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Gary Townsend
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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. Futures Mildly Lower as Improving Economic Reports Offset Eurozone Concerns 0 comments
    Jan 5, 2012 8:56 AM | about stocks: SBNY, ASBC, FNFG, WBS, CYN
    This morning.  U.S. equity markets are in a confirmed uptrend, which began on November 28th, when the SPX opened at 1158.67.  The SPX 50-day moving average has trended higher since October 13th.  Yesterday, the SPX and DJI closed above their respective 20-, 50-, 100-, and 200-day moving averages.  The Nasdaq and NYSE composite indexes closed -0.45% and -1.91% below their respective 200-day moving averages.  Overnight, Asian markets closed mixed, with good gains in Hong Kong, but moderate losses in both Tokyo and Shanghai.  After an average French sovereign bond auction, European bourses are lower, with greater strength in the United Kingdom.  The dollar is higher, with weakness again in the euro.  U.S. equity options markets suggest a neutral to bearish short-term outlook.  Commodities prices are lower.  U.S. Treasury yields are lower, with the 10-year at 1.961%, down from 1.977% the prior day.  U.S. repo rates are at 3 bps.  There are still no indications that the ECB’s new bank lending facilities have eased interbank lending problems.  Overnight and 3-month LIBO remain elevated.  Euribor-OIS spreads are near 2011 highs.
    After a strong December ADP employment change report, U.S. equity futures are modestly lower, but well above earlier lows.  After a fair value adjustment of -0.45 points, March SPX equity futures are at 1269.00, down -3.55 points.  The SPX opens at 1277.30, -6.33% below its April 29, 2011, multi-year 1363.61 closing high, +2.58% and +3.11% above its respective 20- and 50-day moving averages and +5.72% and +1.45% above its respective 100- and 200-day moving averages.  Next resistance is at 1288.17.  Next support is at 1262.41.
    Wednesday.  U.S. stocks opened lower and traded to moderate losses at mid-morning, but rallied to end mixed.  Technically, the day was mildly positive.  The SPX intraday low was 1268.10, but the morning weakness never re-tested its 1265 December high, let alone its 1258.71 the 200-day moving average.  The SPX intraday high was 1278.73, well short of immediate upside resistance at 1293, the October peak.  The DJI had the best gain, closing up +0.17%, followed by the SPX, which closed up a scant +0.02%.  The Nasdaq and NYSE composite closed down -0.01% and -0.16%, respectively.  Volume fell was lower.  Market breadth was slightly negative, though up volume slightly exceed down volume.  Markets were led by basic materials, technology, and industrials, which ended at least +0.40% higher.  Laggards were utilities, health care, and financials, which closed off at least -0.42%.
    Trading desks reported a quiet day, dominated again by the hedge funds and traders as mutual funds remain largely on the sidelines.  The morning’s selling pressure was not particularly strong and had trailed off by mid-day.  Expectations are that equities will continue to rise through Friday’s employment report.  Next week, markets will refocus on the Eurozone developments (a Merkel/Sarkozy summit is scheduled for the 9th) and 4Q2012 earnings season, which kicks off with the release of JPM’s report on Friday the 13th.

    Distribution days number 2 on the Nasdaq, SPX, and BKX, and 1 on the DJI and NYSE composite.
    In Asia, equity markets closed mixed, with better strength in Hong Kong.  Volume was mixed.  The NKY closed down -0.83%, on a -26.7% decrease in volume.  The HSI closed up +0.46% on -11.4% decrease in volume.  The SHCOMP closed off -0.97% on a +19.3% increase in volume.  After a poor 2011, these indexes are at levels comparable to March 2009 and well below their 200-day moving averages.  Commentary focused on Euro weakness and concerns that the Eurozone sovereign debt crisis is worsening.  Goldman Sachs published a report that it expects a recovery in Chinese equity markets by early 2Q2012, based on “noticeable” policy changes to improve liquidity. 
    In Japan, the NKY closed at 8,488.71, down from 8,560.11 at the prior close.  The index closed -0.10%% and -0.83% below its respective 20- and 50-day moving averages.  The index gapped lower to open near 8,510, and after trading in a narrow range through the morning session sold off through support at 8,500 to an intraday low of 8,481.83 by mid-afternoon.  An attempted late rally trailed off into the close.  Most market segments closed lower.  The exception was consumer services, with gained +0.13%.  Health care and oil and gas lost at least -0.13%.  Laggards were financials, technology, and utilities, which closed down at least -1.35%.
