-off.  Recent gains on higher volume, and bank outperformance, returned markets to an uptrend on August 23rd.  Since the BKX crossed below its 50-day moving average on February 23rd, the 50-day average has provided meaningful resistance to any positive momentum.  Moving averages align bearishly.  The shortest duration averages are below the longer duration averages, the gaps are widening, and all major averages are falling.  The 50-day average (41.51) crossed below the 100- and 200-day moving averages (45.20 and 48.80, respectively) on April 25th and June 16th.  The 20-day closed (by -3.92 points) below the 50-day for the 129th straight day, but the gap narrowed.  The 50-day moving average closed (by -7.29 points) below the 200-day moving average for the 66th straight session, and the gap expanded.  The 100-day moving average closed (by -3.60 points) below the 200-day moving average for the 44th straight session, and the gap expanded.  The index closed above its 20-day moving average for the second straight session.  The BKX closed below its 50-, 100-, and 200-day moving averages for the 48th, 49th and 74th consecutive sessions, respectively.  The index closed below 50.0 for the 74th straight session and below 40.00 for the 28th straight session.  The directional movement indicator is negative for the 37th straight session but has narrowed considerably, and the trend is moderate and declining.  Relative strength rose to 50.13 from 46.87, the highest level since July 25th and in a neutral range.  Next resistance is 39.13; next support at 38.29.
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