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Gary Townsend
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Gary Townsend - Founding member and Chairman, GBT Capital Management, LLC, a macro long/short fund based in Chevy Chase, Maryland. Also, 2007-2013, a founding partner, CEO and Portfolio Manager of Hill-Townsend Capital LLC, a long/short equity financial sector fund. Mr. Townsend has 35 years... More
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  • U.S. Futures Modestly Lower Ahead of Tomorrow's Euro Summit 0 comments
    Dec 7, 2011 8:52 AM | about stocks: CMA
    This morning.  U.S. equity markets remain in correction, pending some clear market follow-through to last Monday’s and Wednesday’s strong gains.  All major indexes are above 20-, 50-, and 100-day moving averages, though only the DJI closed above its 200-day moving average.  U.S. equity futures are mixed, but well off earlier highs. European markets are mixed, having given up earlier gains.  The dollar is mixed, stronger compared to the euro and yen, but weaker compared to the pound. U.S. equity options markets suggest a neutral short-term outlook.   Commodities prices are lower.  U.S. Treasury yields are at the longer end of the curve, but the 10-year remains below 2.10%.  U.S. repo rates are unchanged.  Overnight and 3-month LIBO remain elevated.  Euribor-OIS spreads are near 2011 highs.  After a fair value adjustment of +2.40 points, December SPX equity futures are at 1256.30, down -1.50 points.  The SPX opens at 1258.47, -7.71% below its April 29 multi-year 1363.61 closing high, +2.62% above its 20-day and +3.61% above its 50-day moving averages.  The SPX is +0.07% above its 1257.64 year-end close.  Next resistance is at 1265.32.  Next support is at 1252.32.
    Tuesday.  Equity markets spent most of the day lower, but a mid-afternoon rally lifted stocks, and indexes closed mixed. The SPX spent most of the day testing support at 1255, but as on Monday, it tested resistance at 1265, the 200-day moving average, but was unable to maintain that level and sold off into the close. Volumes were lower. The DJI gained +0.43%, followed by the NYSE composite and SPX, which gained +0.11%. The Nasdaq closed down -0.23%. Most market segments closed higher. Health care, basic materials, and telecommunications gained at least +0.29%.  Laggards were technology, consumer services, and financials, which closed off at least -0.04%. 
    From its prior 1257.08 close, the SPX traded modestly lower through the morning session, to an intraday low of 1253.03 just after the open, but up to test resistance at 1260 at mid-morning. The index subsequently tested support at 1255, until 3:00, when on an FT report that Eurozone discussions might be yielding a strong policy response, the index rallied to an intraday high of 1266.03. The 200-day resistance held, and the index quickly traded back to close below 1260, but slightly better on the day.

    Trading desks reported a sluggish day with the focus squarely macro-economic and on European discussions. 
    In Asia, on mixed volumes, Asian equity markets closed moderately higher on mixed volume.  In Tokyo, the NKY rose +1.71%. Volume rose +23.2%.  In Hong Kong, the Hang Seng rose +1.58%, on a +48.0% increase in volume.  The Shanghai composite rose +0.29% on a -9.31% decrease in volume.  Commentary focused on this week’s Eurozone “leaders’” summit, the outlook for Chinese monetary policy and easing Chinese inflation.
    In Japan, the NKY closed at 8,722.17, up from 8,575.16 at the prior close.  The NKY closed +2.86% above its 20-day moving average, but down -14.7% for the year.  The index opened at 8,629.19 and generally trended higher through the day to close just below its 8,729.81 intraday high, set just minutes before the close. All market segments closed at least +0.64% higher. Leaders were technology, industrials, and consumer goods, which closed up +1.83%. Financials gained +1.13%. Laggards were utilities, oil and gas, and health care.
    In China, the Hang Seng Index closed at 19,240.58, up from 18,942.23 at the prior close.  The index opened at 19,114.00, but immediately backed off to the intraday low of 19,004.40 before finding support and trending higher through the day to close just below the 19,242.80 intraday high. Volatility fell -0.55% .  The index ended +2.99% and +3.51% above its respective 20-day and 50-day moving averages.  Most market segments closed higher.  Leaders were financials (+2.08%) and telecommunications and basic materials, which ended up at least +1.33%. Laggards were technology and utilities, which rose at least +0.53%, and consumer goods, which fell -0.62%.