    In China, from the prior day’s 18,727.31 close, the Hang Seng Index opened at its 18,750 and rallied by mid-morning to 18,800, which proved a strong resistance level through the morning.  The index sold back to the 18,750 level by mid-afternoon, but rallied into the close to end just short of its 18,821.09 intraday high.  The index closed +1.34% above and -0.01% below its respective 20- and 50-day moving averages.  Most market segments closed higher.  Oil and gas was particularly strong, up +2.24%.  Other leaders were telecommunications and basic materials, which gained at least +0.70%.  Financials rose +0.15%.  Laggards were consumer goods, up +0.10%, and industrials and technology, which ended off at least -0.10%.  In Shanghai, the SHCOMP closed at 2,148.45, down from 2,169.39 at the prior close.  The SHCOMP closed -3.58% and -8.89% below its respective 20- and 50-day moving averages.  The index opened lower, but twice rallied higher, to an intraday high of 2,183.39 late in the morning session, but weakened through the afternoon to close just above its 2,145.77 intraday low.  Only oil and gas and financials closed higher, up at least +0.42%.  The other leader was telecommunications, off -1.70%.  Laggards were consumer services, health care, and technology, which closed off at least -2.54%.
    In Europe, equity indexes are lower at mid-day and near their intraday lows.  The Euro Stoxx 50, FTSE, and DAX are down -1.28%, -0.04%, and -0.73%, respectively.  Commentary focuses on European debt concerns.  Compared to the prior day’s 2,389.91 close, the Euro Stoxx 50 trades at 2,363.93, compared to a 2,383.19 intraday high and low and 2,357.96 intraday low.  The index is +3.49%  and +3.70% above its respective 20- and 50-day moving averages.  Most market segments are lower.  Technology is up +0.11%.  Other leaders are oil and gas and basic materials, which are at least -0.11% lower.  Laggards were utilities, telecommunications, and financials, which are at least -1.49% lower.
    Libor, LOIS, Currencies, Treasuries, Commodities:
    • Interbank lending rates continue to reflect substantial stress, centered on the health and liquidity of Eurozone banks in the current economic environment.   USD LIBOR fell to 0.14950% from 0.15000% the prior day, but below the 0.25188% year-end 2010 level.  USD 3-month LIBOR is 0.58250%, unchanged from 0.58250% the prior day and 0.30281% at year-end 2010.
    • The US Libor-OIS (LOIS) spread eased to 49.75 bps, from 49.95 bps the prior day, and compares to 12.0 bps at the end of 2010.  Euribor-OIS eased to 94.35 bps, from 94.40 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 3.0 bps, down from 13.0 bps Tuesday, and well off from the August 2nd high of 33 bps.
    • U.S. Treasury yields are slightly lower at the long end of the curve, with 2- and 10-year maturities yielding 0.255% and 1.947%, respectively, compared to 0.255% and 1.961% Tuesday.  The yield curve narrowed to +1.692%, compared to +1.706% 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 stronger against the euro, British pound, and Japanese yen.  The dollar trades at US$80.651, compared to an intraday high of $80.709 and US$80.129 at the prior day’s close, and above its US$78.776 50-day, US$77.6559 100-day, and US$76.188 200-day averages.  The euro trades at US$1.2825 compared an intraday low of US$1.2821 and US$1.2943 Wednesday and US$1.3050 the day prior.  The euro trades worse than its US$1.3345 50-day and US$1.3599 100-day averages.  In Japan, the dollar trades at ¥76.85 compared to ¥76.72 Wednesday and ¥76.74 the prior day.  The yen trades better than its 50-day moving average ¥77.59.
    • Commodities prices are lower, with lower energy, precious metals, aluminum and copper, and agriculture prices.
    Volatility, Skew:
    • The VIX ended at 22.22, down -3.27% from 22.97 at the prior close.  The VIX is -10.0% below its 24.70 20-day moving average.