    In Shanghai, the SHCOMP closed at 2,332.73, up from 2,325.91 at the prior close.  The index opened at 2,325.56, and rose to a mid-morning intraday high of 2,339.85, before selling off to a late morning intraday low of 2,317.81. The index generally strengthened through mid-afternoon, selling off late in the session before rallying into the close. The SHCOMP closed -3.66% and -3.75% below its respective 20-day and 50-day moving averages.  Most market segments closed higher.  Leaders were telecommunications, consumer goods and technology, which closed up at least +0.56%.  Laggards were basic materials and utilities, which gained +0.19%, while consumer services fell -0.12%.
    In Europe, equities are well off early morning levels, presently modestly lower, in advance of tomorrow’s leaders’ summit. The Euro Stoxx 50, FTSE, and DAX are down -0.10%, -0.12%, and -0.04%, respectively.   Compared to the prior day’s 2,356.71 close, the Euro Stoxx 50 trades at 2,354.32, compared to an intraday high of 2,402.39.  The index is +4.81% and +3.36% above its respective 20- and 50-day moving averages.  Market segments are mixed.  Leaders are health care, consumer goods, and utilities, which are up +0.59%. Laggards are consumer services, technology, and financials, which are at least -0.26% lower.
    Libor, LOIS, Currencies, Treasuries, Commodities:
    • Interbank lending rates continue to reflect substantial stress, centered on the health of Eurozone banks in the current economic environment.   USD LIBOR is 0.15050%, up from 0.15000% Tuesday, but below the 0.25188% year-end level.  USD 3-month LIBOR rose to 0.53775%, up from 0.54000%, compared to 0.53390% the prior day and 0.30281% at year-end 2010.
    • The US Libor-OIS (LOIS) spread rose to 44.7 bps, the year’s high, up from 44.5 bps the prior day, and compares to 12.0 bps at the end of 2010.  Euribor-OIS rose to 100.5  bps from 99.9 bps Tuesday, and 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 10.0 bps, unchanged from 10.0 bps Tuesday, but well off from the August 2nd high of 33 bps.
    • U.S. Treasury yields are higher at the longer end of the curve, with 2- and 10-year maturities yielding 0.254% and 2.096%, respectively, compared to 0.254% and 2.089% Tuesday.  The yield curve widened to +1.842%, compared to +1.835% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.520% on September 22, 2011, to a high of +2.910% on February 4, 2011.
    • The U.S. dollar is mixed, stronger against the euro and yen, but weaker compared to the pound. The dollar trades at US$78.620, compared to US$78.499 the prior day, and above its US$77.691 50-day, US$76.456 100-day, and US$75.793 200-day averages.  The euro trades at US$1.3385, compared to US$1.3402 Tuesday and US$1.3401 the day prior day.  The euro trades worse than its US$1.3610 50-day and US$1.3866 100-day averages.  In Japan, the dollar trades at ¥77.74, compared to ¥77.73 Tuesday and ¥77.82 the prior day.  The yen trades worse than its 50-day moving average ¥77.691.
    • Commodities prices are lower, with lower energy, precious metals, aluminum, copper, and agriculture prices.
    Volatility, Skew:
    • The VIX ended at 28.13, up +1.04% from 27.84 at the prior close.  The VIX is -9.79% below its 20-day moving average 31.18.
    • The Euro Stoxx 50 volatility index (V2X) is down -0.41% to 36.77 from 36.67 the prior day.  The V2X index trades -6.07% below its 39.14 20-day moving average, -17.7% below the 44.69 30-day high, and +30.0% above the 28.29 30-day low.
    • The Hang Seng volatility index (VHSI) fell -0.86% to 28.83 from 29.08 the prior day.  The VHSI index trades +-12.9% below its 33.11 20-day moving average.
    • CBOE skew fell -0.84% to 115.16 from 116.14 at the prior day’s close, and in a neutral (115-120) range.  The index tracks the cost of buying out-of-the-money, long-dated options.  A fall suggests that investors are buying more calls than puts, a bullish signal.
    U.S. news and economic reporting.  Today’s economic reporting is limited to weekly MBA mortgage applications, which rose +12.8% in the latest week, compared to -11.7% the prior week. Tomorrow’s reports include initial and continuing jobless claims, Bloomberg consumer comfort , and October wholesale inventories.
    Overseas news: Today, Germany auctioned 5-year notes under heavy demand, easing some fears from their “failed” bond auction two weeks ago.  Today, the European Central Bank lent $50.7 billion to 34 Eurozone banks for a 3-month period, marking heavy demand following the Federal Reserve’s recent dollar swap-line rate reduction.  In October, German industrial production rose +0.8%, beating estimates for a +0.4% increase.
    Company news/ratings changes:
    ·         CMA – initiated at buy at Wunderlich Securities, $34.00 price target
    3Q2011 Earnings.  The third quarter’s earnings reports surprised expectations.  Of the 468 S&P500 companies that reported earnings to date, 73% (342 out of 468) beat operating EPS estimates, versus the historical average of 62%.  In aggregate, companies beat EPS expectations by an average of +4.7% (versus a historical average of +2%).  EPS is up +15.9% over the prior year.  Though challenged in the current operating environment, 80% of companies reported increased revenues over the prior year and 58% 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 of the 24 BKX members reporting, 75% beat operating estimates with aggregated results surprising by +14.3% and 63% have beat revenue estimates with aggregated surprising by +4.2%.  EPS is up +21.2% over the prior year, while revenue is up +1.5%.  In the third quarter of 2011, the BKX earned $1.24 per share, beating analysts’ estimate of $1.15 per share, and compared to $1.12 and $0.71 in 2Q11 and 3Q10, (an +11% and +48% increase, respectively) In the second quarter, 88% (21 of 24) beat earnings estimates on an operating basis.  Revenues also exceeded expectations, with 79% of BKX members beating estimates. 
    Valuation.  The SPX trades at 12.7x estimated 2011 earnings ($99.12) and 11.6x estimated 2012 earnings ($108.92), compared to 12.7x and 11.5 respective 2011-12 earnings yesterday.  The 10-year average median Price/Earnings multiple is 20.0x.  Since the beginning of 2011, analysts increased 2011 and 2012 earnings estimates by +4.8%, and +1.5%, respectively.  Analysts expect 2011 and 2012 earnings to exceed 2010 earnings ($84.78) by +16.9% and +28.5%, respectively. 
    Large-cap banks trade at a median 1.21x tangible book value, and 11.0x and 9.6x 2011 and 2012 consensus earnings, respectively, compared to 1.22x tangible book value and 10.9x/9.6x 2011/2012 earnings Friday.  These compare to the 10-year average median multiples of 3.08x tangible book value and 15.9x earnings.  Analysts expect 2011 and 2012 BKX earnings to exceed 2010 operating earnings by +29.9% and +53.8%, respectively.
    Options.  Options markets are neutral.  Composite options markets are neutral, index options markets are bullish, and equity options markets are neutral.  The composite put/call ratio closed at 0.84, compared to 0.97 the prior day and below its 5- and 10-period moving averages of 0.93 and 1.00, respectively.  The index put/call ratio closed at 0.92, compared to 1.25 the prior day and below the 5- and 10-period moving averages of 1.18 and 1.35, respectively.  The equity put/call ratio closed the day at 0.75, compared to 0.68 the prior day and below its 5- and 10-period moving averages of 0.65 and 0.67, respectively.
    NYSE Indicators.  Volume fell -10.2% to 801.88 million shares, from 892.77 million shares Monday, 0.79x the 1.012 billion share 50-day moving average.  Market breadth was barely positive, but up volume lagged down volume.  Advancing stocks led decliners by +17 (compared to 1,681 the prior day), or 1.01:1.  Up volume lagged down volume by 0.99:1.