    • The Euro Stoxx 50 volatility index (V2X) is up +3.89% to 31.65 from 30.47 the prior day.  The V2X index trades -15.4% below its 37.42 20-day moving average, -25.9% below the 42.74 30-day high, and +11.6% above the 28.35 30-day low.
    • The Hang Seng volatility index (VHSI) is at 23.52, down -3.69% from 24.42 the prior day.  The VHSI index trades -12.4% below its 26.85 20-day moving average.
    • CBOE skew rose +0.45% to 117.63, from 117.10 at the prior day’s close and within 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:
    ·         December Challenger job cuts rose 31% to 41.8 K, from 32.0 K in December 2010, a benign level.
    ·         December ADP employment change surprised with a +325K rise, compared to survey +178K and prior revised 204K.
    ·         Initial and continuing jobless claims beat with initial claims at 372K, better than survey 375K and prior revised 387K.  Continuing claims were 3595K, compared to 3570K survey and 3617K prior revised. 
    Overseas news: Today, France sold €7.96 billion in 10-, 12-, 23- and 30-year debt under average demand with yields rising 5-10 basis points.  In December, France’s consumer confidence was unchanged from the prior month, matching estimates.  In December, the U.K.’s services purchasing manager index increased to 54.0 from 52.1 and beat estimates of a decline to 51.5.  Today, Spain’s economic minister said the country’s banks may need to set aside an additional €50 billion in provisions for loan loss reserves, an amount equaling 4% of GDP. 
    Company news/ratings changes:
    ·         SBNY – initiated at buy at Deutsche Bank, $69 price target
    ·         ASBC - initiated at buy at Deutsche Bank, $12.50 price target
    ·         FNFG - initiated at buy at Deutsche Bank, $10 price target
    ·         WBS – initiated at buy at Deutsche Bank, $23 price target
    ·         BPFH – initiated at hold at Deutsche Bank, $8 price target
    ·         CYN – initiated at hold at Deutsche Bank, $46 price target
     
    3Q2011 Earnings.  The third quarter’s earnings reports surprised expectations.  Of the 492 S&P500 companies that reported earnings to date, 73% (358 out of 492) beat operating EPS estimates, versus the historical average of 62%.  In aggregate, companies beat EPS expectations by an average of +4.5% (versus a historical average of +2%).  EPS is up +14.7% 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 12.1x estimated 2012 earnings ($105.42) and 10.8x estimated 2013 earnings ($117.78), compared to 12.1x and 10.8 respective 2011-12 earnings yesterday.  The 10-year average median Price/Earnings multiple is 20.0x.  Since the beginning of 2012, analysts changed 2012 and 2013 earnings estimates by -3.0%, and +0.0%, respectively.  Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +11.0% and +24.0%, respectively. 
    Large-cap banks trade at a median 1.30x tangible book value, and 11.9x and 10.2x 2011 and 2012 consensus earnings, respectively, compared to 1.29x tangible book value and 11.9x/10.2x 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 2012 and 2013 BKX earnings to exceed 2011 operating earnings by +4.9% and +7.0%, respectively.
    Options.  Options markets are neutral.  Composite options markets are neutral, index options markets are neutral, and equity options markets are neutral.  The composite put/call ratio closed at 0.94, compared to 0.77 the prior day and above its 5- and 10-period moving averages of 0.92 and 0.92, respectively.  The index put/call ratio closed at 1.25, compared to 1.07 the prior day, and below the 5- and 10-period moving averages of 1.25 and 1.27, respectively.  The equity put/call ratio closed the day at 0.76, compared to 0.56 the prior day and above its 5- and 10-period moving averages of 0.66 and 0.66, respectively.
    NYSE Indicators.  Volume fell -11.2% to 759.44 million shares, 0.84x the 50-day moving average, from 855.10 million shares Tuesday.  Market breadth was slightly negative, but up volume exceeded down volume.  Advancing stocks lagged decliners by -75 (compared to +1,656 the prior day), or 0.95:1.  Up volume led down volume by 1.05:1.
    SPX. On lower volume, the SPX rose +0.24 points, or +0.02%, to end at 1277.30.  Volume fell -7.46% to 613.38 million shares, up from 662.80 million shares Tuesday and below the 693.56 million share 50-day moving average.  For the 8th consecutive day, the SPX closed above its 50-day moving average (1,239.34) and remained above its 200-day moving average (1,258.71), closing above that level for the 5th time in the past 7 days.  For the 100th straight session, the SPX’s 50-day moving average closed below its 200-day moving average, but the 50-day average’s positive trend has narrowed the range considerably.  The SPX closed above its 200-week moving average (1133.83) for the 61st straight session. 
    From its prior close at 1,277.06, the SPX gapped lower to 1274 and fell to the intra-day low of 1268.10 at 10:40.  Momentum reversed, and the index rallied through 2:00, retaking its break-even line then.  Through the close, the index traded sideways at its prior closing level, setting the intra-day high of 1278.73 at 3:45.  The SPX closed with a modest gain but at the top of the day’s negatively biased range.   
    The SPX closed above all major moving averages and closed above 1200 for the 23rd straight session but below 1300 for the 108th straight session.  The 50-day moving average crossed above the 100-day moving average on December 6th, having been below that average since July 11th.  After peaking on June 6th at 1317.97, the 100-day moving average crossed below the 200-day average on September 7th.  On December 22nd, the 100-day set a low at 1202.28, and began an upward trend.  For the 10th straight session, the SPX closed (by +2.52%) above its 20-day moving average (1245.91).  The index closed (by +3.06%)above its 50-day moving average for the 10th straight session.  The index closed (by +5.65%) above its 100-day moving average (1208.98) for the 24th straight session.  The SPX closed +1.48% above its 200-day moving average for the 5th time in the past 7 sessions.  The 20-, 50-, and 100-day moving averages rose.  The directional momentum indicator was positive for the 9th straight session, but the trend is weak.  Relative strength rose to 60.26 from 60.20, in the middle of a neutral range.  Next resistance is at 1281.32; next support is at 1270.69.
    BKX.  On lower volume, the KBW bank index rose +0.14 points, or +0.34%, to end at 40.81, its second straight close above 40 but its 105th straight close below its 2010 low.  Volume fell -13.72% to 66.33 million shares, down from 76.88 million shares Tuesday and below the 84.81 million share 50-day average.  The BKX closed -5.05% below its August 30, 2010, closing low of 42.98, the trough of the 2010’s correction, and -29.58% and -26.64% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.
    Financials underperformed the market but banks outperformed.  Large-cap banks outperformed regional banks.  From its prior close of 40.67, the BKX gapped lower at the open to 40.40 and fell to the intra-day low of 40.03 at 10:13.  Momentum reversed in banks prior to the broader market.  From 11:00 through 12:10, the index rallied +1.5% to turn positive on the day.  The index set its intra-day high of 40.95 at 2:55 and retraced to the 40.81 level into the close, finishing with a modest gain but at the high end of the day’s range.   
    Technical indicators are mixed, but improving.  Bank stocks have lagged the market’s overall rebound from the October lows.  Moving averages alignment is mixed, as the 20- and 50-day moving averages (38.83 and 38.63, respectively) moved above the 100-day moving average (37.94), and each average is rising.  The 100-day moving average appears to have troughed, through the 200-day moving average (43.24) continues to trend lower.  On December 16th, the 50-day average crossed above the 100-day moving average for the first time since April 25th.  The 50-day remains below the 200-day moving average, as it has since June 16th.  For the 5th time in the past 6 days, the 20-day closed (by +0.20 points) above the 50-day.  The 50-day moving average closed (by -4.61 points) below the 200-day moving average for the 143rd straight session, but the gap continues to narrow.  The 100-day moving average closed (by -5.30 points) below the 200-day moving average for the 121st straight session, but the gap is narrowing.  The BKX closed (by +5.10%) above its 20-day moving average for the 12th time in the last 13 sessions.  The index closed (by +5.65%) above its 50-day moving average for the 8th straight session.  The index closed (by +7.56%) above the 100-day moving average for the 9th straight session.  The index closed (by -5.62%) below its 200-day moving average for the 149th consecutive session.  The index closed below 50.0 for the 150th straight session but above 40.0 for the second straight session.  The directional movement indicator was positive for the 7th consecutive session, but the trend is weak.  Relative strength rose to 60.82 from 60.26, in the middle of a neutral range.  Next resistance is 41.16; next support at 40.24.
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