    SPX. On lower volume, the SPX rose +1.39 points , or +0.11%, to end at 1258.47.  Volume fell -12.83% to 595.23 million shares, down from 682.85 million shares Monday and below the 776.80 million share 50-day moving average. For the 80th straight session, the SPX’s 50-day moving average closed below its 200-day moving average (1214.58 vs. 1264.23, respectively)The SPX closed above its 200-week moving average (1135.39) for the 42nd straight session. 
    From its prior close at 1257.08, the SPX opened flat and fluctuated between narrow gains and losses through 2:30.  A Financial Times article published at 2:30 speculated on potential European leader agreement on additional sovereign crisis tools, and the index rallied to 1266.03 by 3:15, setting the intra-day high.  The index retraced gains back to 1258 at the close, finishing with a modest gain and in the middle of the day’s range. 
    Technical indicators are mostly negative.  The market returned to a correction following mid-November’s reversal.  The SPX closed below 1300 for the 90th straight session but above 1200 for the fifth straight session.  The index closed above its April 2010 highs for the fifth straight session.  The 50-day moving average has been below the 100-day moving average since July 11th.  The 100-day moving average crossed the 200-day average to the downside on September 7thThe SPX closed (by +2.62%) above its 20-day moving average (1226.37) for the fifth  straight session.  The index closed (by +3.61%) above its 50-day moving average for the fifth straight session.  The index closed (by +3.80%) above its 100-day moving average (1212.38) for the fifth straight session.  The SPX closed -0.46% below its 200-day moving average, closing below that average for the 25th time in 26 sessions.  The 50-day moving average rose.  The directional momentum indicator is positive for the fifth straight session, and the trend is weak and stable.  Relative strength rose to 58.16 from 57.89, a neutral range.  Next resistance is at 1265.32; next support is at 1252.32.
    BKX.  On lower volume, the KBW bank index fell -0.36 points, or -0.91%, to end at 39.27.  The index recorded its 86th straight close below the prior 52-week low of 42.70 from August 25, 2010 and finished below the 40-level for the 21st time in the last 22 sessions.  Volume fell -17.24% to 69.57 million shares, down from 84.06 million shares Monday and below the 98.38 million share 50-day average.  The BKX closed -8.63% below its August 30, 2010 closing low of 42.98, the trough of the last year’s correction, and -32.23% and -29.41% below its April 23, 2010, and February 14, 2011 respective closes.
    After leading the market for two straights sessions, financials were the market’s worst performing sector, and large-cap banks underperformed regional banks.  From its prior close at 39.63, the BKX gapped lower to 39.20 and fell to the intra-day low of 38.98 at 9:50, down -1.64%.  The index quickly reversed, and rallied to 39.50 by 10:30.  Through 2:30, the BKX trailed off, falling back to 39.10 by 1:15.  The index rallied on the Financial Times article at 2:40, and reached an intra-day high of 39.53 at 3:15.  The rally retraced through the close, and the index finished in the middle of the day’s range. 
    Technical indicators are mostly negativeBank stocks are leading the market’s direction, which returned to correction following mid-November’s reversal.  Moving averages align bearishly, as most shorter duration averages are below the longer duration averages and some moving averages are falling.  The 50-day average (37.91) crossed below the 100- and 200-day moving averages (38.95 and 44.52, respectively) on April 25th and June 16th.  The 20-day closed (by -0.17 points) below the 50-day for the third straight session, and the gap expanded.  The 50-day moving average closed (by -6.62 points) below the 200-day moving average for the 124th straight session, but the gap narrowed.  The 100-day moving average closed (by -5.57 points) below the 200-day moving average for the 102nd straight session, and the gap held steady.  The BKX closed (by +4.07%) above its 20-day moving average for the fifth straight session.  The index closed (by +3.59%) above its 50-day moving average for the fifth straight session.  The index closed (by +0.81%) above the 100-day moving average for the 26th straight session and (by -11.80%) below its 200-day moving averages for the 131st consecutive session.  The index closed below 50.0 for the 131st straight session and below the 40.0 level for the 21st time in 22 sessions.  The directional movement indicator is positive for the fifth straight session, and the trend is weak and increasing.  Relative strength fell to 56.00 from 57.71, a neutral range.  Next resistance is 39.54; next support at 38.99.
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